Confidence Games: Money and Markets in a World without Redemption

Martin Shubik (Yale University, New Haven, Connecticut, USA,E‐mail: martin.shubik@yale.edu)

International Journal of Social Economics

ISSN: 0306-8293

Article publication date: 2 October 2007

88

Citation

Shubik, M. (2007), "Confidence Games: Money and Markets in a World without Redemption", International Journal of Social Economics, Vol. 34 No. 11, pp. 899-900. https://doi.org/10.1108/03068290710826431

Publisher

:

Emerald Group Publishing Limited

Copyright © 2007, Emerald Group Publishing Limited


Caveat lector! This review is written by a reviewer whose own work has been referred to with some praise. Thus, the reader should apply the appropriate discount or premium or “haircut” called for to adjust for any perceived bias.

Having provided my warning, my quick reaction to this highly original book is that it is both great fun and highly instructive to read. Taylor provides a heady blend of philosophy, art, religion, economics and finance to illustrate the development of the new financial order and to consider the melding of abstractions in art, religion and economics in the production of the new order.

This reviewer is possibly less philosophically bent than he should be (at best a closet logical positivist). Thus, the niceties of where Aristotle, Kant, Nietzsche or Hegel have influenced the sea change in modern finance, are of less interest to the reviewer than the impression that Taylor is completely on target in his description of the separation the underlying physical economic reality and the abstract game of finance.

The new games involving creating and betting on abstract instruments further and further distanced from physical assets and organizations are part of the manifestation of system complexity caused by the rise of the vast anonymous modern exchange system “in which substance becomes an endless process where everything solid dissolves into perpetual circulation” (p. 109).

Tied in with the commentaries on art and religion is a well‐documented history in the history of the changes in finance in the USA in the past half century complete with nice semi‐technical explanations and definitions of many of the host of new financial instruments now in play. These include puts, calls, options, swaps, repos, futures and others.

The importance of the rise of the internet is stressed and its enormous influence on the dynamics of trading technology is emphasized. The rise of Netscape, Yahoo and other multi‐billion dollar valuation firms with no visible revenues is discussed.

The shrinking of the base of monetary reserves with an inverted pyramid of paper credit is described along with a discussion of the increase in volatility in the system. The gap between the new classical finance of rational expectations, efficient market theory and the actual systems dynamics seen in the markets is noted.

The role of network increasing returns to scale is touched upon, but the economic importance of this phenomenon is unfortunately not developed sufficiently.

The tale of the rise and fall of Long Term Capital Management is told as a parable and used to illustrate the hubris of the exponents of conventional mathematical finance theory willing to link thin margins on other people's money in pursuit of the glitter of gain, to be brought down by the reality of the shape of actual risk.

Although the name of Hayek is well known to most economists and his works have been and should be read by those who are beginning to appreciate the role of information and communication in the network economy, the name of Simmel and his great visionary work Philosophy of Money is hardly known to the economics profession, but should be. This book is a worthy modern descendent of that great book and will help restore an interest in studying and understanding the role of money in the context of society as a whole.

The interplay of information and its abstraction in the process of network communication marks a step forward in the understanding of human organization that goes far beyond the confines of mere economics or finance. This book will stretch both the reader's understanding and imagination.

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