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Monetized time-space: Derivatives - money's 'new imaginary'?

Article  in  Economy and Society · May 2000

DOI: 10.1080/030851400360497


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Economy and Society Volume 29 Number 2 May 2000: 264–284

Monetized time-space:
derivatives – money’s ‘new

Michael Pryke and John Allen


This paper examines some of the ways in which the everyday is becoming connected
into the world of Ž nance, a process facilitated through so-called derivatives. The increas-
ing use of derivatives is traced to the collapse of the Bretton Woods agreement and the
ways in which innovative developments in Ž nancial engineering were used to overcome
the uncertainties of interest rate, currency and price risks that grew apace from the early
1970s. We argue that these risks are not ‘more of the same’. They are qualitatively differ-
ent and run deeper through the highly integrated Ž nancial markets of today. And, as
later parts of the paper argue taking their cue from the works of Paul Virilio and Georg
Simmel, notably the latter’s Philosophy of Money, the manner in which these risks inter-
act and the speed of their interaction suggest the emergence of new forms of money, a
new monetization of time-space. The paper then moves on to consider how the calcu-
lative practices that lie at the heart of derivatives involve a process of socialization of the
understanding of the risks that new money forms are made to negotiate successfully.
The ‘idea of money’ – of what it is now supposed to be capable of doing with and across
time-space – thus stems from a ‘new money imaginary’. The paper concludes by re-
emphasizing the reasons why, when understood through a reading ofVirilio and Simmel,
derivatives should be viewed as representing new forms of money.

Keywords: derivatives; risk; money imaginary; speed; monetized time-space; Ž nan-

cial centres; simultaneous time.


The central focus of this paper is the emergence and burgeoning growth of so-
called Ž nancial derivatives. The value of these traded securities or instruments

Michael Pryke and John Allen, Faculty of Social Sciences, The Open University, Milton
Keynes, MK7 6AA, UK

Copyright © 2000 Taylor & Francis Ltd

ISSN 0308-5147 print/ISSN 1469-5766 online
Michael Pryke and John Allen: Monetized time-space 265

depends, as the word implies, on the risks, uncertainties and price of the ‘under-
lyings’, as they are referred to, such as interest rates, commodities, equities,
exchange rates or indices, such as the FTSE. Put simply, the value of, say, an
option to buy the stock of a certain company in the future will depend on, is
derived from, the price of that stock. As perceptions change about the ability of
that company to cope with changing market conditions, so the value of the option
will move accordingly. While the likes of a wheat futures contract, a derivative
based on the price of wheat, has been used for a considerable time, the use of
Ž nancial derivatives, those that allow Ž rms to deal with risks by offsetting, say,
exchange and interest rate risks – the risks we argue that have grown enormously
since the collapse of the Bretton Woods Agreement – has changed fundamen-
tally the management of risk and altered signiŽ cantly the perception of money
and what it can do. It is in this sense, we argue, that these instruments represent
new forms of money, new combinations of monetized time-space. In many ways,
these developments are best understood through Georg Simmel’s appreciation
of money, rather than viewed through the lens of traditional economics and soci-
ology, particularly in a world in which relations between time and space are,
according to Paul Virilio, being completely overthrown.
In this paper we look Ž rst at the increasing use of derivatives, dating from the
collapse of the Bretton Woods agreement, and the ways in which innovative
developments in Ž nancial engineering were used to overcome the uncertainties
of interest rate, currency and price risks that grew apace from the early 1970s,
arguing that these risks are not ‘more of the same’. They are qualitatively differ-
ent and run deeper through the highly integrated Ž nancial markets of today. And
as the section after that argues, taking its cue from the numerous works of Paul
Virilio and Georg Simmel, the manner in which these risks interact and the
speed of their interaction suggest the emergence of new forms of money, a new
monetization of time-space. This contention is explored in a discussion of how
and why derivatives might be said to represent money’s ‘new’ adaptability and
 exibility in a post Bretton Woods world. Our purpose is to suggest how Virilio’s
insights can be used to update Simmel’s thinking, not to displace it. In many
ways the two theorists complement one another. While Virilio points to the
heightened pace of today’s world, Simmel talks to what all this means for our
experience of space and time. The section concludes by reconsidering what
money is expected to do in world of increased uncertainty.
The fourth section moves the discussion on to consider how the calculative
practices that lie at the heart of the initial employment of these new forms of
monetized time-space presuppose a particular rationalization of money and risk.
The ‘idea of money’ – of what it is now supposed to be capable of doing with
and across time-space – is shown to stem from a ‘new money imaginary’ that
serves as an initial currency of acceptance, as it were, for derivatives. The paper
concludes by re-emphasizing the reasons why derivatives should be viewed as
representing new forms of money, involving, necessarily, a new money imagin-
ary that holds implications for the ways in which we understand time-space in
an increasingly monetized everyday.
266 Economy and Society

From Bretton Woods to uncertainty and Ž nancial innovation

The Bretton Woods Agreement aimed to put in place the beginnings of a global
economic order that would protect national economic interests through inter-
national co-operation. Such co-operation was about ensuring a greater degree of
certainty and through that providing the basis for international Ž nancial stab-
ility. As Panić remarks, what the Bretton Woods Conference managed to achieve
was a world Ž rst. The creation of the ‘basic framework of supra-national insti-
tutions required to manage the economic and Ž nancial behaviour of a large
number of nation states whose economies were closely integrated’ (1995: 45). A
key aim was to prevent the recurrence of the ‘currency disorders [that]
develop[ed] and spread from land to land, destroying the basis for international
trade and international investment and even international faith’ that occurred
during the 1930s (US Secretary of the Treasury, Morgenthau, in the opening
speech to the Bretton Woods Conference, 1948, cited in Panić 1995: 39).
With the US at its centre, the Bretton Woods system survived relatively well
through the 1950s and into the 1960s. From the early 1960s, however, both US
domestic economic policy issues and changes in the international economy
began to conspire against the system. After ‘speculative attacks’ on the dollar
began in 1960, following decreases in the US current account surpluses, and
rising military expenditure produced deŽ cits in the balance of payments, ‘unease
about US ability to manage the System and maintain the exchange rate of the
dollar continued throughout the decade’. Then, in 1971, the Nixon adminis-
tration devalued the dollar by 10 per cent, ‘signalling, in the effect the end of the
“Bretton Woods System” ’ (Panić 1995: 50). At the same time, importantly, the
economic strength of transnational corporations and banks was growing. Their
ability to switch capital  ows into and out of countries, and thus into and out of
different currencies, added further uncertainty back into the international Ž nan-
cial system (ibid.).
What came in the wake of the collapse of Bretton Woods is neatly summar-
ized by Akyüz (1995). As the Ž xed rates moved to  oating, ‘currency market tur-
bulence and exchange rate instability could . . . be expected to persist until  oating
was generalized and the markets learned and established new rules of the game’.
In addition, ‘in ation caused price instability in the foreign exchange markets and
substantial relative price instability amongst industrialized countries suffering
in ationary pressure but at different rates’. And, as efforts were made to disin-
 ate, the variety of measures taken ‘in the major economies gave rise to large
swings in key Ž nancial prices’ as well as leading to ‘ “substantial changes in rela-
tive price levels” amongst the same countries’ (Akyüz 1995: 55–6, emphasis
added). Because of this, attempts were made to devise Ž nancial instruments to
counteract the risks of interest rate movements, exchange rate  uctuations and price
volatility (see Artus and de Boisseu 1986; Cooper 1986; Mayer 1986; Mayer and
Kneeshaw 1986: 129–35; Vinals and Berges 1986). And, as Zhang notes, ‘The
establishment of the international monetary market but especially the CME
(Chicago Mercantile Exchange) in 1972 marked one of the most important
Michael Pryke and John Allen: Monetized time-space 267

landmarks in the history of Ž nancial derivatives’ (1995: 3). With the rise in
market rates and rising in ation in the early 1970s, there was an incentive for
investors to seek high yielding liquid investment instruments. The current
period of so-called disin ation, dating from the mid-1980s, has not however
ended the appeal of liquid instruments that have the potential to earn high rates
of return (Artus and de Boisseu 1986: 103).
As this last point suggests, despite the absence of ‘particularly high in ation
and serious supply shocks’, uncertainty and upheaval have become a character-
istic part of the international Ž nancial scene. Akyüz suggests three key factors
which have contributed to continued, if not accelerated, instability. First,
‘increased internationalization of Ž nance has enhanced the scope for propagation
of disturbances from one market to another within, as well as across, borders’,
thus creating ‘short-term opportunities for speculation in volatile and mis-
aligned asset valuations’ (1995: 57). Second, domestic monetary policy has been
targeted at ‘monetary aggregates rather than the management of Ž nancial asset
prices and interest rates’. With deregulated interest rates, the price of money and
value of assets has been able to move sharply. Third, as this implies, individual
policy change, rather than multilateral agreements and action, boosted the
amount of uncertainty in the system, thus increasing the possibility for Ž nancial
speculation (Akyüz 1995; Kelly 1995; Eatwell 1995).
But, arguably, all this instability is not more of the same: ‘currency disorder’,
for example, may arise and ‘spread from land to land’ but the nature of uncer-
tainty and risk stemming from this disorder is qualitatively different. As inter-
national banking has been growing at an estimated 20 per cent per annum (nearly
twice as fast as the growth of international trade), its ‘deepening’ (see Panić 1995:
61–2) has brought about the crossing of previously separate and identiŽ able cur-
rents of Ž nancial  ows. Financial deregulation (in the context of  exible
exchange rates and interest rates) has allowed both investment and borrowing to
 ow freely between countries and their residents. This is part of the general move
from the fragmented Ž nancial markets of Ž fty or so years ago to the highly inte-
grated markets of today (Harris 1995: 199; see also Cosh et al. 1992: 25–38;
Schor 1992: 6). But what are the implications of all this?
for one thing, the increased denomination of assets and liabilities of Ž nancial
intermediaries, debtors, and investors in foreign currencies means that the
value of assets and liabilities is directly in uenced by exchange rate changes.
For another, events in exchange markets can exert a strong in uence on asset
(for example bond and equity) prices because exchange rate expectations can
induce funds to be shifted among securities denominated in different cur-
rencies, and/or because policy measures taken to manage exchange rate
changes alter interest rate and security prices. Exchange rate instability can
therefore increase the level of risk in the Ž nancial system.
(Panić 1995: 71)
And, while the use of derivatives (such as forwards, futures, options and swaps)
has been introduced to help overcome the increased uncertainty that these
268 Economy and Society

developments entail, such instruments are about risk transfer not the elimination
of risk. This can be seen in two ways.
The Ž rst mutation of Ž nancial risk and uncertainty stems from the way inno-
vative Ž nancial instruments have changed the nature of the international Ž nan-
cial market-place. For example, among banks, some argue, there is now an
increased pressure on and widening of opportunities for them to assume a range
of risks (see, for example, Carter 1989: 783). In turn, this has spelt an increase in
competition among Ž nancial intermediaries which has then provoked the rate of
innovation within international Ž nancial markets (see Raines and Leathers 1992;
Lawson and Lawson 1992; Miller 1986). The use of new technology has been
important to these developments as it has not simply enabled the cross-border
 ow of information and use of databases, but has allowed the complicated pricing
of new instruments and the calculation of ‘cross-border arbitrage that integrates
Ž nancial markets around the world’ (Carter 1989: 784; The Economist 1993).
Increasingly, then, Ž nancial intermediaries (and Ž rms) have moved from a
position where risks were limited by reducing direct exposure to them, to a pos-
ition where risk is diversiŽ ed through the use of a range of derivative instru-
ments. In other words, a culture of risk taking seems to have grown since the
1970s, driven by market competition and new approaches to risk taking through
a growing range of new Ž nancial instruments (Goldstein 1995: 720, 730). One
result is that Ž nancial intermediaries’ assumptions about the nature of market
fundamentals have been reshaped (Harris 1995: 212).
The second point is that all assets held cannot be protected fully against
exchange rate volatility. As Harris points out, ‘exchange rate uncertainty thus
tends to raise the credit risks assumed by the Ž nancial system’ (ibid). This
becomes clearer when it is appreciated that, as well as there being links between
monetary and interest policy and exchange rates, there is also an important set
of links between exchange rates and the prices of securities.
Since the demand for securities denominated in different currencies depends,
inter alia, on expected changes in exchange rates, changes in expectations can
shift portfolios among securities denominated in different currencies, even
causing sharp changes in their prices as well as in current exchange rates.
Thus expectations of exchange rate depreciations can trigger both a sharp
decline in equity prices and an out ow of capital. Similarly the mood in equity
markets can exert a strong in uence on the exchange rate – for example bullish
expectations can trigger capital in ow, leading to appreciation. By contrast, a
bearish mood in the capital market can not only prick the speculative bubble
in the stock market, but also lead to a currency crisis.
Thus the strengthening of the link between the two inherently unstable
markets, namely, currency and stock markets, increases the potential for the
emergence of foreign exchange and/or stock market crisis.
(Panić 1995: 72).
Broadly this is something of the Ž nancial environment that emerged from the
early 1970s. One of its effects was to produce ‘new’ and restructured Ž nancial
Michael Pryke and John Allen: Monetized time-space 269

instruments that could be tailored to cope with the uncertainties of the mone-
tary network that was beginning to take shape.
The management of risk and the global diversiŽ cation of portfolios which
multiplied in the post-Bretton Woods era unleashed a new form of money, one
peculiar to Ž nancial capitalism, and ‘dedicated to the buying and selling of
money and all the Ž nancial instruments created and sustained by money . . . a
global market whose book-keeping and calculation needs are met by computer’
(Rotman 1987: 5). For this system to work a new money sign had to be engen-
dered. And, as Rotman argues, the new conception of money at the heart of
Ž nancial capitalism replaces the ‘familiar modern conception of money, that is
paper money whose value is its promise of redemption by gold or silver, by a
money note which promises nothing but an identical copy of itself . . . in the
form of a certain kind of self-reference’. This is the ‘money sign’ engendered by
Ž nancial capitalism (1987: 5). We concur with Rotman and place derivatives
among this ‘new global order of money signs’. As Rotman muses, if this form of
money is now the ‘dominating source of “value” . . . the only absolute given sig-
nifying credence in this culture . . . the question arises whether there might be
. . . changes parallel to that experienced by money signs, within other contem-
porary codes’ (1987: 6). We would argue that for these new money signs to work
requires an accompanying re-coding of time-space. As we set out in the follow-
ing section, through a reading of Virilio and Simmel, derivatives, as a techno-
logically charged form of money sign, call for a constant agitation and
reconŽ guration of everyday understandings and experience of time and space.

Virilio, Simmel, speed and money

Individually, there is little that is new about the types of risk noted above, such
as credit and interest rate risks, which now confront banks, corporations and the
general public. What has changed is the ways these risks interact and, following
Virilio, the speed at which they can be transmitted through electronic highways,
thereby allowing  uctuations in one area of Ž nancial-market activity to be trans-
mitted to other areas. Considered in this way, Ž nancial deregulation and the
growing use of IT allows for the meeting of previously separate, ‘remote’ areas
of activity. Deregulation has thus allowed the mixing of instrument proŽ les
(such as, term and maturity dates, currency denomination, period of interest
payments, credit risk and so on), all achieved through the synthetic qualities of
derivatives, to criss-cross time and space and has further emphasized money’s
potential to have signiŽ cant effects on social space. To fully understand the ways
in which this is happening, we look to the complementary writings of Virilio and
As Der Derian notes in his introduction to a selection of Paul Virilio’s writ-
ings, ‘for all its quasi-paranoid, hyper-logical, supra-Einsteinian excess’, Virilio
does (here and there) ‘breathe life’ into some of the ‘moribund subjects of late
modernity and high technology’ (1998: 12). In particular, what we wish to draw
270 Economy and Society

from Virilio’s numerous writings and interviews (1983, 1989, 1991a, 1991b, 1995,
1997; Der Derian 1998) are some of his suggestive (and admittedly sometimes
quasi-paranoid) interpretations of what developments in new technology are
doing to our sense of time and thus space. For, according to Virilio, as we move
from a world of space-time to one of space-speed, ‘relations between space and
time have once again become completely overthrown’ (1995: 4), and ‘our image
of the world is being “radically reorganized” ’ (Der Derian 1998: 8). Key to this
disruption is the impact of new technologies, of informatics in particular, on how
we conceptualize time and its relation to space. Part of the reorganization of our
image of the world is the energy, the speed of new technology, which, through its
effects, is producing a ‘dromospheric space’ of heightened intensity where space
itself is measured by changes in speed, ‘the movement of movement’ (Virilio
1991b: 104). The attractiveness of Virilio’s focus on speed and technology, and
their combined and mutually reinforcing experiential impact, relates directly to
the emergence of derivatives as a new money sign: a new monetized, techno-
logically charged form of time-space.
A complementary signiŽ cance of these changes in Ž nancial markets lies in the
way money contributes to the form and order of the contents of life. This is
where Simmel’s understanding of money alerts us that ‘the signiŽ cance of
money in determining the pace of life in a given period is Ž rst of all illustrated
by the fact that a change in monetary circumstance brings about a change in the
pace of life’ (1990: 498). With speciŽ c reference to changes in money supply,
Simmel notes how a ‘sudden rift and convulsions within the economic scene . . .
spread to many other areas of life’, leading to a ‘quickening’ of the ‘pace of econ-
omic life’ (1990: 500). These observations hold true, we argue, for ‘new’ types of
money, such as derivatives.
But, before discussing the exact nature of derivatives, it is useful to empha-
size two points already noted, namely the instantaneous transmission of infor-
mation (achieved via sophisticated technology) in deregulated markets and the
degree of openness to disruption that Ž nancial-market participants now face as a
result of the rapid transmission of an increasingly calculable, monetizable,
uncertainty. The potential for disruption occurs because of the inescapable ways
in which money forms now cut across a host of intersecting  ows of times and
spaces through which ‘infections’ may pass simultaneously. This perhaps high-
lights the point that instruments devised to manage Ž nancial risks act simply to
disperse certain types of risk to those who are less risk averse. Risk management,
therefore, does not see the absolute elimination of risks but its reconŽ guration
in time-space.
The signiŽ cance of these developments is that they illustrate the temporal and
spatial aspects of risk in today’s money culture. Heightened risk awareness in
Ž nancial markets implies an attempt to further monetize time and space, thus
rendering these co-ordinates, as Simmel would say, ‘quantitative’ and thereby
‘calculable’ (1990: 444). In this sense money has made itself adaptable to a new
set of circumstances and, in so doing, seeks to ‘impose its rhythm and pace’
(ibid.: 508) on the contents and co-ordinates of life (see Allen and Pryke 1999).
Michael Pryke and John Allen: Monetized time-space 271

Derivatives: the ‘new’ adaptability and  exibility of money

What is beyond dispute is that while derivatives have great potential to

increase capital market efficiency, the gap between individual Ž rms’ know-
ledge of their trading and risk management practices, and the information
available to outsiders, has sharply increased. Risks on and off the balance sheet
can change hourly in a business that is increasingly conducted in over-
the-counter markets rather than organized exchanges. . . . The resulting lack
of transparency is such that risk may be mispriced, while uncertainty within the
Ž nancial system is highly concentrated: in the derivative markets in the US 10
banks account for more than 90 per cent of credit exposures. More import-
ant, banking supervision simply cannot keep abreast of the quickŽ re changes in the
risks that commercial banks now run in the normal course of business.
(Financial Times 1994d, emphasis added)

Derivatives, it will be argued, exemplify these qualities but also posses impli-
cations for the way in which we think about the interplay between social inter-
action in Ž nancial centres, and how this feeds into everyday interaction and the
meaning and use of time-space which seem to have become subjected to the
rhythm of money. Mediated by technology, some of these new money forms gain
or lose value as the result of simultaneous readjustment to change in Ž nancial
fundamentals such as interest rates or in ation forecasts. For what is important
here is that a derivative, as the latest form of ‘ ying money’, in many ways ‘creates
its own signiŽ cance: one which is written in the only terms available to it, namely
future states of itself . . . it is a sign which creates itself out of the future’ (Rotman
1987: 94–5). The relevance of this is wrapped up in what has to happen to time
– and, we would argue, space – for this form of money sign to work. As Rotman
argues, the value of derivatives, as a type of what he calls ‘xenomoney’ lies in:

the relation between what it was worth, as an index number in relation to some
Ž xed and arbitrary past state taken as an origin, and what the market judges
it will be worth at different points in the future . . . and for it to be ‘futured’
in this sense as a continuous time-occupying sign, xenomoney must be bought
and sold in a market that monetises time.
(Rotman 1987: 92)

And space too must be monetized if we are to take seriously the inseparabil-
ity of time-space. This holds a series of implications for how we understand
derivatives as a new form of money, as the next section explores in more detail.
Before that, however, it is necessary to establish the emergence and functions of
derivatives in more detail.
All types of derivatives are used to ‘hedge’, to ‘lay-off ’ or alter exposure to
risk, such as default or counterparty risk, interest-rate risk and so on. The degree
of exposure to these risks lies outside the original bilateral agreement and, in
today’s global economy, may be set in motion by events outside the immediate
transaction, in uenced by a different rhythm.
272 Economy and Society

The trading of Ž nancial futures started in 1972 (Leslie and Wyatt 1992) and
they were increasingly traded as major currencies soon after, from mid-1973
(Zhang 1995). With the rise in in ation and the uncertainty that this brought to
nominal interest rates there was a further boost to the use of Ž nancial futures to
hedge these new risks. Increasingly, derivatives have moved to the centre of
mainstream Ž nance (see Corporate Cash ow 1994; Futures and Options World
1992a, 1992b, 1992d). Derivatives subdivide into two main groups: those that
are forward-based and those that are option based. The focus here is mainly on
forward-based derivatives, particularly futures and swaps, and on trade in the
risks of Ž nancial (rather than physical) securities. Futures contracts (as opposed
to forwards) traded through exchanges require either of the parties to ‘mark to
market’ on a daily basis as price  uctuations dictate (BIS 1996). In an estimated
99 per cent of futures trades, physical possession of the underlying security never takes
place. Instead, the trade is ‘reversed’ by selling offsetting future contracts
(Coakley n.d.). The three main types of futures are interest-rate (or debt, such
as government bonds) futures, foreign currency, both of which were Ž rst traded
in the early to mid-1970s, and stock-index futures (where the index is, say, the
FTSE 100 or the S&P 500), which began to be traded in 1982. With the latter,
cash is paid by either party on settlement depending on which way the future
has developed. The standard cycle for these contracts is three months. All of
these futures can be leveraged by making a margin purchase of 2–10 per cent
outlay; a £100,000 bet could stand you the chance of winning £1m. Futures con-
tracts are standardized. The only variable is price, elevating the place of credit
risk, hence the importance of marking to market in order to limit this type of
What is of immediate relevance in the pricing of futures, therefore, is the
treatment of expected prices. The difference between the immediate or spot
price and the futures price decreases as the delivery date for the contract
approaches. The spot and the futures prices should be positively correlated, i.e.
movements in the spot and futures should follow each other. Any divergence
allows a proŽ t to be made, for instance, by selling a future and buying the under-
lying cash instrument. The judgement about the pricing of the future is sup-
posedly based on a Ž nancial model. Leaving to one side the intricacies of the
model, what is of relevance is the link between the present and the future by
interest rates and the expectations held by traders about the future.
The risks presented by derivatives of all types are: market risk, which refers
to the dangers arising from changes in market conditions, credit risk or counter-
party risk, which is more signiŽ cant for over-the-counter derivatives than it is
for exchange-traded derivatives, and operational risk, which, from the complex-
ity of deals, increases the possibilities of losses arising from the everyday of
derivatives dealings. Lack of proper regulation of this new form of money is also
another form of risk (see Futures and Options World 1993a, 1993b, 1994a).
Derivatives are felt to increase the level of systematic risk in the Ž nancial system
because of the nature of the risks noted above, the complexity of particular forms

Michael Pryke and John Allen: Monetized time-space 273

of derivatives (as the forthcoming Metalgesellschaft example illustrates) and the

sheer volume of transactions. The lack of transparency in this market, notably
in the over-the-counter trades, obscures the risks involved and the manner in
which one set of risks may infect other markets (the so-called contagion effect).
This is complicated further in the way that derivatives can be played with off
Derivatives provide the potential for the isolation and limitations of funda-
mental risks. In a ‘global economy’ the use of derivatives allows end-users – from
corporations, banks to national governments – to explore a wide range of activi-
ties that help them to remain Ž nancially  exible (see, for example, Futures and
Options World 1992a, 1992b, 1992c, 1992d; Group of Thirty 1993). For example,
they help end users to boost yields on investments, hedge particular risks (from
interest-rate payments to the sensitivity of a corporation’s share price and assets
and liabilities, to changes in interest rates and foreign-exchange markets),
explore a wide range of funding possibilities and lower the costs of borrowing
(see, for example, Business Week 1994b; Group of Thirty 1993). The issuance of
bonds, for instance, is no longer conŽ ned to a corporation’s national capital
market. Through swaps, the short-term volatility of international Ž nancial
markets post the collapse of Bretton Woods Agreement means that Ž rms can
choose to issue bonds in any number of global markets. In a world of simul-
taneous information  ows this new form of money allows Ž rms to overcome and
to capitalize on the uncertainties of monetized spaces.
For example, US investors could buy bonds which pay a coupon that is calcu-
lated on the movement of non-US benchmark interest rates, thus potentially
gaining from interest-rate differentials but without being exposed to currency
risk. These uncertainties, moreover, are readily translatable via the ‘immaterial
networks’ of real-time Ž nancial information (Virilio 1997: 80) into data  ows that
allow risks to be calculated for and priced. Through so-called quanto swaps, for
instance, investors can link future investment returns across time and space. A
US investor, a mutual fund say, may see investment opportunities in betting on
the movement of the Nikkei 225 index. Through a series of swaps the returns
can be paid in US$ and at a predetermined exchange rate. Public investors in
the mutual fund, whether they understand the workings of the arrangement or
not, are bound into a set of money forms that are dependent on calculating future
times and spaces; that is, what is going to happen, say, to Japanese in ation rates
and general economic performance in twelve months’ time. The future perform-
ance of distant spaces is thus destined to become part of the present of, in this
case, US pensioners. The pace and rhythm of global Ž nance is thus transferred
into the everyday through the abstract qualities of these new forms of money.
The blasé attitude to money thus has time-space dimensions too. For example,
to follow Virilio, as new money forms and technology have merged, our every-
days are subject to the ‘foreign rhythm’ (1995: 16) of technologized money as
speed ‘accelerates the transport’ of money signs (1991a: 101). Crucially all this
holds implications for how we understand money.

274 Economy and Society

Money’s new forms and functions?

To explore the time-space dimensions of money requires that the question of

money as a means of exchange be readdressed in terms of what exactly is being
exchanged. The emphasis here will thus be on two of the traditional views and
accepted functions of money: money as a store of value and as a means of exchange.
These will be discussed in the context of what has been covered in previous sec-
tions, speciŽ cally, the heightened risk and uncertainty that are present not only
within the international Ž nancial system but also within the everyday world of
money circulation. Second, if money is a store of value then what does that mean
when ultimately the exchangeable ‘value’ is the combination of expectations
about future time-space in a highly interconnected, uncertain Ž nancial system?
Third, if derivatives are being accepted as stores of value, and a means of
exchange, what, in both social and cultural terms, does that say about the ‘type’
of time-space that has been and is being accepted and traded? Moreover, given
the nature of earlier examples, to what extent is it feasible to describe Ž nancial
instruments, such as derivatives, as new forms of money?
To argue that they represent new money forms and that transactions in them
– the way that they are meant to function – embody a newly emerging under-
standing of time-space calls for a prior summary of how economists and soci-
ologists have talked about and understood money from within their very separate
camps (Ganßman 1988: 287). For, while Mizruchi and Brewster Stearns are
right to point out in their study of ‘money, banking and Ž nancial markets’ that
‘how money is conceptualised . . . may . . . have important implications for the
operation of the Ž nancial system as well as our understanding of it’ (1994: 313,
emphasis added), that understanding will emerge only if close attention is paid
to what money in the system is actually expected to do.
Thus the emphases in earlier examples and in what follows hover around what
is being ‘stored’ and ‘exchanged’ in the circulation of derivatives. This, it is con-
tended, takes us beyond Mizruchi and Brewster Stearns, who, according to
Ingham ‘go no further than conventional deŽ nitions of money in terms of its
“functions” ’ (1996: 561). Closer scrutiny of the expected functions of deriva-
tives will help justify the claim that they represent new forms of money: as digital
 ows of monetized, simultaneous time, derivatives function to help negotiate the
highly interconnected, uncertain post-Bretton Woods world outlined earlier.
The narrow view of money held by economists suggests that money not only
stands as a measure of value but that it acts as a ‘means of payment caused by
uncertainty’. In this case money is an ‘object [which] should embody sufficient
information to make it generally acceptable without detailed and costly investi-
gation’ (Goodhart 1975: 1, emphasis added). Uncertainty arises, so the argument
goes, where there is incomplete information about the credit standing of the
person with whom the transaction is being carried out. A broader view of money
sees it as a medium of exchange that is required even where certainty about the
future exists (see also Shackle 1955; Gilbody 1988). In a similar way, in a world
of uncertainty, money may be viewed as a means of reducing the ignorance of
Michael Pryke and John Allen: Monetized time-space 275

availability of goods and as part of an institution (which includes middlemen)

that helps to ease exchange (Alchian 1977). In this way, even when the theory of
monetary exchange is extended to account for information signals that help
assess ‘transactions chains’, money is still viewed and understood as a thing,
something that eases socio-economic interrelations (Brunner and Meltzer 1971:
805) – but by no means helping to in uence or be in uenced by such interrela-
tions. It is still an asset or set of assets (Laidler 1969).
As the above suggests, while there may be varying degrees of agreement and
disagreement about broad deŽ nitions of money and its role in the economy, for
economists there is a broad lack of any consideration of the ‘sociology of money’.
Georg Simmel, according to Laidler and Rowe,1 provides economists with an
approach to money which views money as part of a ‘complex of social phenom-
ena’ (1980: 265) at the heart of which, nonetheless, lies an individual who is as
rational and as individualistic as the economic man of the theories of Milton
Friedman. Although Simmel begins with exchange, his concern with money
expands orthodox economics’ limited view of money as a means of exchange, as
store of value, that works between individuals unconnected to the rest of society.
His view of money is that it is part of a broader exchange within a monetary
economy, something which is necessarily a ‘sociological phenomenon’. For
instance, the acceptance of money is based on, among other things, a belief in
the socio-political order; it involves ‘trust’ which is the breeding ground, as it
were, for the growth of and use of money. And all the time that money is used
in exchange it ‘changes the nature of relations between individuals’ (1980: 268).
Since Simmel’s day, the forms through which money may act either as a means
of payment or as a store of value have multiplied enormously. Simmel’s ‘streams
of money’ have become technologically empowered torrents of ‘digital capital-
ism’. This new stream mixes domestic and international  ows in a way unheard
of in Simmel’s time. The everyday – from work, to consumption, leisure, pen-
sions and so on – is now a criss-cross of spaces and times which alter the pace
and thus experience of life in late modernity. The quantitative aspect of this
increase is not so much of concern. What is of far greater importance is the quali-
tative change in the nature of time and space that this increase brings with it.
The numerous forms of money, linked through new technologies, are arguably
responsible for re-coordinating the times and spaces of the everyday in ‘real’,
consequential ways, as the following examples illustrate – as well as in a relative
sense. Moreover, the ways in which these ‘new’ monies work – from institutional
establishment through to their impact on socio-cultural organization – increases
the fragmentation of social space chie y in the way that they establish a local
time-space co-ordinated through ‘real-time Ž nancial information’ (Virilio 1997:
78). This is true of money in the form of a means of exchange as well as money
as a store of value. Exemplifying all of this are so-called derivatives.
More signiŽ cant for Laidler and Rowe is Simmel’s treatment of the nature of
money and the way that this differs from the mainstream, whether this be Key-
nesian or monetarist. For Simmel and the Austrians, money, as the above sug-
gests, is a ‘social institution’, ‘part of the infrastructure of the market economy’
276 Economy and Society

(see also Frankel 1977).2 For the mainstream, money is just another good which
can be analysed, like any other good, through the laws of supply and demand.
In a similar way, Frankel (1977) reminds us that for Simmel to regard ‘society
as some extraneous, unique entity which has to be in existence within its frame-
work’ is to commit a ‘category mistake’. ‘It is the interrelations themselves that
go to make up society, which is identical with them, and is constituted by them’
(1977: 10). Following this line of reasoning, ‘money is nothing outside the
objects, services or rights to which it gives access’ (1970: 11, also 121–3).
However, the ‘idea of money’ put forward more recently by sociologists in u-
enced by Simmel focuses critical attention on what makes money ‘acceptable’ in
the Ž rst place in order for it to facilitate exchange (and to act as a store of value)
(Mizruchi and Brewster Stearns 1994: 314). This more recent sociological work
on money, according to Mizruchi and Brewster Stearns (1994: 317) places
emphasis either on the ‘social and cultural deŽ nitions and uses of money’ at the
‘micro-level’ or else on ‘sources and distribution of money’ at the macro-level.
For instance, work by Zelizer (1989, 1994) can be placed at the micro-level, with
its emphasis on the multiple social and cultural deŽ nitions and redeŽ nition of
money in society. Yet, as Mizruchi and Brewster Stearns go on to point out, while
Zelizer’s account goes beyond traditional economic accounts of money, it is one
that is still ‘not inconsistent with the neoclassical model of money’ both in the
way ‘rational decision making’ is seen to inform the ‘investment of money’ with
particular meaning and also in the way the types of social forces talked about by
Zelizer – such as ‘normative consensus and trust’ – are as basic to economists’
as they are to sociologists (1994: 317–18).
As the ‘From Bretton Woods to uncertainty and Ž nancial innovation’ section
suggested, both regulatory and technological developments over the past twenty
to thirty years (particularly if Virilio’s line of argument is followed) have made
possible the growth of different kinds of money. In all the above accounts of what
money is, there is an implicit acceptance that time and space are necessarily
wrapped up in the workings of money. ‘Uncertainty’, for example, about the
ability of someone geographically distant to repay a loan in the future involves
calculation and speculation both in and about time-space. Yet the make-up of the
time-space used in such calculations never seems to problematize the ‘idea of
money’ held by either economists or sociologists.
Once the idea of money at the heart of derivative transactions is questioned,
what begins to emerge is the employment of a form of money – a set of beliefs
in monetized space-speed – that supposedly can help to make the future both
proŽ table and secure. Take, for example, the recent case of Metallgesellschaft
(MG), ‘the most foolproof company in all of Germany’ as its CEO told Business
Week (1994c).
MG had for long been one of Germany’s largest industrial companies built
up around a specialism in metals and mining. With the appointment of a new
CEO in 1989 the aim was to use this specialism to transform MG into a ‘global
conglomerate’. By the end of 1993, MG had built up ‘258 subsidiary companies
scattered from Latin America to Kazakhstan and businesses from auto parts to
Michael Pryke and John Allen: Monetized time-space 277

radiators’. The international Ž nancial markets were central to this transform-

ation and became even more part of the everyday strategies of MG as ‘Anglo-
American Ž nancial engineering was blended with German industrial know-how’
(The Economist 1994a). New Ž nancial instruments both facilitated and mirrored
the pace of the company’s global ambitions. Moreover, it would seem that
money’s new high-tech malleability was thought to transform global times and
spaces from an unmanageable mix of distances and awkward rhythms into just
another resource to be drawn on, as and when required. Yet, as the following out-
lines and as the previous example suggested, the use of derivatives and new
money networks rapidly transported distant rhythms to the heart of this
company’s everyday with quite unexpected results.
The downfall began in 1993 when a growing number of activities within MG’s
expanding sphere of business interests reported losses. MG turned to oil futures
to generate ‘quick proŽ ts’. The outcome was not the one hoped for. In 1993 MG
announced a US$1.3bn loss, on top of an accumulated debt of US$4.9bn and it
was expected that cutbacks to cap losses would lead to up to 7,500 redundancies
out of a 46,000-strong workforce. MG, its employees and creditors, all found
themselves in this position after the optimistic use of leveraged derivatives
bought in order to cover losses on two fairly straightforward contracts to supply,
through its US subsidiary, petroleum in the USA. (This was MG’s attempt to
‘break into the US energy market’.) The supply deal was long-term, ten years,
and Ž xed the sale price over that period. Moreover, if prices rose MG agreed to
buy back the contracts (The Economist 1994b; Euromoney 1995).
To cover the risk of rising oil prices MG bought over-the-counter and
exchange-traded oil futures (the latter bought through the NYME). It leveraged
these substantially in the expectation that rising oil prices would bring substan-
tial proŽ t, more than enough to cover any losses incurred in the original deal.
The big problem arose arguably from the mismatch between short-term oil
futures – the amount that had to be bought in order to meet delivery to cus-
tomers – and long-term supply contracts which were Ž xed in price and did not
fall as futures fell (which otherwise would have offset the futures losses).
Through its subsidiary every month MG was buying short-dated futures to
cover its monthly delivery commitments (Euromoney 1995; Business Week 1994c;
Harvard Business Review 1995; Risk 1994). As oil prices fell, so the value of the
futures tumbled. The NYMEX (and over-the-counter counterparties), not sur-
prisingly, demanded coverage of paper losses. Such a blasé attitude to abstract
deals began to change rapidly in Germany when its bankers and directors were
confronted with the prospect of mounting real losses. As they attempted to
‘unwind’ future contracts in the simultaneous time of today’s Ž nancial markets,
‘distress signals’ transformed what was hoped for from a lucrative future into a
real, ‘consequential’ everyday loss.
MG exchanged a series of monetized time-spaces in an effort to co-ordinate
the company’s geographical and organizational reach and ambitions. In doing so,
MG employed a form of money which, in the way it was expected to work,
re ects a much wider reconception of time-space. Time and space became and
278 Economy and Society

have become quantiŽ able, technologically charged money signs. In the next
section, following Simmel and Virilio, we explore further the importance of
unpicking the ideas lying behind the employment of innovative forms of money,
as in the above case of MG, and draw some everyday implications that result
from their use.

Calculating the future in ‘quick-Ž re’ space

There is no more striking symbol of the completely dynamic character of the

world than that of money. . . . When money stands still, it is no longer money
according to its speciŽ c value and signiŽ cance. . . . Money is nothing but the
vehicle for a movement in which everything else that is not in motion is com-
pletely extinguished.
(Simmel 1991: 510–11)
To talk of quick-Ž re space rather than time-space is to focus attention on two
features of modern money: the nature of time that lies at the heart of many of
the forms which money may now take, at both domestic and international levels,
and the types of social spaces that produce and which are produced by such
money forms. Today, we argue, the engineering of monetary instruments does
not just take place against the backdrop of an acultural, asocial, homogeneous
‘time’, as Ž nancial economics would have it, but involves increasingly a fusion
of times which infect and which are in turn infected by, changing cultural and
social values that alter our ideas of ‘what money is and what it can do’ (Simmel
1990; Dodd 1994). To help illuminate these points we draw from Virilio’s project
to ‘politicize speed’ (see Der Derian 1998: 10; Virilio 1986, 1989, 1997). Virilio
draws attention to three interrelated processes which, although in need of
qualiŽ cation, nevertheless suggest something of what feeds the imaginary
involved in the mobilization of new money forms.
First, as already noted, the speed of new technology alters perceptions of
time, heightening the pace of life and the intensiŽ cation of experience in the
world, a process boosted by the ‘intensitivity of communications’ (Der Derian
1998: 71–2). Second, this wiring-up of the world, the charging of Ž nancial infor-
mation with the energy of technology ‘ostensibly perverts the illusory order of
normal perception . . . with speed the world keeps on coming at us, to the detri-
ment of the object, which is now assimilated to the sending of information. It is
this intervention that destroys the world as we know it’ (Virilio 1991a: 100–1,
emphasis added). While we would signal some reservation about the ‘death of
geography’ (Virilio 1997: 65, 119) that this implies, the combined effect of the
intensitivity of information and the growing reliance upon electronics as a way
of seeing the world (particularly in Ž nancial centres) suggest a third strand in
money’s new imaginary. This is that part of the imaginary fuelled by electronics
and the terminal – ‘space is no longer in geography – it’s in electronics’, claims
Virilio (1997: 115). It is in electronics, the space-speed of its  ows, that
Michael Pryke and John Allen: Monetized time-space 279

representations of the real and the virtual become indistinct (Virilio 1991a). This
imaginary, we argue, the idea of what this form of money can do, does not, in its
speeded up electronic form, annihilate space but instead holds the potential to
recompose, re-rhythm ‘real’ geographical spaces as Ž nancial calculations unwind
in the everyday, far away from the terminals in Ž nancial centres. It is in this inter-
related sense that trade in digitalized money  ows, executed in quick-Ž re space,
re-presents (rather than ‘destroys’) the ‘dynamism of the world’ and thus the
everyday experiences of time-space. These points are illustrated in the following

‘Have a nice future’

Viewed from the waterfront at Newport Beach, the notion of Orange County
being hard-up seems preposterous. The scene is simply too opulent: the big
houses amongst the palm trees, the yachts at their jetties. Pelicans  ap over
the blue water and the Californian sun shines down relentlessly. Orange
County, surely, should be last place in the world to go under. This, of course,
is just the point.
(Financial Times 1994f: 16)
Orange County’s Treasurer had decided to use tailor-made derivatives to bet on
the future movement of US interest rates. The money used came from the
Orange County Investment Pool into which were deposited tax receipts from the
county, its cities and various districts (Financial Times 1994a). SpeciŽ cally,
Orange County’s Treasurer Ž rst entered into ‘inverse  oaters’, the payout from
which varied inversely to movements of LIBOR, the London Interbank Offer
Rate: if the value of the notes is above LIBOR, earnings are good, whereas an
investor in the same notes loses if LIBOR rises above the stated rate. Advised by
(and enriching) a Wall Street investment bank, Merrill Lynch, Orange County
placed bets that interest rates would fall and the yields on bonds would rise.
These bets contributed to a return of just over 1.5 per cent above the average for
mutual funds over the period 1991 to 1994. On seeing such ‘passive enrichment’
Orange County’s municipalities upped their contributions into the Pool from
$3bn in 1991 to $7.6bn in 1994. For the Treasurer, as for the municipalities, the
‘successful pursuance of risk in exchange for higher returns’ (Financial Times
1994c) became an expected part of their everyday. The future of the owners of
‘big houses amongst the palm trees’, as well as that of many others, was being
brought into the time-space of Wall Street and beyond. Their local time-space
was set to be opened up to the disruptive pace set in the quick-Ž re space of New
York’s Ž nancial markets.
In 1994, against the advice of Merrill Lynch, Orange County’s Treasurer not
only placed the whole of the US$7.6bn investment pool but borrowed more,
mainly through reverse purchase agreements, that is buying, in this case,
Treasuries on credit and pledging them to an investment bank in return for a loan.
280 Economy and Society

In this way a further US$12bn was borrowed, collateralized by securities already

held in the pool’s portfolio. Of the total of just over US$20bn, a large proportion
was linked through structured derivatives to a fall in interest rates. The value of
the notes, in other words, was derived from a bet on interest-rate movements.
The County’s plans were disrupted by the Fed’s moves to raise interest rates.
By the end of the year, six-month LIBOR had risen from 3.6 per cent to 6.8 per
cent. The successive rises had quick effects, ricocheting their way through a
monetized time-space. More collateral was demanded by Wall Street; some
brokers there panicked and sold Orange-related investments, reportedly
‘dumping’ them on the market in just a couple of hours. More widely: ‘[r]eaction
to the Orange County derivatives debacle in California led to a sharp sell-off at
the long-end of the US bond market; German bonds moved from consolidation
into decline and Continental equity bourses from mundane to morose’ (Finan-
cial Times 1994e). And as Orange County’s structured notes tumbled, losing a
total of US$1.6bn, rumour suggested that the remainder of its mainly munici-
pal and agency bond portfolio would have to be liquidated, causing spreads
between this class of bonds and US Treasury bonds to widen: ‘The widening
was initially more pronounced in the US domestic market but the nervousness
spread to the Eurobond market. . . . “There was a  ight to quality and this puts
pressure on spreads,” said one bond trader in London’ (Financial Times 1994a).
The effects of entering into the quick-Ž re space of international Ž nance were
soon felt on the West Coast. The County’s municipalities had to cope with the
problem of ‘struggling with their budgets, cutting back services, and Ž ghting
amongst themselves as to how the losses should be divided’ (Fortune 1995). And,
as the Financial Times leader commented, ‘the reaction of Orange County’s
inhabitants to all this is still slightly dazed. As the embittered taxpayers of
Orange County point out, however, the money in their fund was not there to
gamble with. It was to build roads and schools and pay the wages of the County’s
workers’ (Financial Times 1994f).
Reading this example, as well as that of MG, through the eyes of Simmel and
Virilio, reveals an idea of money, one of ‘effortlessness multiplication’, which is
dependent on a new ‘money imaginary’.3 This is an imaginary that links ‘real’
geographical spaces into the intensive electronic space-speed of terminals in
Ž nancial centres, as both examples showed clearly.
Both examples show how derivatives involve the reorganization of risks in
post-Bretton Woods Ž nancial markets, risks that arise from uncertainties – both
heightened temporal (such as interest rate variability) and spatial (currency  uc-
tuations, for example). As Ž nancial instruments – and media of exchange – they
represent a new imagination of time-space expressed in the form of money. As
new forms of money – new means of exchanging temporally and spatially speciŽ c
risks – derivatives involve the reimagination of seemingly all events as calcula-
ble and manageable. Orange County’s Treasurer’s ‘pursuance of risk in exchange
for higher returns’ and MG’s belief in its ability to match short-term futures
and long-term supply contracts are illustrations of this point.
For, as the examples suggest, the use of derivatives depends on an a priori
acceptance of the underlying rationalization of time-space; a process which is
Michael Pryke and John Allen: Monetized time-space 281

built upon the apparent transformation of the randomness of distant events into
the near-to-hand statistical, intensive, ‘accelerated transport’ (Virilio 1991a: 101)
of information. Such a continued sending and receiving of Ž nancialized infor-
mation, Virilio contends, confuses virtual and real-time space and in the process
‘destroys the world as we know it’ (ibid.: 100–1). For ‘speed not only allows us
to get around more easily; it enables us above all to see, to hear, to perceive and
thus to conceive the present world more intensely’ (1997: 12). Amidst all this
grows an attitude, Simmel reminds us, of ‘effortless enrichment’ through new,
ever more abstract  ows of money. This idea of ‘passive enrichment’ is some-
thing that is being socialized and propagated through Ž nancial centres. As was
seen in the Orange County example, the deployment of derivatives, with the aid
of investment bankers in such centres, helped to promote a particular way of
understanding monetized time-space: that is, an understanding that sustains and
promotes a new imaginary of what money is and what it can do. In an atmos-
phere no doubt similar to that experienced by Simmel’s gamblers time (-space)
became an ‘unconditional presentness’ (Frisby 1985: 280, n. 89) in which the use
of ‘inverse  oaters’, mediated through the ‘real-time interface’ of the screen
(Virilio 1997: 19), was all too easily thought of as an everyday technique for
effortlessly boosting the County’s return on investments.
What derivatives have constructed arguably is an idea of money that is not
simply sucking a growing number of everyday events into the intensive rhythms
of digital capitalism (as the Orange County example highlighted), but rather one
that is promoting an imagination of time-space that is becoming increasingly
acceptable among a growing proportion of the populations of developed coun-
tries. For instance, the personal debt boom and the growth of mortgages in the
UK during the late 1980s and beyond, Dodd suggests, ‘says something vitally
important about how individuals perceive money and how they use it’ (1994:
121). This can be made sense of, he claims, when it is understood that nowadays
‘the very concepts of money and markets informing consumer behaviour have
become inextricably entwined. Money and market relations are no longer simply
a medium for the expression of these desires. They are their object’ (ibid.: 121).
And as virtually all of these personal Ž nancial transactions are in some way
dependent upon the use of derivatives of one kind or another, everyday money
culture seems increasingly to be moving to the rhythms of a monetized time-
space-speed, a form of money where the workings and the imagination
empowering the circulation of time-space cannot be understood fully within the
conŽ nes of orthodox approaches to the functions of money.


In this paper we have used the work of Georg Simmel and Paul Virilio to help
make sense of the emergence of and implications that arise from the circulation
of new forms of money in the post-Bretton Woods world; a world in which
money and technology have seemingly merged. Our focus, intentionally, has not
been on the quantitative and voluminous rise in money  ows, particularly of
282 Economy and Society

so-called derivatives, but rather upon the idea of money lying behind this new
form of monetized time-space. By questioning the idea of money – what it is
that is being exchanged in this form of money – we would contend that deriva-
tives symbolize fully the dynamic character of a world of informationalized,
monetized space-speed. At the operational heart of this money form, moreover,
lies an idea of money that involves the recoding of time-space; the fostering, in
other words, of a new money imaginary.
Read through the eyes of Simmel and Virilio, rather than through orthodox
economic and sociological approaches to money, the emergence of derivatives
does not lead to the conclusion that they are ‘more of the same’: that is, a jazzed-
up, yet still thinly disguised, old money. Rather, the instabilities and uncertain-
ties unleashed with the collapse of Bretton Woods were not similar to those
experienced prior to the 1970s. Money has become increasingly deterritorial-
ized, with a consequent rise in risk awareness as previously separate Ž nancial
markets have lost their regulatory and geographical distinction. Derivatives
emerged as a symbol of a new money culture designed to deal with this height-
ened risk awareness. Linked to the computer in such a Ž nancial world, this
money form re-energized the idea of what money could do, rapidly transport-
ing this new money sign into a growing number of everydays.
As such, derivatives, as with money in general, we would argue, re ect a shift
in contemporary culture that is not about a quicker pace of life simply as the
outcome of a modern money culture, but rather as the outcome of a transform-
ation in our experience of everyday temporal and spatial co-ordinates. This new
form of money, following the complementary approaches of Simmel and Virilio,
can be seen to connect global Ž nance with the day-to-day through real-time  ows
of monetized speed with such an intensity that it reorganizes our imagination of
time and space.


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and Brewster Stearn’s (1991) review.
2 Simmel was heavily in uenced by Austrian economics, notably Carl Menger (Laidler
and Rowe 1980).
3 A term that has its roots in Ewalds ‘insurational imaginary’ (1991: 98)

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Geoforum 38 (2007) 576–588

Geomoney: An option on frost, going long on clouds

Michael Pryke
Faculty of Social Sciences, The Open University, Walton Hall, Milton Keynes MK7 6AA, United Kingdom

Received 9 March 2006; received in revised form 9 October 2006


The paper adopts a cultural economy approach to explore the emergence of a market in so-called weather derivatives, referred to in
the paper as a form of ‘geomoney’. These are specially designed financial products that allow firms to protect their profits against the
impact of changing weather conditions. The paper approaches the emergence of this market, and the issues its growth raises, in three
interlinked stages. Weather derivatives are located amongst the hybrid collective that is contemporary finance and are analysed through
the conceptual apparatus afforded by a cultural economy approach to finance. The paper employs this analytical line to examine the
assumptions and models that enable the weather to be turned into a risk and then be transported and traded within capital markets.
Through specific examples of weather products together with a discussion of the International Finance Corporation’s recent involvement
in this market, the paper suggests something of the ‘world making’ capabilities of finance theory and the politics of finance often hidden
beneath the mathematical models. The paper concludes by highlighting not only the usefulness of a cultural economy of finance to geog-
raphers but, in light of the examples discussed, the need for cultural economy to recognise and to engage critically in its analysis the
politics that such a conceptual approach to the making of financial markets exposes.
Ó 2006 Elsevier Ltd. All rights reserved.

Keywords: Geomoney; Weather derivatives; Finance; Risk; Cultural economy; World making; Markets; Mathematics; Stories; Money imaginary

In the past five years, capital markets techniques have ‘weather risk parameters’ and ‘heating degree days’, this
been brought to bear on a range of environmental season’s ‘must haves’ are weather related swaps and
problems, including air pollution and adverse options. These are no ordinary financial derivatives, as
weather (www.environmental-finance.com/2000/feat- you might guess. Together with other designer instruments,
dec2_1.html) (Accessed 06.02.2004) they form part of ‘‘the creation of a new, market-based
solution that would help firms hedge against the risks asso-
[I]f economics is performative – if it helps bring into ciated with the weather’’ (Cooper, 2004; emphasis added).1
being the world it postulates, rather than simply Something previously unimaginable has arrived: a mar-
describing an already existing external world – then ket in so-called weather derivatives; financial products
the intriguing question is raised: might it be possible designed specifically to protect firms’ profits against
even in high modernity, to perform a different eco- inclement conditions. The weather and financial markets
nomic world? (Mackenzie, 2004b, p. 98).

The emphasis on risks is there as I am unclear how the weather is
1. Hedging the weather: preamble translated into a ‘risk’ in the sense employed by those creating these
financial products. LiPuma and Lee offer some guide ‘‘The financial
Under the caption ‘Weather to hedge’, a journalist for community first envisions a situation as risky and then abstracts the
the Energy User News offered readers a few financial fash- element of risk from the intertwined social, economic and political
ion tips for the year ahead. Amid talk of ‘strike levels’, circumstances that defined that situation. The identifiable risks are then
removed to a conceptual space in which they may be considered
independently of these circumstances’’ (2005, p. 414; see also LiPuma
E-mail address: m.d.pryke@open.ac.uk and Benjamin, 2004).

0016-7185/$ - see front matter Ó 2006 Elsevier Ltd. All rights reserved.

M. Pryke / Geoforum 38 (2007) 576–588 577

are now connected; hot days, rainy days, cold days. . .they tive performativity in Section 3 where recent attempts by
all share a trading desk on the floor of global finance. the IFC to extend the markets in weather products is
How has this market emerged? What are the assump- discussed. Finally Section 4 draws out from the previous
tions and models that enable the weather to be turned into sections not only the usefulness of the cultural economy
a ‘risk’ and then be transported into a financial market? of finance outlined earlier in the paper but in light of
What does this development tell us about a world assem- the nature of the developments discussed in Section 3, the
bled increasingly through financial market making? As need for cultural economy to recognise the politics that
these short questions suggest, I wish to use the develop- such a conceptual approach to the making of markets
ment of weather derivatives to suggest something of the exposes.
world making power of financial instruments.2 This is a More immediately the paper sketches some of the key
power largely achieved through the mathematical models elements of modern finance, chiefly the mathematical mod-
and ICT that surround contemporary finance and without els and abstractions, that enable finance generally and
which modern finance would struggle to exist in its present which have aided the emergence of weather derivatives,
form. It is a power too to spatialise and temporalise, to de- referred to here as a form geomoney.
and re-territorialize,3 that expresses the politics of contem-
porary finance and is exercised through the working and
coding practices of financial markets. 1.1. Geomoney: the world making of financial markets
The paper approaches these questions and the issues
they raise in three interlinking stages. The remainder of this Mathematics, specifically innovative mathematical mod-
section locates the arrival of weather derivatives, referred els such as the CAPM (capital asset pricing model), MPT
to here as a form of what I call geomoney, amongst the (modern portfolio theory) and the Black–Scholes pricing
paraphernalia of modern finance, such as finance theory – model which ‘‘are the most important elements of ortho-
the ‘black box’ of modern finance – that enable the ‘binding dox financial theory. . .[and] remain the principal building
and blending’ of financial instruments and the possibility blocks with which the modern house of finance is con-
for the merger of finance and meteorology. The marriage structed’’ (Mandelobrot and Richard, 2005, pp. 60–61),
of contemporary financial markets and weather derivatives together with the latest forms of ICT (information and
is analysed through the conceptual apparatus offered by a communication technology), are relatively new to financial
cultural economy approach to finance. Section 2 develops markets.4 ‘‘The years since 1970 have been very different
this cultural economy line in relation to specific examples from the preceding half century’’ (Mackenzie, 2004b, p.
of weather products. This in turn enables a discussion of 87). Yet, the black boxes that contain the mathematical
the ‘world making’ potential of finance theory and its effec- techniques that enable ‘number to perform number’, that
help produce a world ‘‘in which numerical flux becomes
central to activities, rather than incidental’’ (Thrift, 2005,
In Nelson Goodman’s Ways of worldmaking he emphasises that p. 590) should be opened, as Bill Maurer reminds us; after
‘‘Worldmaking as we know it always starts from worlds already on hand; all, the math, the formulae, are not ‘‘beyond culture’’
the making is remaking’’ (1978, p. 6). The world ‘on hand’ and emphasised
(Maurer, 2002, p. 19); they are integral to a cultural econ-
in this paper is that of private financial markets and particularly the belief
in the ability of financial mathematics to deliver instruments to cure an omy of finance.
expanding range of problems. More specifically, I wish to explore how the application
I look to Deleuze and Guattari for an approach to territorialization of mathematics through ICT transmits mathematical
accomplished through de- and re-coding, as a way also to think a politics abstractions into the preparation and operation of financial
of responsibility into the spatialities and temporalities demanded of and
markets; how, in other words, as market generators, such
made by financial markets. The latter hinges around what money and
finance demand of the future, and the type of future that the latest forms mathematically charged abstractions affect the world mak-
of finance in particular require and what their enabling mathematical cum ing capabilities of finance. This interest and the earlier
money imaginary encourages. The desire for a world made through flows questions centre on the seemingly endless capabilities of
of global finance is accompanied by, to borrow a phrase from the mathematized finance, the mathematized time–space that
Australian philosopher Ros Diprose, ‘‘a desire to control what the future
might be’’ (Diprose, 2004, p. 9). Diprose is arguing for a responsible
democratic politics, one that as she says ‘‘would build its self-responsibility Such models, and a dependence on flows of information and ICT,
on responsibility for the uniqueness of others’’ (2004, p. 9). For Diprose mark off finance as a special case, as it were. For Knorr-Cetina (2005)
there is an explicit link between responsibility, politics, space and time (p. ‘‘Financial markets are not production markets, and financial activities
7). Financial markets constantly work to ‘shore up a future pre-emptively’, raise their own, quite different questions. These have to do with the second
to borrow another phrase from Diprose (p. 5). And in aiming to do so order status of these markets, with activities at their center, that is with
through financial models and equations, much of the ‘downside’ of the trading and speculation, with the role of calculation and information,
world built through private finance is omitted (see Best, 2003b; Horrigan, . . .and to the constitutive role of technologies in enabling global markets’’.
1987; Dobson, 1993 for an example of the absence of ethics, for instance). The approach developed within economic sociology she feels is not
The future holds a key cultural meaning in the effective working of applicable to financial markets. To apply the methods of the new
financial markets and money more generally (Carruthers and Babb, 1996, economic sociology to finance, she suggests, would centre financial
p. 1557; see also Keynes, 1936, p. 294 cited in Kirshner, 2003, p. 646). How organizations at the core of the analysis rather than markets. It seems safe
this future is storied and imagined through financial mathematics is also to say that financial markets involve uncertainty and risk, thus instability
key, it is suggested (see Section 2). (rather than White’s (1981) ‘stability’) is at the heart of these markets.

578 M. Pryke / Geoforum 38 (2007) 576–588

is necessarily central to these processes of abstraction, rep- viewed as stories then this tells us something about a world
resentation and model building that help to produce finan- increasingly made through financial expressions and the
cial markets and the ‘‘connectivities’’ between them meanings they contain and transport, or at least that is
(LiPuma and Lee, 2005). For instance, Bryan and Rafferty the contention. Mathematical stories and abstractions8
(2005, p. 12) argue that all types of derivatives enable a form key elements in the ‘calculative agency’ (Callon and
process of ‘binding’ – establishing relationships between Muniesa, 2005) that is a financial market.9 The stories, it
present and future prices – and ‘blending’ of previously seems, allow those in financial organizations to reassure
separate forms of capital into ‘a single unit of measure’. themselves about what finance is capable of achieving, as
Derivatives thus ‘‘make it possible to convert things as eco- the examples of weather derivatives helps to illustrate (Sec-
nomically nebulous as ideas and perceptions, weather and tion 2). One story concerns the endless malleability of
war into commodities that can be priced relative to each mathematized finance. The financial community’s belief
other and traded for profits’’. in this story helps this market’s various components move
Arguably, the mathematics form an important element towards one another, as it were, and to meld into the finan-
in the qualitative shift in contemporary finance that is in cial thing ‘weather derivative’. This particular agencement
part ‘‘based in and around new kinds of perceptual labour (Callon, 2005, p. 13)10 will help ‘us’, it is hoped, to ‘Manage
and expertise’’ (Thrift, 2004, p. 591), locatable within what mother nature’, to borrow the title of an article in Deriva-
Knorr-Cetina (2003, p. 7) refers to as an ‘architecture tives Strategy (Hunter, 1999).
of flows’. This is an architecture that ‘‘involves global As an abstract form of geomoney – weather derivatives
‘scopic’ systems – the screens filled with real-time data, and catastrophe bonds are working examples – the weather
for instance – that project market reality while at the same derivative is imagined and storied as able to capture and
time carrying it forward and allowing it to ‘flow’’’.5 By flow harness the vagaries of the so-called natural world11 and
architecture Knorr-Cetina wishes to emphasise the ‘sup- transform the associated risks into financial instruments
port systems’ of such forwarded flows, as she calls them, ready for circulation. This latest development is very much
which she takes to be ‘‘the time-zone specific trading floor a case of ‘‘the financial management of extreme events’’
settings with their global reflex systems. The global reflex which has its routes in the financial markets, as the intro-
systems provide for the market’s unity and movement duction to a special issue of Risk Analysis put it (Linnero-
across space’’ (Knorr-Cetina, 2003, p. 21). Yet, as this sug- oth-Bayer and Amendola, 2003, p. 543). Geomoney is one
gests, all is not flow; these systems still need physical con- of the later evolutionary stages through which finance has
centrations of expertise. Places such as New York, rocketed since the 1970s.12,13 The arrival of weather deriv-
the City of London, Tokyo, and Chicago’s Mercantile atives, which sees clouds, frost and rain ‘‘evaporate into
Exchange, are where time–space is drawn-in, mathematized risk profiles’’,14 to borrow a phrase from Bill Maurer
and made financial. To view such locations as New York as (1999, p. 385), is an outcome of this evolution where
centres of mathematized time–space places a question mark
over the composition of time folded into financial equa-
tions. It also signals recognition of ‘the outside’: what are 8
Abstraction, as Callon and Muniesa remind us, involves work
the effects in the world of the time–space pulled into equa- performed by an economists; abstraction then is a calculative activity
tions and then re-circulated as ‘tiny bytes of information’ and thus allows economists to describe markets (1244).
through trading floors and screens?6 A point to which I will A calculative agency is distributed amongst humans and non-humans
return to later in the paper (Sections 3 and 4). (Callon and Muniesa, 2005, p. 1236).
‘‘Agencements designate socio-technical arrangements when they are
Already mathematics has been mentioned quite a few considered from the point [of] view of their capacity to act and to give
times. The way I wish to view mathematics in this paper meaning to action’’ (Callon, 2005, 13 FN 2).
is to understand them as ‘stories’.7 If the mathematics are 11
Consider also the creation of a market for carbon emissions; the
emergence of the Dow Jones Sustainability Index and the impact on
corporate governance; GHG trading; internal trading systems amongst
multinational corporations; investments in forestry sequestration. These
As screens provide an image of the market. ‘‘Global financial markets are all of market-based solutions to global warming.
can thereby be understood as a transnational geography weaving in and As Yuval Millo reminded me, the fact that financial economics and
out of digital and physical space and place, consisting of multiple linkages meteorology are so entwined indicates that financial economics has
and networks simultaneously consisting of being constituted by electronic, become an integral part of today’s markets (personal communication,
material, temporal and social infrastructures, where time and space is both 19.09.2005). See Millo (Forthcoming) and MacKenzie and Millo (2003)
shared, placebound, compressed and dissolved’’ (HasselStrom, 2003, p. for related points.
85). It is worth noting that Kenneth Arrow, ‘one of the most prominent
See Marriott (2005) for an evocative view of amongst other things, economists and financial economists of the twentieth century’ published
territories and boundaries and the translation of anything from fileds to his first paper in the Journal of Meteorology in 1949. Thanks to Dick
noise of bees into ‘tiny bytes of information’ which can then be read Bryan for pointing this out (personal communication 10.05.2006).
‘glowing on a computer screen’. I am grateful to Doreen massey for this Weather had to become a risk in other words for weather derivatives to
reference. be sold as products. ‘‘Weather derivatives may not mitigate climate
See for example Barnes (1989), Morgan (2001), McCloskey (1983), change, but nevertheless climate change provided a fundamental discur-
McCloskey (1990), Strassmann (1993), and Strassmann and Polanyi sive power to the market’’ (Sam Randalls, personal communication,
(1995). 20.08.05).

M. Pryke / Geoforum 38 (2007) 576–588 579

markets and all they contain – from screens, to formulae, inch of snow (http://www.cme.com/trading/prd/env/cme-
to people – are allowed to link up freely and serve as fertile weather14270.html).) The growth of weather products
ground for the generation of new financial instruments. has been rapid; Fig. 1 plots the development of the market
Too often, however such a market mix or agencement since its inception.
that signals the arrival of the most recent form of finance A recent survey carried out on behalf of the weather risk
abbreviates to the zip and zap of global finance. A lot management association (WRMA) by Pricewaterhouse
stands to be lost by adhering to such a view, not least, what Coopers put the total nominal value of weather risk con-
it is that might be new. As Maurer has argued in relation to tracts at US$45.2bn (US$2.5bn in 2000/2001). Trades
the more recent shift from ‘property rights to a discourse of through the Chicago Mercantile Exchange (CME) were
risk’, which he views rightly as signalling a change in the up 300% in 2005 compared to 22,3139 in 2004/2005
logic of finance, ‘‘Something is indeed new in contempo- (Fig. 2).
rary capitalism, but it does not concern only the speed or Fig. 3 shows the geographical dispersal of the market to
volume of capital flows. At stake is redefinition of the core date. The market is still very much concentrated in the
constructs of capitalism itself’’ (1999, p. 366). What has USA.
been an ongoing process of redefinition and refining is Yet what of the practices that lie behind the preparation
the mathematical flux that enables finance and which is of the markets that produce these contracts?
central to (but seemingly absent from) what those in policy
as well as academic circles refer to as the ‘new financial
architecture’. Such architecture is an arrangement of mar- 2.1. Rehearsing the performance
kets, a way of assembling markets and ideas about mar-
kets; it is essential to their preparation. This perhaps is to The development of this market has seen the coming
run too far ahead with the argument. Nevertheless it does together of concepts and models, professions and data
serve as a reminder that markets need preparation, as Cal- flows, and more. This is a market of truly materially heter-
lon (1998) insists. ogeneous practices (Law, 2002). The financial economic
Callon’s work is also a reminder to move slowly knowledge required for the development of weather futures
amongst the agencements that make-up financial markets; displays an interesting mix of high-powered finance, partic-
it is within these that the potential to make worlds lingers. ularly financial mathematics, and meteorology. Callon’s
The following section develops the cultural economy position is by now familiar. It is that economics ‘‘performs,
approach to finance sketched above by setting out the mak- shapes and formats the economy’’ (1998, p. 2).16 Moreover,
ing of a market in weather derivatives and the wider cul- it is not just economists but a range of ‘‘humble practitio-
tural economic relations that nourished the imagination ners’’ who are involved in drawing up a mass of knowledge
of these instruments and their eventual trading in second- and feeding this back, as Callon says, to economics and
ary markets. The paper then returns to the world making economists (1998, p. 28). In the case of weather derivatives,
capabilities of modern finance, illustrated by the splicing such humble practitioners include and meteorologists;
of weather products and capital markets by the Interna- together, they help make the weather calculable and they
tional Finance Corporation (IFC) as a new form of devel- do so by bringing together an ‘assemblage of calculative
opment practice (Section 3). techniques’, as Miller (1998) might say.
Although, as noted above, the idea for this market
2. Making a market in weather futures: a beginner’s guide to involved processes and links between an existing market –
a beginner’s guide15 the derivatives market – and a host of practices some very
much outside of the ambit of finance and until very recently
To try to keep up with developments in any financial any sort of ‘market’ thinking, such as meteorology,17 the
market is ‘an impossible task of achieving simultaneity blending of financial mathematics and the weather is not
with present moment’ (Miyazaki, 2003, p. 255). Hence, straightforward. As one head of a bank’s treasury market-
rather than ‘chase capitalism’ (Thrift, 2001) like a mad ing comments:
cat, I acknowledge at the outset that my coverage of the
developments of the market in weather futures is partial In what follows I do not take into account Danny Miller’s theory of
and necessarily dated. Even the US congress is hard- virtualism (1998) chiefly because, as Donald MacKenzie (2004a, p. 305)
has noted, Miller has ‘largely excluded finance from virtualism’s scope’.
pushed to legislate at the pace that Wall Street is able to
See Miller (1998, p. 210) where he writes ‘‘I would not pretend that
innovate such ‘funky instruments’ as emissions contracts understanding the higher levels of derivatives and bond market has much
and weather derivatives (The Economist, 2005). (The latest to do with the logic of consumption’’ in which virtualism is rooted. For
addition is the so-called snowfall future which began similar points related to Miller’s virtualism and his later critique of Michel
trading on 26th February 2006 priced at US$200 per Callon see MacKenzie and Millo (2003, p. 137, FN 18).
As Samuel Randalls (undated) comments, what is also happening is
that the need for weather data in the making of weather derivatives ‘‘is
The detail on weather derivatives below draws heavily on Deutsche becoming a growing financial source for meteorological service providers
Bank Research (2003), Paoletti (2001), Allianz Global Risk Report (2002), and is arguably re-shaping the ways in which meteorology is per-
Risk Transfer Magazine (2004). formed’’(no page number).

580 M. Pryke / Geoforum 38 (2007) 576–588

Fig. 1. CME weather market: evolution timeline (1999–2005). Source: CME (Chicago Mercantile Exchange) ‘An Introduction to CME weather products’
undated pdf.

The pricing of weather derivatives is, of course, 2004; Sturken, 2001) and while traders within financial
another issue. One cannot buy or sell the underlying, institutions may not agree that the meteorologists hold
be it sunshine or rain. Positions have to be hedged sway and may contest the accuracy of forecasts, what
with offsetting positions and one cannot create a coheres the different groups is that they employ the data
risk-free portfolio by combining the derivative with to cope with the future (and to read the future from the
its underlying (as done for other derivatives). Though past18). They each have, in other words, their own ways
Caps, Collars and other exotics in weather are of imagining time–space; that is, their own ways of
offered, the closed form solution of classical Black– abstracting and pulling time–spaces into their calculations
Scholes option theory has no application. Weather to help them to make sense of the future as it affects their
contracts are based more on forecasting than on market’s spatial and temporal frame. Altogether, the
mathematical derivation; it is the meteorologist who assembling of these various calculative techniques – such
holds the sway and not the mathematician. Informa- as attempts to combine weather variable density forecasts
tion on past weather behaviour and an understanding and the pricing of weather derivatives (see Taylor and
of the dynamics of the environment is essential Buizza, 2006) – and their associated processes of abstrac-
(Mohindra, 1999).
All groups have their own sets of data, their own ways of
compiling data, be this through the use of financial models, 18
See Rayner (2003) for a critique of model building in meteorology
or satellites in the case of meteorology (Hertzfeld et al., selection of data and theory used to generate data.

M. Pryke / Geoforum 38 (2007) 576–588 581

CME Winter thought of as a ‘risk’, although what seems to be at the core

CME Summer of this risk is not something natural but ‘social’ – ‘volume
OTC Winter risk’, as the examples below outline. The ability to abstract
OTC Summer a category ‘risk’ from the weather arguably lies in the
(effective) performativity of past financial theory. As Don-
$50,000 ald MacKenzie has demonstrated, the performativity of
$45,000 the Black–Scholes–Merton analysis, specifically option
$40,000 pricing theory altered the way ‘risk is conceptualized’
$35,000 (2003a, p. 855; see also MacKenzie, 2003b). The risks
$30,000 presented by the weather can now be ‘decomposed mathe-
matically’, to use Donald MacKenzie’s phrase, and recom-
posed as a financial instrument. Or, to follow Deleuze and
Guattari (1999), through the use appropriate financial
$15,000 expressions and meteorological models, the weather may
$10,000 be decoded and recoded, de- and re-territorialized, as it is
$5,000 translated as a ‘risk’ and passed into financial circulation.
$0 How this is achieved is outlined below.
2000/1 2001/2 2002/3 2003/4 2004/5 2005/6

Fig. 2. Total notional value of weather risk contracts: 2000/2001–2005/

2.2. Introducing a few lead characters: the underlyings and
2006 (in millions of US dollars). Source: Procewaterhouse Coopers 2006.
the index

Unsurprisingly weather, specifically weather data, form

Other the basis for this market. These data collated at a measure-
ment station vary and may include for example daily
amounts of rain or snow depth, to number of hours sun-
NA South
NA East
shine per day, to air temperature or wind speed. The mar-
NAM west ket is assembled around meteorology and the data these
NA West techniques generate.
5,000 As Fig. 4 (which provides an outline summary of some
4,500 of the key elements of weather products, from the initial
4,000 requirements of a hedger, such as an energy company,
through the compilation of indices, to speculative trading
in the secondary market at the CME) suggests, these data
are then linked to financial derivatives but not before they
have been ‘cleaned’ and made suitable for use by the
2,000 weather derivative industry by measurement and settlement
1,500 agencies (see Jewson and Brix, 2005). Yet unlike traditional
1,000 financial derivatives, the underlyings (due to their very
500 character) are independent of this particular financial mar-
0 ket.20 This means that an index has had to be created by
2000/1 2001/2 2002/3 2003/4 2004/5 2005/6 using data provided by meteorological sources (see
Fig. 4). The indices are key to this market because they
Fig. 3. CME weather market: evolution timeline (1999–2005). Distribu-
tion of total number of contracts by region: 2000/2001–2005/2006 enable the underlyings to be represented continuously in
(excluding CME trades). Source: Pricewaterhouse Coopers 2006. time. The indices, such as the NORDIX (normal departure
weather index), are also quoted on the stock exchange. The
NORDIX was the world’s first ‘perpetual, financially
tion is a collision of understandings, abstractions and mod- traded weather index’.
els about the future.19
One way in which the financial community is now able The NORDIX index facilitates the aggregation,
to establish the future so that it may be acted upon is to formulation, production and distribution of weather
prepare the future in terms of ‘risk’. The weather is thus indices. Indices consisting of weather elements
such as temperature, windspeed, precipitation, and

Sturken raises this interesting question in relation the ‘coding of
weather prediction as knowledge’: ‘‘What kind of knowledge does the For understandable reasons the underlyings cannot be delivered and
technology of weather prediction produce?’’ A similar question might be thus settlement between the seller of the risk and the buyer always takes
asked of the knowledge produced development of weather derivatives. place in monetary units (Paoletti, 2001).

582 M. Pryke / Geoforum 38 (2007) 576–588

Fig. 4. Outline of main parties and processes involved in design and trading of weather contracts. Source: Based on information in CME ‘Introduction to
CME weather products’ (undated) and Denson and Brix (2005).

sunlight hours. Perpetual numerical values making move onto the next stage, that of the ‘singularization’ of
up the NORDIX, are applied specifically to the finan- the weather; the task here is modify the thing to make it
cial markets worldwide, for the trading, facilitation, appeal to the buyer, to the ‘‘buyer’s world’’ (Callon and
risk transfer, and liquidity of such markets. The index Muniesa, 2005). ‘‘A good becomes singularizable, and thus
is generated using a configuration system and process calculable, only after this operation of extraction, transla-
for collecting and calculating weather data. Fair tion and reformatting. . .Singularizing a product also means
value calculation cannot be manipulated by large linking it to other products in the same space or on the
block investors, news reports, or other methods that same list’’ (2005, p. 1235). As Callon and Muniesa note,
typically influence other financial markets. The indi- for those designing financial products, the use of mathe-
ces and their numerical values are derived from matical formulae is just one of a series of stages; each stage
weather measures and enable parties to participate makes ‘cultural’ situations (such as the adverse currency
by means of bid and offer (NORDIX, 2002, no page risk faced by an exporting corporation) and ‘natural’ pro-
numbers) cesses (like the weather) accessible to singularization and
thus calculability.22 What of course aided this transition
The use of such indices therefore allows weather variables – from natural process to weather derivative was the ground-
hours of sunshine, amount of rainfall, and so on – to be work done under the banner of re-regulation. This wider
quantified ‘objectively’. The use of an index is a way to turn context feeds this money-mathematical imaginary. The
the weather into a ‘thing’.21 It then becomes possible to discourse of neoliberal globalization, today’s ‘‘‘economic’

In the USA, under the Commodity Exchange Act weather is included
within the definition of a ‘commodity’. This means that weather In financial markets, this task of classifying products and of comparing
derivatives are subject to Federal commodities laws although there are between them is needed more and more if investment decisions are made in
exemptions that impact on certain swap transactions (see Risk Transfer terms of portfolios – how will the rhythms of products work against those
Magazine, 2004). of others.

M. Pryke / Geoforum 38 (2007) 576–588 583

cultural dominant’’ (Coronil, 2000, p. 354), nurtures the (DrKW). The bank offers what it refers to as integrated
development of these forms of finance. risk management to energy utility companies in particu-
lar23; these are products such as weather indexed interest
2.3. The context: re-regulation and the influence of capital rate swaps or weather indexed loans. What such integra-
markets tion does is stabilize cash flows over the longer term. To
achieve this objective, the bank uses financial instruments
What helped, if not provoked, the preparation of this to link a firm’s key interest rate payments to a particular
market in weather derivatives was the broader political form of weather that may have an immediate and signifi-
economic context. Neoliberal policies in the States, partic- cant impact on that company’s income, as the following
ularly privatisation and re-regulation hit the US energy examples illustrate.
industry hard. The energy sector already faced swings in
volume of business as weather changes (particularly tem-
perature changes). The reason is simple: for the electricity 2.4. Examples
sector, say, high summer temperatures would be accompa-
nied by soaring electricity sales because air conditioning The type of customized product could be a temperature
systems would be switched on and a lot of power would indexed interest rate swap, for example, which allows a
be consumed. The deregulation of the energy market in company to hedge against rising interest rates and weather
the USA added to these weather related risks because it related cash-flow risk. This works by giving, say, a gas dis-
meant that energy producers, such as those in the electricity tribution company a floating rate that reflects its floating
sector, moved from an environment of rigid prices to one rate liabilities and allows it to pay lower interest rates in
of fluctuating prices. Power utilities found themselves hav- warm winters (when sales volumes decline and gas prices
ing to cope with uncertainty in prices and margins, as well fall). This type of swap creates a synthetic liability: interest
as volume risk. While price risk could be hedged against, rate payments move according to an index of average tem-
using existing derivatives, there was a need for a means perature. Financial markets and the weather may be syn-
to control volume risk. thesized in other ways, too. For instance, interest rates
To this end, in September 1997, two power suppliers, may be linked to and triggered by rises in temperature.
Enron and United Weather, engaged in a weather deriva- Higher interest rates are payable when a specified index
tive deal. In the USA this was heralded as ‘new type of of daily temperatures goes beyond a predefined strike level
derivative’. The deal centred on providing financial com- during the agreed dates of the contract (the so-called refer-
pensation for changes in power sales that resulted from ence period). It is possible in other words to shape interest
temperature fluctuations during the winter. Temperature payments to fit the profile of changing weather.
(measured as heating degree days (HDD) or cooling degree As these examples suggest, the two parties to a deriva-
days (CDD)) remains the most common underlying vari- tives contract are subject to specific payment calculations
able in all types of weather derivative, be they so-called noted in the confirmation of a trade.24 It is possible, as in
‘options, swaps, caps or floors’, to use the technical jargon; the above examples, to tie payouts to a specified monetary
this is so for both ‘over-the-counter’ and exchange trading, amount multiplied by the index, such as the HDD (or
through for example the Chicago Mercantile Exchange CDD) level written into the contract and the actual
(CME) (see Fig. 4). HDD (or CDD) level reported at the chosen weather mea-
The market in weather derivatives is part of the growth surement location – Frankfurt Airport in the cited exam-
in financial risk management and the associated shift to the ple. There is no need for one party to show a loss or to
capital markets as firms and providers of risk management
products have looked for alternatives to traditional insur- Banks too can make use of weather derivatives to lessen their exposure
ance markets. This is indicated in Fig. 4 by including inves- to credit risks that result from lending to weather-dependent businesses.
Banks’ lending and investment portfolios can be damaged by too much
tors and speculators in the trade in secondary weather
exposure to weather related risk. To lessen such risk, a type of risk that is
contracts; that is, where the original contract written highly correlated due to the regional lending profile of many banks – bad
between say an energy company and a bank (‘Parties 1 weather will hit most cities England, for instance – it is possible to
and 2’ respectively in Fig. 4) has been sold through the rearrange portfolios on a continental basis. The thinking here is informed
CME. Moreover through the use of capital markets some by another branch of finance theory, namely Harry Markowitz’s portfolio
theory. This seeks to optimize the risk-return profile of any portfolio. To
categories of financial organization, such as banks, now
over simplify, two banks exposed to weather related businesses may swap
seek to provide so-called integrated risk management solu- parts of their lending portfolios. In effect, weather risk is mobilized
tions that include weather risk as well as more traditional through financial flows and the ideas that help to mobilize such flows,
risks that are associated with cash-flow volatility. Thus in chief amongst which are the abstractions of mathematics. Both banks
addition to the exchange traded weather derivatives found could reduce their exposure to weather risk by a significant amount by
selling part of their highly correlated exposure to regional weather.
in the USA such as futures and options, banks now provide 24
The ISDA developed the basic agreement (the ISDA Master Agree-
customized weather products. One of the first European ment (Multicurrency-Cross Border) now adopted by parties to weather
banks to become involved in this market was the subsidiary derivatives contracts (see versions of weather index swap transactions at
of the Allianz Group, Dresdner Kleinwort Wassertein WRM Association web site).

584 M. Pryke / Geoforum 38 (2007) 576–588

demonstrate that there was an insurable risk (which marks the stories and the abstractions at the heart of mathemati-
off derivatives from traditional weather insurance) for the cal–meteorological modelling now have the chance to tra-
payment to be calculated and made. This view is confirmed vel, to extend spatially their performativity and so to
in the findings of the New York Insurance Department achieve the world making potential at the heart of this
(NYID) (a key insurance regulator that has jurisdiction from of financial economics.
over a significant majority of insurance companies in the
USA). According to a leading press journal, Risk Transfer, 3. Performativity, connectivity, territoriality: extending
NYID finds that ‘‘derivative contracts are not insurance world making potential
contracts as long as the payments due under the contracts
are not dependent on proving an actual loss’’. The deriva- Arguably, the development of the market in weather
tive product ‘transfers risk without regard to an actual loss, derivatives draws attention to the spatio-temporal reach
whereas insurance transfers the risk of a purchaser’s actual of what Donald MacKenzie has referred to recently as
loss’ (2004, p. 5). Moreover, under New York law ‘because ‘effective performativity’27; the stories and abstractions, in
neither the amount of the payment due nor the event trig- other words, must have effects. The performativity at the
gering the payment necessarily relates to the purchaser’s core of this market it is contended does just that: it displays
loss’ a weather derivative cannot be an insurance contract. the world making of increasingly abstract finance to give
finance a new sense of effective distance. The example
2.5. The importance of ‘stories’ below centres on the International Finance Corporation’s
(IFC) recent attempts to broaden the ‘development para-
As the above suggests, quite a lot seems to be happening digm’ through the use of weather derivatives.
in the processes leading up to the moment when the cate- The IFC aims to coordinate capital and investment mar-
gory ‘weather derivatives’ is finally assembled, filled in ket expertise in an effort to help develop weather risk man-
and a market activated. One element in this passage is that agement in emerging markets using weather derivatives
the financial engineers must exercise imaginations and tell (rather than ‘traditional’ crop insurance) to transfer local
(‘economic’) stories as they build their models and shape weather risk into global markets. (The geography of this
their formulae. As Morgan argues, such stories help to con- market is presently almost wholly dominated by the
stitute important elements of an economic model’s identity. USA.) This is an important part of what the IFC views
‘‘[W]e only fully understand our model when we have iden- as one of its key roles namely to ‘catalyze alternative risk
tified all the specific stories that it can encompass or tell transfer out of emerging markets into financial markets’
about the world’’ (2001, p. 380). In particular, and of rele- (IFC, undated; see also Haggerty, 2001; Hess et al.,
vance to financial markets, Morgan suggests, ‘‘stories relate undated; Skees et al., 2002; Stoppa and Hess, 2003).
the mathematics to the world’’; in other words, ‘‘we char- The participation of the IFC in the ill-fated Global
acterise something about our world in our mathematics. Weather Risk Facility (GWRF) project illustrates this well.
Then we use that mathematical characterization to answer The idea behind GWRF was to provide a vehicle to origi-
questions relevant to the world, and in doing so we tell sto- nate and underwrite risk.28 The project’s private sector
ries which link back to the world’’ (2001, p. 375). sponsor was Aquila Inc., a NYSE listed ‘triple B’ rated
To be sure, stories and imaginations inform what a subsidiary of UtiliCorp, an international energy company
mathematically empowered finance is capable of doing which went bankrupt in 2002. GWRF is capitalized by
and they fuel the financial expressions and models. Yet commitments from leading insurance companies such as
the stories, like imaginations, are ‘‘absent from the page’’ Hiscox, a Lloyd’s subsidiary, American RE and Mitsui
(Law and Mol, 2001, p. 617). They are absent from the cen- Marine and Fire, as well as the IFC. GWRF had the capac-
tral financial expression, the Black–Scholes equation,25 ity to originate weather risk on a global scale.
that enables trade in the weather.26 It is into this world The objective was, as the IFC stated, to ‘‘develop a prof-
of mathematized finance that the weather is now con- itable and sustainable portfolio of global weather risk with
nected. The stories however are not confined to financial a special focus on the underwriting of weather derivatives
centres. More recently, attempts have been made to con- or weather parameter-based insurance in emerging mar-
nect weather risks from around the world into centres of
mathematized time–space. As the next section outlines, 27
In recent papers, MacKenzie (2004a, 2005) has offered a very helpful
qualification to notion of performativity. In relation to his work on option
By the 1990s, this equation ‘‘had become among the most important theory, he argues that for Callon’s claim that practices perform markets to
calculations performed in the high modern world’’ (MacKenzie, 2001, p. have a bit more bite, as it were, performativity should move from being
116). merely generic to being effective. ‘‘For a claim of performativity to be
Although, according to some market commentators ‘‘The standard interesting – for the use of economics to constitute what I call ‘Effective’
Black–Scholes model used in derivatives. . .is not really suitable for performativity – an aspect of economics must be used in a way that has
weather derivatives. The models used instead are based on ‘burn analysis’ effects on the economic processes in question. . . . [E]conomic processes
or the more laborious Monte Carlo simulation procedure. Burn analysis incorporating the aspect of economics must differ from their analogues in
uses historical data, while Monte Carlo simulation arrives at a price using which economics is not incorporated’’ (2005, p. 11).
randomly generated values’’ (Deutsche Bank Research, 2003). The following details are taken from (IFC, 2001).

M. Pryke / Geoforum 38 (2007) 576–588 585

kets’’. The facility was managed by the Aquila weather new development programme suggests that in amongst this
desk and had the capacity to underwrite at least US$63– particular agencement (as with all other, of course) lie all
70 million of weather risk. IFC’s involvement helped both important ideas, meanings and stories of what finance
to launch weather derivatives into emerging markets and and private financial markets can achieve globally. Such
aided the coordination of what the IFC still recognise as instruments in other words embody the political rationality
fragmented markets. Altogether this worked to help give and ‘value orientations’ of neoliberalism (Collier and Ong,
spatial extension to the market. Just as importantly, the 2005, p. 17) and their use within an enabling financial
IFC’s work draws such instruments into a neoliberal finan- architecture effectively extends and intensifies this market
cial imaginary and places them alongside more traditional spatially and thereby to make worlds that accord with
farming inputs. financial models.
Amongst other intended outcomes, the IFC aims to sew
together a market that assembles diverse farmers in emerg- 4. Conclusion
ing markets – from India, to Mexico, to Malawi and Mor-
occo – and leading market makers, such as those based in [T]here are no ‘neutral’ choices about money. Rather,
the USA, in weather products. As authors associated with every macroeconomic phenomenon and monetary
the World Bank and the IFC write policy has significant, inevitable differential and polit-
ical implications. . . .Money rules – now more than
The introduction of weather risk management into
ever – but those rules serve political masters. The con-
emerging market economies requires development
temporary salience and excitement of huge, influen-
work that sometimes cannot be recuperated in trad-
tial financial markets has obscured this underlying,
ing margins of contracts. Development institutions,
formative and consequential political reality (Kirsh-
such as the World Bank Group, promote pilot cases
ner, 2003, p. 657).
to generate demonstration effects to raise awareness.
. . .by recognising the force of norms and ideas, the
The IFC, as part of the World Bank Group, entered
IMF and others are opening up new terrains for
into a partnership with a leading risk market maker
debate. In effect, by justifying their actions in norma-
in order to promote WRM [weather risk manage-
tive as well as technical terms they grant their critics
ment] in emerging markets (undated, p. 7)
the chance to challenge them on both grounds. It is
The making of this market should lessen the vulnerability up to those critics, of course, to recognise the shift
of rural areas in emerging markets to poverty stemming in the debate and to effect a challenge on these new
from crop failure, so the message runs, while the farmers terms. After all, if the new financial architecture has
that use these financial products gain all important ‘credit- as its goal the civilisation of globalisation, we surely
worthiness’. The financial cum meteorological models, the are obliged to debate the kind of civilisation that
effectiveness of which is supplemented by the transport of we are hoping to achieve – and to consider who
ides provided by the IFC, offers the promise of sound man- should be allowed to participate in shaping it (Best,
agement of the local threats of drought or alternatively too 2003a, pp. 379–380).
much rain. Geomoney, in the form of weather derivatives,
Whilst ‘‘One way or another, humans have attempted to
thus mitigates the impact of weather related crop failure by
domesticate the weather, climate, and their consequences
re-coding the weather and re-territorializing it within the
for millennia’’ (Rayner, 2003, p. 208) weather derivatives
abstract space of globally diversified weather portfolios.
and the development of geomoney generally, arguably sig-
For global institutional investors, going long on clouds
nal a significant step-up in the game of domesticating
has its advantages; weather derivatives offer a new asset
‘mother nature’. ‘‘Weather is not what it used to be’’ as
class uncorrelated with the risks of existing investment
Sturken remarks as she observes the media coverage of
markets. They are thus an attractive addition to the portfo-
El Nino events in 1997–1998. ‘‘What was understood as a
lios of the likes of banks and hedge funds (as the box
natural phenomenon is now the source of technological fan-
labelled ‘Investors/speculators’ in Fig. 4 suggests).
tasy’’ (2001, p. 161). Similarly, the development of geo-
It is thus possible to detect in the actions of the IFC
money is part of a financially driven transformation of
what Coronil refers to as shift in the broader ‘development
the ways in which we understand nature and its conse-
paradigm’. For him, investment banks and financial mar-
quences. The weather is being ‘denaturalized’ as its pat-
kets are the new development agents and development
terns are recoded and re-territorialized so that its threats
itself is viewed ‘‘as a kind of gamble in risky markets rather
or risks can be circulated objectively in financial form.
than as a predominantly political concern and moral
The transformation of the weather into a financial form
imperative’’ (2000, p. 365).
is perhaps what marks the latest attempt to domesticate
As this example and those noted in earlier sections show,
the weather as different. And the form – derivatives – is
weather derivatives are a manifestation of risk manage-
ment techniques cross-fertilised with capital markets and
meteorology. Moreover, the involvement of the IFC in Derivatives are distinctly significant because, in com-
the preparation of these instruments arguably as part of bination, they invoke a huge market process in which

586 M. Pryke / Geoforum 38 (2007) 576–588

all different forms (and temporalities [and spatialities] tently) provides a clue as to how to do this. In her research
of capital are priced against (commensurated with) on FOREX (foreign exchange) markets she talks of ‘peo-
each other. By this process of commensuration, rates pling a formula’. The simple suggestion here is that there
of return on different assets can be directly measured is just as much need to spatialise the formulae and models
and, in a competitive capitalist environment, there such as Black–Scholes and CAPM that energize so much of
follows a requirement of each asset, across space contemporary finance and to recognise the politics in the
and time, to deliver a competitive return (Bryan mathematical stories animating financial markets.30 Again,
and Rafferty, 2005, p. 35). a cultural economy approach to financial markets aids this
Through the development of weather derivatives, the Third, the paper has tried to establish a related point, a
weather is now part of this interconnectivity or blending point that argues for a wider focus on the ‘world making’
as it becomes subject to (financial) ‘‘capitalism’s ceaseless of financial markets. The concentration of financial activity
experimentation’’ (Thrift, 2001, p. 379). in physical locations such as the City of London, Wall
The paper also highlights three other related issues. Street, the Chicago Mercantile Exchange. . . places where
First, whilst cultural economy offers significant insights some of the latest and most powerful technologies – ‘‘cru-
into the making of financial markets (Sections 1 and 2), cial extra-somatic resources’’ (Mackenzie, 2004b, p. 86) –
there needs to be an injection of politics – a cultural polit- are put to work by humans and which in turn would seem
ical economy of finance, in other words. As de Goede to have the effect of helping to configure human actors, is
(2005, p. 179) seeks to ‘‘disturb the expert and depoliticized of obvious importance. Yet maybe attention should focus
knowledge of modern financial practices’’ (emphasis added) too on the wider spatio-temporal impact of the performativ-
she reminds us that ‘‘. . .finance itself – not just its rules of ity of the calculations made in such ‘places of intense soci-
personal engagement, but also its statistics, formulas, ality’. Worlds after all are as much made as found,
instruments, and institutions – is profoundly cultural’’ Goodman reminds us (1978, p. 22). If more of the world
(see also de Goede, 2004). The practices of weather data is open to mathematical modelling, and the knowledge cri-
collation through the use say of satellites and a ‘scientific teria that underlie the modelling process, then more of the
discourse of disaster predication’, just like the practices world finds itself expressed in calculations. Moreover, in
of finance, produce narratives at the core of their knowl- the case of weather derivatives, the marriage between mete-
edge, as Sturken writes, that (attempt) to shut out any orology’s latest high-tech gadgetry such as satellites that
scope for political analysis (2001, pp. 186–187). Cultural offer ‘‘new forms of visualizing weather in ways that allow
economy is well suited to the task of dismantling the mak- it to appear technologically contained’’ (Sturken, 2001, p.
ing of financial markets and thus to allow access, as it were, 166) and the culture of mathematicized finance hitched to
to their politics, as example of the IFC’s engagement with such meteorological developments, serves only to buttress
weather products illustrated (Section 3). this view of the weather. This holds consequences. As Don-
Second, the emergence of weather derivatives discussed ald MacKenzie points out, these calculations are pro-
in the paper contributes to the argument that financial mar- grammed into calculative devices such as computers with
kets contain the power to spatialise through attempts to the potential outcome that they are transformed into finan-
produce futures.29 The cultural economy line followed in cial instruments. What is more, if ‘‘the output of these
this paper thus not only flags the need to prefix cultural devices is acted upon, economic theory can be performative
with political but simultaneously draws attention to the in a very direct way’’.
potential to spatialise that the various components that Such directness has wide reaching spatial and temporal
hybrid collective contain. This is significant in today’s extension, exemplified best perhaps in the manner in which
world dominated, some argue, by a ‘‘circulation-based cap- markets in financial instruments are now central to the
italism’’ which ‘‘. . .harnesses technology for the extraction development process (Aybar and Lapavitsas, 2001) as this
and manipulation of data that can be converted into quan- process is thought through by the likes of the World Bank,
tifiable measures of risk. The contemporary objectification, the IMF and offshoots such as the IFC, as Section 3 high-
calculation, and distribution of risk rely on larger and more lighted. For these international institutions, the mathemat-
accurate data sets and increased computer power, all dri- ics, the calculative devices . . .are all part of the force of
ven by competition among mathematically sophisticated ideas and knowledge they, as the west’s modern day bare-
quantitative experts’’ (Lee and Edward, 2002, p. 210). If foot doctors, wield. These same institutions and their rep-
this is the case then what a cultural (political) economy resentatives are central to the preparation of these
approach to financial markets should at least try to do is markets and the enabling architecture; they work hard in
to unearth how this power works. Knorr-Cetina (inadver- their own ways to try to make the world how it ‘ought to

See FN 3 where I suggest that financial markets work to ‘shore up the
future pre-emptively’ yet do so in ways that close off any discussion of Mathematics ‘‘. . .alone is thought to provide truths that are pure in the
ethics, for example. Due to word constraints this point is not developed sense that they are uncontaminated by politics’’ (LiPuma and Lee, 2005,
here. p. 416).

M. Pryke / Geoforum 38 (2007) 576–588 587

be’ according to the mathematics of financial theory. As Callon, Michel, 1998. Introduction: the embeddedness of economic
writers associated with such institutions conclude markets in economics. In: Callon, Michel (Ed.), The Laws of the
Markets. Blackwell, Oxford, pp. 1–57.
Ultimately the emergence of a vibrant weather mar- Callon, Michel, 2005. Why virtualism paves the way to political
ket will be driven by knowledge transfers to local impotence: a reply to Daniel Miller’s critique of the Laws of
the markets. Economic Sociology: European Electronic News-
‘champions’ who grasp the opportunity, as well as letter 6.2. <http://econsoc.mpifg.de/current/6-2art1.html> (Accessed
the demonstration effects of a few emerging market 11.06.2005).
transactions and the willingness of global weather Callon, Michel, Muniesa, Fabian, 2005. Economic markets as calculative
risk market makers to shoulder some up-front costs collective devices. Organization Studies 26 (8), 1229–1250.
in order to reap the benefits of a globally diversified Carruthers, B.G., Babb, S., 1996. The color of money and the nature of
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In such ways, the spatial reach of the effective performativ- Collier, J. Stephen, Ong, Aihwa, 2005. Global assemblages. In: Aihwa,
Ong, Stephen, J. Collier (Eds.), Global Assemblages. Blackwell,
ity of financial innovations such as weather derivatives is Oxford, pp. 1–22.
achieved. Cooper, Valerie 2004 ‘Weather to hedge’ Energy User News. <www.ener-
What is at stake if cultural economy is uncritical of the gyusernews.com/CDA/articleInformation/features/BNP_Features>
actions of global financial market makers such as the IMF? (Accessed 27.04.04).
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daily becomes ‘‘more like the markets posited by the the- heading for sunny times’ 25th February. Josef Auer, Deutsche Bank
ory’’ (MacKenzie, 2003a, p. 854). Research, Frankfurt am Main, Germany. <www.dbresearch.com>
(Accessed 23.01.2004).
Diprose, R., 2004 ‘Responsibility in a place and time of terror’
Acknowledgement Borderlands e-journal 3.1. <www.borderlandsejournal.adelaide.edu.
au/vol3no1_2004/diprose_terror.htm> (Accessed 09.07.2005).
An earlier version of this paper was presented at a ‘Cul- Dobson, John, 1993. The role of ethics in finance. Financial Analysts
tural Economy of Finance’ seminar held at the Open Uni- Journal (November–December), 57–61.
Goodman, Nelson, 1978. Ways of Worldmaking. Indiana Hacket
versity in September 2005. The seminar was generously
Publishing Company, Indianapolis.
supported by the OU Geography Department and the Cul- Haggerty, Jean, 2001. Weather derivatives: IFC moves to assist developing
tural Economy Theme of CRESC (Centre for Research in economies. International Financing Review 1414 (December 15).
Economic and Social Change), a Manchester and Open HasselStrom, Anna, 2003. Real-time, real-place market: transnational
Universities initiative funded by the ESRC. I am grateful connections and disconnections in financial markets. In: Garsten, C.,
Wulff, H. (Eds.), New Technologies at Work. Oxford, Berg, pp. 9–89.
to John Allen, Clive Barnett, Paul du Gay, Doreen Massey,
Hertzfeld, Henry.R., Williamson, Ray.A., Sen, Avery, 2004. Weather
Yuval Millo and Sam Randalls, and two referees for com- satellites and the economic value of forecasts: evidence from the
ments on an earlier draft of this paper. The usual disclaim- electric power industry. Acta Astronautica 55, 791–802.
ers apply. Hess, Ulrich, Richter, Kapar, Stoppa, Andrea undated. Weather risk
management for agriculture and agri-business in developing countries.
In: Dischel, Robert (Ed.), Climate Risk and the Weather Market:
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The crowd is usually wrong.
—humphrey neill,
Tape Reading and Market Tactics

The bigger the crowd, the better the performance.


12  Market Crowds an online brokerage

Urs Stäheli

in 1967, the popular financial journalist and former portfolio manager George
Goodman (alias “Adam Smith”) asked, “Is the market really a crowd?” And with-
out hesitation, he suggested a crowd psychology of financial markets: “The mar-
ket is a crowd, and if you’ve read Gustave Le Bon’s The Crowd (1895) you know a
crowd is a composite personality.”1 In his best-seller The Money Game, Goodman
refers to crowd psychology as the primary tool for grasping the market—moreover,
he does not simply aim at a polemical description of the market, but he also sug-
gests a practical guide for succeeding in the market. “Adam Smith” is no exception,
with his suggestion that financial markets may best be described and analyzed with
the tools of crowd psychology. Excerpts from Le Bon on crowd psychology are of-
ten reprinted in anthologies of investment theory2; and in 2002, Robert Menschel,
senior director of Goldman & Sachs, published a whole reader on the crowd and
the market with the title Markets, Mobs, and Mayhem, also including reprints of
Le Bon and other crowd theorists.3 Additionally, a whole subdiscipline within eco-
nomics has emerged that calls itself “behavioral economics”4 and that also refers to
Le Bon as one of its founding fathers. While Le Bon has been expelled from other
social sciences, such as sociology or political science, we can observe a resurrection
of crowd psychology within investment theory and finance guidebooks.5
This is even more amazing because financial markets are often also seen as
one of the most rational and efficient features of modern society. In 1931, Rich-
ard Whitney, the former director of the New York Stock Exchange, who was later
imprisoned for financial fraud, praised the stock exchange as an “efficient institu-
tion.”6 It is the stock exchange where the great economic fiction of the homo oeco-
nomicus finds its ideal stage: the stock market promises nearly complete price in-

schnapp new 158ff1.indd 271 6/1/06 11:47:15 AM
formation and a minimum of transaction costs. Thus, the the discursive terrain for thinking about social groupings
preconditions for establishing an autonomous and ratio- that are no longer based on stratified identities such as class
nal economic individuality seem to be met perfectly. How, and gender. This modernity of crowd semantics is often
then, does this paradigmatic realm of economic individu- overlooked, but it is crucial to understanding its success. In
ality turn into the nightmare of the crowd market? What what follows, I first discuss Charles Mackay’s Extraordinary
makes the semantics of the crowd so attractive for describ- Popular Delusions and the Madness of Crowds (first pub-
ing financial markets? lished in 1852), which also deals with speculative “market
At first sight, discourses on the crowd and those on fi- crowds” before the advent of crowd psychology.9 My read-
nancial markets seem to be quite distinctive, bearing few ing of Mackay tries to show why the semantics of the crowd
parallels or points of connection. At the turn of the centu- proves to be so attractive for describing financial specula-
ry, crowd psychology tried to come to grips with the dark tion. Although Mackay establishes crucial elements for un-
underside of modernity, exemplified by lynch mobs, mass derstanding the crowd as a modern phenomenon, he does
crimes, and masses deluded by demagogic political leaders not address the question of how to deal with the crowd. In
and the irrationality of crowd behavior. It was in this con- the second part of the paper, I want to show how the invest-
text that crowd psychology tried to account for that which ment philosophy of the Contrarians benefited from crowd
was related to, but not in accordance with, the optimistic psychology. It is here that crowd psychology becomes a tool
ideals of modern western societies: rational individuals turn for constructing the ideal speculator.
into blind and passionate elements of a crowd, democracy
is not ruled by enlightened citizens, but dominated by the
cruel “demon of the demos.”7 In short, the diagnosis seems Speculative Frenzies: Charles
to be clear: rationality is superseded by irrationality, endan- Mackay’s Description of Financial
gering the project of modernity.
Crowd semantics was introduced as a discursive means
for diagnosing and dealing with this crisis of modernity. Le In 1841 the Scottish poet and journalist Charles Mackay
Bon exclaimed that with the advent of the twentieth cen- published the first volume of his monumental study on Ex-
tury, the “era of crowd” has begun.8 The crowd becomes traordinary Popular Delusions and the Madness of Crowds,
a typically modern phenomenon, and not only because it which was completed in 1852.10 This book has no theoreti-
emerges at places and institutions that are representative cal ambitions. Rather, it uses the semantics of the crowd
for modernity, such as the city. It also suggests a critique as the common denominator for a heterogeneous collec-
of modernity by showing what happens when the ideals of tion of phenomena ranging from witchcraft, alchemists,
modern society—universality and equality—are radicalized and beard fashions to speculative frenzies. The first three
and, from the perspective of the crowd psychologist, un- chapters—three historical cases of speculative mania—fo-
duly overstretched. Now modern universalism, best exem- cus on exemplary cases of “speculative delusions”: tulipo-
plified with common suffrage, turns into a tyranny of the mania in the Netherlands, John Law’s Mississippi Scheme
crowd, and the ideal of equality starts to resemble a viral in France, and the South Sea Bubble in England. Let me
contagion. However, crowd semantics not only formulates only briefly point to how Mackay uses the semantics of the
a conservative critique of modernity, but it also prepares crowd when describing financial crazes (without going into

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schnapp new 158ff1.indd 272 6/1/06 11:47:15 AM
historical details). Mackay introduces money and financial conceive of the relation between ego and alter ego. The no-
speculation as one central cause for “popular delusions”: tion of the crowd is an attempt at dealing with the anony-
“Money, again, has often been a cause of the delusion of mization of the alter ego. This semantics is a big challenge
multitudes. Sober nations have all at once become desper- to older ideas of society that focused on its hierarchical or-
ate gamblers, and risked almost their existence upon the ganization into different classes and sociocultural identi-
turn of a piece of paper. . . . Men, it has been well said, ties. Crowd semantics describes the breakdown of stratified
think in herds; it will be seen that they go mad in herds, forms of differentiation, such as feudalism, and replaces it
while they only recover their senses slowly, and one by one” with a picture of a classless assemblage of anonymous peo-
(EPD, xviii). Mackay argues not from the perspective of an ple. One of the great discursive advantages of crowd se-
economist who is interested in market dynamics and fail- mantics lies precisely in being able to speak about collective
ures, but rather from the perspective of a political observ- transformations that are not restricted to a particular strata
er who notes that “whole nations” turn into gamblers. But or group of society. The wish to be a part of the specula-
how does he relate the English or French people to the fi- tive crowd is universal: “Every fool aspired to be a knave”
nancial mobs and crowds? It is the process of delusion that (EPD, 55). The crowd seized by a speculative frenzy is not
describes the strange transformation into an irrational col- simply a lower stratum of society; everyone may become
lective—a transformation that cannot be explained by the victim of this maddening process (see EPD, 21, 55, 59, 97).
internal logic of the people. A nation becomes mad not be- The crowd, then, indicates the leveling of social, cultur-
cause it is already pathological,11 but rather it requires an ex- al, and sexual identities, because everybody can become its
ternal catalyst—money—that makes it deluded. member. Mackay often describes speculative crowds as a
Although Mackay describes the emergence of crowds as chaotic assemblage of people coming from a wide variety of
a maddening process, the meaning of the crowd is not ex- social and cultural origins. Speculative crowds simply con-
hausted by its irrationality. Rather, his description of the sist of “all ranks of society,” or simply “every body” (EPD,
crowd starts to oscillate between its irrationality and, at the 55). It is precisely this all-inclusive and equalizing force of
same time, an unheard-of modernity. My contention is that the crowd that fascinates Mackay (and his contemporaries).
Mackay uses crowd semantics to describe a paradigmatical- Descriptions of speculative crowds, then, often point at this
ly modern form of collectivity that stands in stark contrast social heterogeneity of crowds and at this most improb-
to older ideas of communal belonging. Thus, crowd seman- able mixture of classes, professions, and gender: Specula-
tics is neither simply the remnant of a rebellious folk cul- tive crowds include “Cookmaids and footmen” (EPD, 20),
ture, nor an elitist denunciation of the “popular,” as Brit- but also “persons of distinction, of both sexes” (EPD, 59).
ish cultural studies would have it.12 It tries to envisage what The crowd affected by Dutch tulipomania, for example,
consequences the modern ideals of equality and inclusion is described by a list of heterogeneous identities: “Nobles,
have. This becomes clearest when we try to identify how citizens, farmers, mechanics, seamen, maid-servants, even
crowd semantics organizes meaning. We can do so by dis- chimney-sweeps and old clotheswomen, dabbled in tulips”
tinguishing three different dimensions of meaning which (EPD, 97). It is no accident that Mackay describes these
undergo crucial transformations: the social, the temporal, crowds by using lists and enumerations: there is no pregiv-
and the fact dimension of meaning.13 en identity that could provide a common foundation.
The social dimension deals with the problem of how to The crowd is an enumeration within which the singular

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element loses its distinctive identity—and it is this equal- comes the cause of a paradoxically individualizing collective
izing and deindividualizing logic that is also diagnosed as delusion. What is interesting is that the effect of this delu-
excessive and pathological. The equality produced by the sion is primarily based on the fictionality of its common
crowd does not know any limits: everybody who approach- thing: the wealth is not yet realized, but may be realized in
es a speculative crowd soon becomes a deluded specula- the future, often at an imaginary exotic place geographical-
tor him- or herself. Even before crowd psychology invoked ly far away in some colonies.16 The breakdown of a specu-
the vocabulary of contagion and suggestion, Mackay de- lative frenzy, then, is consequently described as defiction-
scribes the social logic of the crowd as a contagious psy- alization—as getting back to reality: the South Sea Bubble
chopathology (“frenzy,” “mania,” “panic,” and “delusion”) “fixed the eyes and expectations of all Europe, but whose
that ignores already existing social differences. The behav- foundation, being fraud, illusion, credulity, and infatua-
ior of the crowd cannot be regulated because all established tion, fell to the ground as soon as the artful management
strategies of control are dependent on the social strata of of its directors were discovered” (EPD, 73). What Mackay
society. The description of speculative crowds starts to re- links is the semantics of the crowd with that of fictionality:
semble depictions of carnival. During the peak of the Mis- Fiction becomes the source of delusion, and delusion is the
sissippi scheme in France, a huge crowd of speculators and mechanism which transforms a sober nation—or even Eu-
would-be speculators gather in front of John Law’s man- rope—into a speculative crowd. The crowd phenomenon,
sion: “Their various colours, the gay ribands and banners then, shares with the fictionality of its “thing,” its instabili-
which floated from them, the busy crowds which passed ty: As soon as the illusion of boundless wealth breaks down,
continually in and out—the incessant hum of voices, the the crowd starts to dissolve.
noise, the music, and the strange mixture of business and The fictional “thing” of the speculative crowd is not
pleasure on the countenances of the throng, all combined only unstable, but it also becomes addictive. Speculation
to give the place an air of enchantment that quite enrap- “would hold out a dangerous lure to decoy the unwary of
tured the Parisians” (EPD, 17). The variety of the crowd is their ruin, by making them part . . . for a prospect of imag-
best exemplified by its noisy character—a noise that is not inary wealth” (EPD, 53). The articulation between specula-
only a nuisance, but also the celebration of the chaotic and tion and the crowd is based on the role of the imaginary.
equalizing logic of the crowd.14 Speculation is an economic communication working with
But how is this strange equality within the speculative imaginary values—and it is, in other words, contrasted
crowd generated? It is here that the “fact dimension” (Sach- with the “real” economy, defined by work and production.
dimension) of meaning becomes crucial. The crowd is not The crowd, in turn, is usually characterized by a loss of re-
held together by the identification with a leader, but with ality: be it the loss of sound reasoning and rationality, or be
an impersonal object.15 The speculating crowd is unified by it of a mere sense of reality, because the crowd believes even
“a vision of boundless wealth” (EPD, 15). It is important to most improbable suggestions if they are presented appeal-
note that the common “thing” of the crowd is a highly in- ingly. Thus, the highly fictionalized economic practice of
dividualized fiction. The idea of “boundless wealth,” then, speculation finds its correlate in the crowd, which is held
is not the wealth of a community of speculators (that is, together by just as fictional a common concept.
a common good), but the wealth aspired to by individual Let me now turn to the temporal dimension of mean-
members of the crowd. It is this common thing that be- ing. Speculative crowds are characterized by a time struc-

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ture also common to other crowd phenomena. They are phenomenon. Speculative crowds are, first, egalitarian
marked by a temporal discontinuity, because a specula- crowds—and this egalitarianism is so successful that it ig-
tive crowd does not develop slowly, but emerges suddenly: nores all established boundaries: everybody hopes to make
“We find that whole communities suddenly fix their minds easy money by speculation and joins the heterogeneous
upon one object, and go mad in its pursuit; that millions of crowd of hopeful speculators. Thus, speculative crowds do
people become simultaneously impressed by one delusion” not respect older social, ethnic, and gender distinctions.
(EPD, xvii). A crowd, then, does not have a long history, Second, the speculative crowd is integrated by an indeter-
providing it with a foundation—such as the history of na- minate fictional object: the hope for future wealth. Thus, it
tion. Thus, crowd semantics attempts to grasp a collectivi- is a celebration of thinking in terms of future possibilities
ty without history—a collectivity where sudden emergence and options, contrasting the force of traditions. The con-
replaces cultural and historical traditions. tingency of the future becomes an economic opportunity
It is precisely because there is no common past of the in the present. That is also why, third, speculative crowds
crowd that its presence and future become crucial for its define themselves not in terms of a shared past (which they
definition. Here again, crowd and speculation ideally com- do not have), but in terms of a future prosperity. It is crucial
plement each other. As we have already seen, the fiction- to understand that the speculative crowd does not believe
al good “boundless wealth” is a highly temporalized good: in a common future good, but in individual success. To put
it is wealth of the future (that is, the prospect of wealth) it differently, the fictional object is highly individualized,
that creates the present effects of delusion. The future tense and it is this individualization that is shared by all members
of speculation is based on the celebration of contingency: of the speculative crowd.
there are possibilities in the future that have not yet been
discovered. Thus, speculation is based on future possibili-
ties hidden in the “not yet”—and it is this aspect that, in Crowd Psychology as Market
turn, further qualifies its fictional status. It is a fiction that Psychology
flirts with reality: its raison d’être is precisely being a realis-
tic fiction; a fiction whose realism will be tested by the way Although Mackay provides a dense description of these ear-
things go. That is why the end of a speculative frenzy is of- ly speculative crowds, they are still treated as an exception
ten described as the breakdown of an illusion, and as get- to the normal working of society. Speculative crowds are
ting back to reality. This emphasis on the fictional nature of like an illness that suddenly emerges and that will disap-
financial speculation is also a crucial argument for discours- pear after some time. This also shows itself in the structure
es on speculation in the twentieth century. Every successful of the book, which resembles a collection of curiosities—
broker will have to develop some sort of “speculative fan- that is, odd phenomena that are a bit frightening but that
tasy,” without, however, succumbing to the lure of its delu- are, above all, entertaining. What makes speculative crowds
sions. Success in financial markets, then, will be measured so appealing is their carnival-like structure. They point to
by one’s capacity for handling the distinction between real- the frightening possibility that society could be structured
ity and fiction. differently: a society governed not by hierarchies, but by
Let me briefly summarize my argument so far. Mack- a strange form of equality. As we have seen, Mackay does
ay understands the crowd as a frightening and modern not paint a positive picture of this new form of equality

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and self-organization; rather, he underlines the irrational- tional systems for observing and organizing their modes of
ity, amorality, and threat of these crowds. Still, we should inclusion. Such a rearticulation goes beyond Mackay be-
not forget that even Mackay’s critical description hints at cause it no longer understands the crowd as accidental to
the modernity of crowd phenomena. It is in this sense that the spheres of modern societies, but as constitutively linked
the semantics of the crowd becomes a “crisis semantics” of to the specifics of these spheres.
modernity: a semantics that, on a most general level, tries What does this mean in the context of financial specu-
to deal with the transformation of stratified societies into lation? First of all, speculative crowds are no longer seen as
functionally differentiated societies.17 contingent epidemics, but as a pathology generated by eco-
That is also how the affinity between the market and nomic processes. It is no longer the fate of the nation that
crowd semantics is generated. Both, at least in their self- is at stake, but the future of the economic system. Now,
descriptions, suggest a radical form of equality. The logic the notion of the crowd refers to an often repeated lament
of the market is no longer governed by stratified rules of over the increasing number of incompetent speculators. In
inclusion and exclusion, because, at least in principle, ev- his 1908 memoirs, the former broker Henry Clews criticiz-
erybody who has the necessary financial means (or credit) es the belief “that any man who has money can speculate.”
is welcome to participate in markets. And crowd seman- The reason for this is that “people forget that the business
tics, similarly, stresses that everybody can become an ele- of speculation requires special training, and every fool who
ment of a crowd because its dynamics erases the particular- has got a few hundred dollars cannot begin to deal in stocks
ity of the individual. Against the modern optimism of an and make a fortune.”19 Although Clews does not resort to
increasing universalism permeating all spheres of society, the rhetoric of the crowd, he plainly formulates the prob-
crowd semantics polemically exhibits the limits of this uni- lem that the notion of the crowd tries to describe: the wid-
versalism. With the advent of crowd psychology in the be- ening access to financial markets has led to a popularity
ginning of the twentieth century, this skepticism initiates a of speculation that is no longer in line with even the most
discussion that juxtaposes the possibility of universal access basic forms of economic competency. To put it different-
with the competency of those who are going to be includ- ly, financial markets are even open to those who, from the
ed. From this perspective, key ideas of modern universal- perspective of economic rationality, do not know anything
ism, such as the postulate of universal suffrage in the politi- about how these markets work. In a similar way, the trader
cal system or free access to markets, are seen as intrinsically M. C. Brush also notes, “I wish you would leave this off the
deficient. Often, this problematization is only understood records. Well to be perfectly frank with you, it is a pathetic
as a conservative reaction to the emergence of new societal basis on which the average man buys stocks.”20
structures.18 This is certainly a legitimate reading, although This diagnosis of an overstretched universalism, which
it tends to neglect the fact that this critique also attempts leads to the inclusion of highly incompetent speculators, is
to address this tension within universalism. To put it dif- not always seen as necessarily problematic. Charles Emery,
ferently, whereas the rhetoric of equality and universalism who was one of the eminent early theorists of stock specu-
presents these concepts as if they had no limits, crowd se- lation, also observes positive effects of mass inclusion. Al-
mantics points precisely at the other side of modernism. In though speculation may be tragic for the unfortunate small
what follows, I want to argue that despite its initial conser- speculator and may even be morally illegitimate, the wid-
vative articulation, the notion of the crowd is used by func- ening of the market is seen as stabilizing.21 Or to put it

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like a recent slogan of the online broker Instinet.com: “The be accepted as a normal feature of financial markets. Thus,
bigger the crowd, the better the performance.”22 Wheth- those who participate in the market have to know crowd
er the inclusion of an incompetent crowd is seen as prob- psychology in order to understand the market. In con-
lematic or not on the macroeconomic level, it still poses a trast to Mackay’s account of the crowd, an analysis of the
problem for the individual speculator. Even if the overall crowd is now automatically an analysis of how the market
effect of the crowd may increase liquidity, the individual works. Taking seriously this “crowd” definition of the mar-
speculator wants to succeed as individual. It is here that ket makes Gustave Le Bon’s crowd psychology highly at-
the usage of crowd psychology (and not only of the more tractive. The reason for this is that it presents not only psy-
general crowd semantics that was exemplified with Charles chological laws of crowd behavior, but, more importantly,
Mackay) becomes important because it promises a tool for it also introduces the leader as an element confronting the
survival on the market. Thus, the crowd is now being for- crowd. What Le Bon envisaged as the power technologies
mulated as a problem that confronts every speculator—and of political leaders gets translated into a managerial dis-
crowd psychology offers tools for success on the market by course on how to beat the crowd.
understanding the psychology of market crowds. In the beginning of the 1920s and 1930s, crowd psychol-
It is the formulation of the crowd as a problem that ogy became the intellectual foundation of the investment
opens up the discursive horizon for the development of dif- philosophy of the “contrarians.” Humphrey Neill, who is
ferent strategies for regulating and controlling the crowd. often seen as one of the founding figures of the contrarians,
This change of interest also indicates itself in the prefaces to draws heavily on Mackay and Le Bon.25 Although I will fo-
more recent editions of Mackay’s compendium, which read cus on Neill’s position in what follows, it is worth mention-
it as if it were already a market psychology. Now Mackay ing that elements of crowd psychological thinking are not
is turned into a guidebook for succeeding on the market. unique to the somewhat obscure contrarians in Vermont.
The finance manager Ron Baron, for example, distributes There is a whole academic branch specializing in behavioral
Mackay’s book free to all his employees.23 Furthermore, the management that also refers to Le Bon to understand mar-
legendary financier and speculator Bernard Baruch opens ket dynamics.26 But perhaps nobody has better described
his preface to a reprint of Mackay with a generalization of the role of the crowd for investment theory than John May-
crowd semantics: “All economic movements, by their very nard Keynes: “The actual, private object of the most skilled
nature, are motivated by crowd psychology. . . . Without investment today is to ‘beat the gun,’ as the Americans so
due recognition of crowd-thinking (which often seems well express it, to outwit the crowd, and to pass the bad, the
crowd-madness) our theories of economics leave much to depreciating, half-crown to the other fellow.”27 For Keynes,
be desired.”24 It is with this generalization that a problem crowd thinking in the economy is scandalous because it
emerges that Mackay only casually addressed: there is not accepts the irrationality of the economy instead of defeat-
only an intrinsic connection between the economy and ing “the dark forces of time and ignorance.” The skilled
crowd psychology in times of crisis, but this connection is speculator, then, has to study, and possibly even partially
the normal state of financial economy. to adapt to the judgment of the crowd instead of finding a
This normalization of crowd semantics requires a differ- sound judgment about the “true” economic value of invest-
ent way of dealing with the crowd. The crowd is no longer ments. Thus, the full scandal of the market crowd is that
seen as a transient phenomenon, and that is why it has to economic rationality requires one to relate to the irrational-

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ity of the crowd: “It may profit the wisest to anticipate the mob psychology rather
12A  ‘Ochlos’: Ancient Greek than the real trend of events, and to ape unreason proleptically.”28
Sebastian De Vivo It is precisely this relationship to what Keynes calls the “mob psychology” of the
market that is the basis for the rearticulation of the distinction between the crowd
and the leader in the contrarian investment philosophy. The central question is
how to behave in markets, which are governed by the logic of the crowd—and for
Greek language possesses a rich and varied
the contrarians, all financial markets are eventually based on this logic. The aim
terminology for the concept of crowds. This is
is to beat the market, or to outsmart the crowd by observing it. The foundation
hardly surprising, in light of the relentless preoccu-
and legitimation of this investment philosophy is an a priori knowledge about the
pation with the political realm that swept the city-
quality of crowd judgment: “The crowd always loses because the crowd is always
states of Greece at the end of the so-called Dark
wrong. It is wrong, because it behaves normally.”29 Or briefly: “The crowd is usu-
Ages (up to the eighth century BCE). The turmoil
ally wrong.”30 It is this “normal falsity” that generates speculative opportunities. It
of the Greek Renaissance saw the advent of the
is the “stupidity of the many” (WYWL, 21) that enables a few investors to act in-
polis, innovations in interregional trade and com-
telligently: “The crowd is always 75% wrong marketwise. Were it otherwise, the
merce, and the shifting of political power from
market would be unprofitable for the Insiders.”31 Speculation, then, is seen as zero-
chieftains and tyrants to the citizen body. The
sum game: “Speculation can be worth while only when a few are taking advantage
Greeks developed a complex vocabulary to con-
of the stupidity of the many” (WYWL, 174–5). Thus, the basic idea of contrarian
ceptualize “the people,” as the totality of a city-
speculation is to position oneself against the crowd in order to arrive at good in-
state’s citizen body, and as the integral partici-
vestment decisions: “The art of contrary thinking consists in training your mind
pants in highly visible political and military groups,
to ruminate in directions opposite to general public opinions; but weigh your
in contrast to a tyrannical leader and an elitist
conclusions in the light of current manifestations of human behavior.”32 What this
quote already indicates is that it does not suffice to oppose the crowd; the investor
The standard definition of the Greek term och-
must take into account the specific situation. Contrarianism is not simply a pure
los (⎞xlow) is “a crowd, throng.” In this it close-
“counter-mimicry”; it also requires a “subjective synthesis” (ACT, 143), which rein-
ly parallels the term homilos, “assembled crowd,
troduces the ability to think against the logic of affect which governs the crowd.
throng of people,” and ochlagogeo, “crowd, mob,”
Thus, the contrarians fully accept that markets are crowd or mob markets—
literally “a led crowd,” as opposed to similar terms
and that there is only one consequence to be taken from this diagnosis. It is not to
with broader political implications, such as laos,
make markets more rational (as Keynes, in theory, may have wished), but rather
“people, folk,” and demos, “country, land, citizen-
to construct a speculator who can withstand and make use of the crowd. Whereas
ry.” In its standard sense, ochlos is often used in
Le Bon was still interested in controlling the market, the contrarian speculator has
relation to armies and soldiers and their camp fol-
given up this hope. And there is a good reason for this: he profits from the mad-
lowers. It is also a fairly unmarked way to refer to a
ness and mistakes of the crowd. The contrarian investor is not interested in how a
group or crowd.
certain company whose shares he possesses develops or what the economic pros-
The term ochlos also carries a political conno-
pects of a particular branch are. Rather, he uses crowd psychology as a tool for sec-
tation, as “populace, mob.” For Plato, ochlos can
ond-order observations: he is only interested in the judgments and observations of
refer to a popular assembly, and for the oligarchic
other investors. It is for this reason that contrarianism shifts the meaning of eco-
philosopher, the term certainly carried a nega-
nomic reality. While Keynes was disappointed about disregarding “real” economic

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trends, the contrarian is happy to stress the reality of observations: “Is not human tive implication. In the dialogue Gorgias, Socrates
action also fundamental?” (ACT, 58). A contrarian, then, has to become a true sec- states that “the rhetorician’s business is not to in-
ond-order observer: he does not observe how the economy develops, but how the struct a law court or a public meeting [ochlos] in
economy is observed by other speculators—and he takes his observations of others matters of right and wrong, but only to make them
as the basis for investment decisions. believe; since, I take it, he could not in a short
But this redefinition of economic reality in terms of mutually observing mar- while instruct such a mass of people [ochlos] in
ket participants is not the whole story.33 For the contrarians, it only prepares the matters so important” (455a).
terrain for the construction of the ideal speculator. What contrarian investment For Plato’s pupil Aristotle, the term is likewise
philosophy inaugurates is a whole program of disciplining and individualizing a politicized. In The Politics, he refers to oligarchs
speculator firmly posited against the crowd. In order to sustain his identity and playing the role of demagogues and currying to
to secure his chances for profit, he always has to be in the position of the minor- the mob in their bid for power (1305b). In this, he
ity: “Contrarians are a permanent minority, comfortable only in articulate opposi- is directly indebted to the great Athenian lawmak-
tion to the placidly received wisdom or panicked self-delusion of the majority.”34 er Solon, who in his elegiac poetry harangues the
But how is it possible to maintain this difficult position? How does the speculator citizens of Athens for their mindless support of the
protect himself against the delusions of the crowd? It is here that Le Bon’s distinc- tyrant Pisistratus, crystallizing the oft-repeated no-
tion between the leader and the crowd becomes crucial. However, the contrarians tion of the crowd as a mindless entity swept away
do not simply copy Le Bon’s idea of the leader, but rather rearticulate it in an im- by charismatic oratory and unable to see or realize
portant way. Although Le Bon was skeptical about the possibility of governing a its best interests.
crowd, he still expected that at least a precarious mode of control could be estab- The term appears 641 times in the Greek main
lished that would help to maintain the very distinction between the statesman as corpus, from the tragic and comic poets, through
leader and the crowd. Thus, Le Bon suggested a couple of techniques that help to the great philosophers Plato and Aristotle, and on
seduce and control the crowd. In the contrarian idea of market crowds, the figure to the New Testament. The term survived into the
of the leader is neither simply copied nor abolished. The speculator is supposed Middle French ochlocratie, “a government by the
to take the role of the leader, but without aiming at governing and controlling the populace,” and modern Italian oclocrazia, “mob
crowd. It is this difference that makes it necessary to split the figure of the lead- rule, rule of the plebs,” from the Hellenistic coin-
er into two very different functions that can no longer be occupied by one single age ochlokratia, “mob rule.” It was soon to enter
person. The function of seduction and control becomes impersonalized to a large the English language as ochlocracy, “rule of the
extent. Financial crowds do not require a figure of identification external to the populace, mob,” a term used in 1991 by the Ob-
market,35 but it is the market itself that becomes seductive. server, in quoting the Russian newspaper Pravda
How does it accomplish this task? Neill points to this problem when he ex- as claiming that Boris Yeltsin’s run for the presi-
plains that it is the movement of prices that attracts and seduces investors (TR, dency was backed by an ochlocracy.
35). In a similar vein, Bond argues that the popular speculator buys because of
tips and “prices going up before his eyes.”36 The idea that prices replace the lead-
er has become very successful and has also been repeated more recently. Neil A.
Costa, a professional trader and director of Market Masters, explicitly refers to this
transformation of the leader: “In the case of trading, the crowd leader becomes
‘price.’ “37 Certainly, the old personalized form of the leader also survives—there

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are investment stars and analysts who may figure as leaders, thus governing the
market crowd by their predictions.38 However, only focusing on star traders tends
12B  Barneys New York: The to neglect the fact that the function of the leader has undergone a deep transfor-
Warehouse mation by becoming largely impersonal. What survives is the idea that the crowd
Jessica Burstein
only reacts to clear and easily understandable signals: It is not a slight change in
prices that attracts the crowd, but “very obvious changes”39—it is not least the sen-
sual phenomenon of fast movement that may catch the attention of the crowd.
All that glitters is gold.
—Smash Mouth, “All Star” These movements reduce the complexity of market volatility to a clear signal
that does not require the investor to understand the mechanisms producing the
Three truisms:
Shop alone; friends are for bars.
changes. The rapid movement starts to resemble a clear-cut signal that catches the
You don’t make art out of good intentions. attention even of the small speculator. Moreover, it makes the function of the lead-
No amount of irony can redeem teal. er democratic: the small investor who observes such a movement knows that it is
—Flaubert created by other members of the crowd. Instead of imitating the slogans of a lead-
er, who may have been once part of the crowd but is now removed from it as figure
identification, the market crowd starts to imitate itself.40 The investor knows that
You arrive early and walk into a room after hav- he could not only have been caught up within the price movement, but also that
ing surrendered your backpack, and possibly a he could have profited from it. And it is precisely this observation of a possibly
kidney. Walk is a euphemism; you stand in line, missed opportunity that makes him want to join the crowd before it is too late. To
hopping from one foot to the other impatiently, and put it in terms of a more formal argument: Markets observe themselves by produc-
then once you are past the metal detector, you ing prices41—and it is this self-observation that takes on the role of the leader.
break into a low-key sprint; you do not want to get However, I have mentioned that the classical function of the leader is not fully
winded early. Travel light, because this is serious. absorbed by this impersonal mechanism of prices. The second function of the clas-
If you are smart, you have worn shoes that slip on sical figure of the leader was to control the crowd. Quickly changing prices may
and off easily, no bra in case you find a sleeveless seduce the crowd, but they do not control the crowd. Thus, the control function
or backless number, and nothing that buttons: zip- of crowd psychology becomes significantly altered because it changes its reference:
pers are optimum. The smart and the brave wear it is no longer the crowd that has to be controlled; the contrarian investor has to
swimsuits, thus avoiding wasting time by periodi- learn how to control himself. To put it very simply, the contrarian investor has to
cally redressing. Although not necessary, it is rec- position himself against the market crowd. In order to do this, he has to know how
ommended that you spend the prior week dieting, to maintain his individuality and autonomy—especially because he cannot seek
because this will make you feel worthy and cruel. approval of his position by the majority. It is this positioning that is central to the
The latter characteristic will be especially helpful. success of investing: like the leader, the investor has to maintain the distinction be-
There are four versions of Barneys New York, tween himself and the crowd. But in contrast to the leader, the contrarian investor
and they all come crowd-equipped: (1) the stores; is, in most cases, not visible to the crowd. He prefers that his investment decisions
(2) the outlets, the best of which is in California not be observed as exemplary because this would threaten his minority strategy.
(Camarillo, about thirty minutes outside of LA, For in taking advantage of the “stupidity of the many,” he must not become him-
which is about as close to LA as it’s worth getting); self part of the many. There is no easy solution to this agonistic position, which is
(3) the Barneys Warehouse Sales Event, held semi- best described by a popular investment slogan: The investor has to beat the mar-

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ket—and, one might add, without becoming a popular hero. annually; and (4) lunching with Simon Doonan.
The leader is thus transformed into a second-order observer whose decisions Here I shall focus on the Warehouse Sale.
are based on these observations. This position, however, creates considerable prob- There is nothing like entering a large room
lems for the contrarian investor because he has to accomplish two very different filled only with racks of designer clothing, be-
things: on the one hand, he has to produce mass observations; on the other hand, tween which are hordes of women ripping off their
he should not simply observe the market, but also make independent investment clothes, standing naked or nearly so in the aisles
decisions. The semantics of the leader, then, tries to solve this problem: The leader (if you sleep with women, the effect of this can be
is, by definition, different from the crowd: the crowd is his adversary. Thus, crowd dizzying, but the race goes to the dedicated: keep
semantics not only structures his observation of the market, but it also supports your mind on your work), squirming into or out of a
him in upholding the distance separating him from the crowd. To put it different- Viktor and Rolfe. How does this snap? Is this Vel-
ly, the semantics of the crowd tries to formulate a solution to the epistemological cro? Is this meant to wrap around the waist or is it
problem of the contrarian market observer: How to observe the market without a little floaty thing? What was Rei Kawabuko think-
becoming a member of the crowd. ing? You don’t have time to snap, button, or even
It is only now that the whole rearticulation of crowd semantics becomes clear: toggle, and forget about hemlines: you get into it,
it is not simply a metaphorical substitution of the classical leader, either by prices and if it fits, you grab it and move on. This is Mal-
or by the contrarian investor. The contrarian investor does not use crowd seman- thus, baby. Get outta my way. You may or may not
tics for controlling the crowd; he has given up the idea. Moreover, it is precisely choose to note the swizzle stick with the scream-
the irrationality of the crowd that produces investment opportunities. Instead of ing infant locked into the $800 Bugaboo like a
controlling the masses, crowd semantics helps the investor to individualize and tiny little Hannibal Lector from the Upper East
control him- or herself. What is being individualized is not the crowd but the Side. If you are there for tourism, you can waste
contrarian investor who has to develop a strong identity in order to withstand the time wondering whether she or her cell phone has
temptations of the market crowd. The test for every speculator is “how you behave more body fat, but if you’re there for real reasons,
when the crowd is roaring the other way . . . the crowd, the elusive Australopithe- you step over the caterwauling kid and grab the
cus, is still largely an unknown, an exercise in mass psychology still not accom- Helmut Lang, ignoring the fact that the swizzle
plished” (MG, 41).42 The relation between the contrarian and the market crowd is stick is now yelling at you that she was going to
not only a contest, but it is also the scenery of a possible seduction43—the seduc- try that on. The Botox makes her face strange-
tion by the mass, against which the contrarian has to posit himself, withstanding ly expressionless as she screams, a fact which
the comfortable pleasure of joining the majority. That is why “Adam Smith” stress- you will later find amusing over a martini; at the
es that a stable individual identity is a prerequisite for successful speculation: “If moment, though, this is simply noisy wallpaper.
you don’t know who you are, this is an expensive place to find out” (MG, 26, 80). She’s slow; she’s soft; she’s been doing Pilates,
However, the solution to this problem is not that easy, as many contrarian guide- for Christ’s sake. Well, a hundred double-leg kicks
books prove. They aim to provide not only a tool of observation, but also guide- aren’t going to get mommy any closer to this little
lines for how to keep on knowing who one is. The threat of the market crowd is felt number, sister, so just play past it. Not hav-
precisely that it transforms individuals into deindividualized streams of affect. The ing wasted time with children, you are accordingly
struggle against the crowd becomes internalized; it is hidden within even the most empathy-free.
stable and self-reflexive identity. The anger that Simmel identified as lurking be-
neath the blasé surface of metropolitan encounters

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is laid bare at the Warehouse Sale. Other people’s Disciplining the Speculator
bodies seem constructed solely as impediments
to one’s own negotiation of space. There are hun- Crowd semantics, then, opens the terrain for the development and usage of in-
dreds of would-be models, which on the street dividualizing technologies. There are at least four different technologies that are
makes for nice scenery but right now means that closely intertwined: techniques of observation, time management, affect control,
one’s sight is frequently obstructed. You see racks, and techniques of isolation.
and skin wandering around between them. Don’t
look at prices right now; you can hunker down and Techniques of Observation
do triage later. Right now, you live a life without la-
tent content. The individualization of the contrarian speculator is foremost a particular mode
If someone has grabbed something away from of self-observation. The speculator has to reassert his individuality by taking an
you, there are questions to be asked before actu- “impersonal view point” (TR, 64), which helps him to observe himself “objective-
ally assaulting them. ly.” This mode of observation is closely linked with a highly flexible attitude to-
1. Was it in your hands? If so, you can and ward himself: Past decisions are not necessarily right decisions, and the permanent
should grab it back. screening of one’s own decision should enable the contrarian to adapt his decisions
2. If it was not actually in your hands but on the to the market situation. What is required is “pliability” in the sense of an “ability
rack next to the really interesting corset-like eve- to change an opinion, the power of revision.”44 This pliability, however, does not
ning jacket that turned out to have some unfortu- mean adjusting one’s opinions to those of the crowd. On the contrary, the param-
nate rouching in the back, and you realize you’ve eters of this process are generated by a scrupulous process of self-observation—and
ended up with the aftermath of a Shirley Temple it is only these observations that may guide a reorientation of the decision-making
suicide bombing, etiquette dictates that you wait process. What becomes clear is that the ideal speculator is a figure of the present
your turn. “Waiting your turn” consists of brief in- and the future. He uses his past decisions only for critically evaluating his short-
tervals of staring at the woman who somehow got comings, not for relaxing the doxa of the past. The speculator has to keep in mind
the current object of desire before you did. Rum- that even his successful decisions may just be “luck and no skill”—that is why the
mage onward, but with an eye toward the moment imperative of the speculator is, “Analyze all of your transactions!”45 The particular
in which she discovers that she is not now and has mode of self-observation, then, is to analyze oneself by focusing on one’s invest-
never been a size 0. ment decisions. Because the contrarian is aware that the context for his decisions
3. Is it by Olivier Theyskens? If so, all bets are changes all the time, self-analysis always also means avoiding overidentification
off: go for the throat. Say that it is not her color. with one’s successes: “Pride of opinion and impatience will be your worst enemies”
Claim you have already paid for it. Ask her what (SSM, 125) Thus, the aim of these self-observations is to generate and maintain the
her child’s name is, tell her that you recruit for decision-making capacity of the speculator as a capacity directed toward the fu-
Brearley and are struck by such obvious infant ture. It is not the past that defines one as a successful speculator, but how one deals
beauty and intelligence; when she reaches for her with the challenges of the future. At the same time, it is this present and future
BlackBerry so that you may give her your office orientation that makes the contrarian speculator vulnerable, because his identity
phone number, grab the Theyskens and run away. lacks a firm foundation. As a man of the future, he always has to prove himself
You will often encounter men assisting their anew—and he always has to reestablish the distance that separates him from the
girlfriends, wives, friends, or clients. These men crowd. Although the artist may identify himself with his works of art, which dis-

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tinguish him from the crowd, the speculator always has to reestablish this distance are the equivalent of shrubbery. Do not be shy
that is so crucial to his survival. about undressing in front of them. They are holo-
Still, at the same time, he must not concentrate only on himself. In order to grams, albeit holograms who seem to be enjoy-
position himself against the crowd, he has to know the crowd. Thus, self-observa- ing themselves. Under no conditions make eye
tion is aided by “mass-observation,” but as I have tried to show, the contrarian is contact, unless you see that they are guarding that
not interested in controlling or steering the crowd. This is quite cynical because amazing Rochas double-breasted oyster-gray silk
the mistakes of the crowd are his investment opportunities. Observing the market coat with the high waist and super-skinny three-
crowd, then, means identifying the opinions he is not going to share—to which quarter-length sleeves made to overlay the watery
he will be opposed. The aim of these market observations is precisely to beat the pink silk dress that looks like a cross between the
gun.46 Although classical crowd psychology conceived of the relationship between lifestyles of F. Scott Fitzgerald and Jan Svenkma-
the crowd and the leader as public spectacle (at least in Le Bon’s work), now the jer. In that case, deep and meaningful eye contact
battle between the lonely contrarian and the crowd becomes privatized. The bat- is called for. Otherwise, not. However, if they offer
tlefield is switched to the identity of the contrarian speculator who struggles be- an opinion as to your own vestmental choices, you
tween opposition to the crowd and attraction to its dynamics. The self-positioning are free to do with them what you will, but remem-
against the crowd becomes difficult because it requires one to permanently distin- ber: every moment spent executing a cutting com-
guish between oneself and the crowd. That is why the contrarian has to make sure ment is a moment not spent in the presence of a
that he draws the correct line between self- and other-observation: “Is this truly Dries van Noten.
a generalized viewpoint, or is it perhaps a composite of my own views which the Although it is in your interest to be ruthless, it is
‘mirror’ misleads me to think are those of the crowd?” (TR, 157). What the con- not unusual to encounter strange acts of recipro-
trarian is confronted with is a difficult epistemological problem: How is it possible cal humanity or even politeness: an appreciative
to recognize the crowd? The problem is not only how to know the market; it also murmur once you have verified it isn’t your style,
affects the subjectivity of the speculator: In order to know the market, he has to be but will probably look good on the person who is
absolutely himself. This is also why the contrarians emphasize the importance of holding it; a shared eye roll at the third party who
these observational techniques: The permanent monitoring of oneself is a prereq- is waving what looks like an Oscar de la Renta suit
uisite for observing the market. However, at the same time, the contrarian is not jacket at a guard and asking if this comes in her
at all independent; rather, he has to define himself in relation to the market crowd. size; or the unholy joy of that amazing black chick
And it is precisely this relation that is seen as dangerous—the distinction between coming up to as you peel out of the Gucci, and
the contrarian and the market crowd is far from stable. when you sadly hand the thing over to her—im-
possibly long—she says, Cool thong. Yeah, you
Time Management say, La Perla. Simple pleasures for simple people.
As incredible as it is, shoplifting still exists.
One reason for this instability is that one cannot always posit oneself against the This is a stupid pastime, even for kleptomaniacs.
crowd. This is not only because of the difficulty of correctly identifying mass opin- Despite your terrible upbringing, do not partake.
ion, but also because sometimes even the crowd is right. That is also why Neill Everything you do is watched, recorded, wired;
has to relativize his leitmotiv: “ ‘The crowd is usually wrong’—at least, in its tim- your pulse rate is a known factor, and there is less
ing of events” (ACT, 2). Thus, one has to participate partially in the mass trends intimacy in an intravaginal probe. Nonetheless,
of the markets without getting lost in them. It does not pay to oppose the crowd you will occasionally stumble onto a Winona Ry-

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der wannabe who is busy trying to stuff a cocktail dogmatically because this would also mean that one cannot profit from ongoing
gown into her socks. Feminism means you keep trends. The difficulty is to follow the crowd partially, and, at the same time, to
on walking. keep a firm distance. The solution of the problem suggested by Neill is the dis-
The crowd ebbs and flows. There will be what tinction between a stimulus-driven crowd and a thinking individual. Following
seem like hours spent wriggling into a plastic Pra- Le Bon’s emphasis on suggestion, Neill notes that the crowd cannot think, but
da dress with black sight lines à la Etienne-Jules can only receive affective stimuli.47 One of the most important stimuli is the rap-
Marey, an achievement executed between twenty- id price movement mentioned above. Because of its dependency on such stimuli,
three other women who are so tightly wedged to- which do not require any reflection, the crowd does not develop the time con-
gether that for several seconds running you can’t sciousness that would be necessary for knowing when to act against the crowd.
figure out whose left arm it is that you have inad- Thus, the primary mistake of the crowd is not simply that it is wrong, but that its
vertently inserted into the dress sleeve, because decisions are always too early or too late. This time consciousness is closely linked
it does not seem to be yours. Any smaller, said to one’s abilities as an observer: it is only “thinking” that makes it possible not only
Robert Benchley about the office he shared with to receive impulses, but also to read them and to understand them as an element of
Dorothy Parker, and it would have been adultery. larger economic trends. Of course, there is a price to be paid for dealing reflexively
Crowd etiquette entails taking nothing personally: with the temporality of speculation: the speculator is slowed down because he can-
not looking up, removing the stray limb, and using not immediately react to impulses, but has to invest time in reading and reflecting
your hips to make a small lacuna in the flesh so on them. Still, it is precisely in the different way of relating to the temporality of
you can shimmy out. By now the racks are in dis- speculation that the crowd and the individual speculator can be distinguished.
array, skidded off center, with clothing, iPods, wal-
lets, cell phones—and is that a diaphragm?—on Affect Control
the floor, lost children wailing, beautiful women on
their hands and knees, crawling around in an orgy However, maintaining one’s identity as contrarian speculator is not only based
of Helmut Newton outtakes. The Chanel dress with on cognitive techniques; it also has to do with controlling and structuring affect.
the faux-prim plaid pleats now has a large footprint Drawing from classical crowd psychology, the contrarians describe the market
on it. Many have fallen, but the strongest survive. crowd as highly affective and contagious. Although this affectivity of the market
Pain is just weakness leaving your body. You will may clash with the ideal of the economic man, it is seen as an affectivity generated
suddenly find yourself in small bubbles of empty by the market itself: “It may seem that the statement that stock prices are mere-
space. Take this time to store up oxygen, but do ly the resultant of market actions based on hopes and fears of gain and loss, is so
not waste time wondering is this is a reflection of plain as to be hardly worth such emphasis.”48 It is not only the force of its opinions
the quality of the clothing at hand. The crowd has that makes the crowd attractive, but also its affective structure. Crowd psychology
no reason; it just is. was fascinated and frightened by how easily affect moves from one member of a
Yoox.com has done much to dissipate the crowd to another. Crowd semantics, then, describes the market as a battlefield be-
frenzy attendant upon Barneys Warehouse Sale, tween hope and fear, resulting in enthusiasm and depression. The struggle of the
so this may be something of a historical exercise. contrarian investor is even harder than that of the average speculator: Because he
Shopping online, however, deprives you of the deliberately positions himself against the crowd, he does not find supporting com-
reason Barneys was invented: the negotiation of fort in the company of others. In addition to the contagious feelings he is con-
crowds, punctuated by instant gratification, or in fronted with, he is exposed to the challenge of being one of the few who does not

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follow the crowd. That is why it is emphasized that being a contrarian requires not the parlance of the industry, “retail therapy.” Then,
only an independent intellectual stature, but also a hard psychic determination. too, there is the pleasure of knowing you got it
The contrarian needs “a complete mastery over one’s impulses, emotions, ambi- right. Do you know what it feels like to figure out
tions under the most heroic tests of human endurance.”49 Contrarian literature later that that Yohji Yamamoto sleeveless blouse
combines a psychological stance with a highly antipsychological one: On the one with that strange zipper at the bottom hemline ac-
hand, it explains market dynamics by the “human” factor, basically understood as tually transforms into a little purse, so you got two
crowd psychology. On the other hand, the ideal speculator seeks to get rid of his things for the price of one? Dar-ling, you have no
psychology—or at least of those dimensions of it that he cannot control. Most idea.
mistakes of speculators are seen as psychological mistakes—as a failure to master
oneself totally.

Techniques of Isolation

Affect control is based not only on self-discipline, but also on techniques of isola-
tion. Foucault has shown that the individuality of the prisoner is generated by his
or her architectural isolation from other prisoners.50 The technique of isolation is
a primary tool for producing individuals and overcoming the threat of a chaotic
crowd. Although the contrarian is not put into a cubicle, he still has to rely on
physical techniques of isolation. The contrarian is not only a man of independent
opinions and self-discipline; he also has to separate himself from other speculators:
“Trade alone! . . . Close your mind to the opinion of others; pay no attention to
outside influences. Disregard reports, rumors, and idle board-room chatter. . . . Be
a calm, unpleasant cynic” (TR, 44). However, it was also Neill who recommend-
ed establishing a contrarian position precisely by observing the opinion of other
speculators. Total isolation is impossible, but nevertheless, isolation is a powerful
technique for producing and maintaining one’s identity.
That is why the lonely speculator on the countryside has become a popular fig-
ure for exemplifying the contrarian speculator. Charles Dow—the originator of
the Dow Jones Index—points to the advantages of the “out-of-town trader”: “The
outsider who will wisely study values and market conditions and exercize patience
enough for six men will be likely to make money in stocks.”51 S. A. Nelson, the
author of one of the first stock market psychologies, also recommends retreating
to small places like Newport or Saratoga, especially during heavy market dynam-
ics.52 Spatial isolation, then, is supposed to cool down the speculator during hot
market times, to help him to keep his autonomy. Still, this technique is also para-
doxical because it presupposes what it is supposed to produce: a highly self-disci-
plined speculator. Bluntly put, “staying away from the market place means self-

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discipline” (SSM, 122). Only those speculators who are not bines the permanent observation of the market with the
addicted to the stock market are able to withdraw from it individualization of the speculator. Writing is presented as
for a while. The “suckers”—as the naive small speculators a technique to keep from losing oneself within the noise
have been called—do not have this discipline and become of the marketplace and the never-ending circulation of ru-
easy victims of market affect and rumors. mors and tips.
However, spatial isolation was not the only suggestion. These four techniques of inclusion are survival tech-
For many reasons, its efficiency was seen only as limited. niques for the lonely speculator who has to prove himself
First of all, its paradoxical nature—requiring self-discipline on the battlefield of the market. From the perspective of
in order to practice self-discipline—restricted its uses. Ad- crowd and market psychology, being a speculator becomes
ditionally, it was not that easy to escape the market. Even a never-ending test and a self-assessment that is intimately
in remote parts of the United States, there were broker of- linked with the subjectivity of the contrarian. The lure of
fices with a ticker reporting the most recent quotes.53 With the crowd and the comfort of the majority may appeal to
the advent of new media technologies, the market start- the contrarian in those moments of “human endurance,”
ed to be everywhere—and small crowds gathered at bro- when he has to struggle not only with his emotions, but
ker’s offices and restaurants equipped with a ticker. Thus, also with his role as a cynic observer set apart from the spec-
the idea of spatial isolation was supplemented with the ulating majority.
more abstract idea of communicative isolation. These tech- Let me return to my initial question: Why has the se-
niques allow the speculator to be at the marketplace, but mantics of the crowd been so successful for describing mar-
to separate himself from the surrounding crowd. In order kets? A first answer might suggest that it tries to rational-
to do this, he has to become indifferent toward rumors, ize the irrational: market panics and euphorias, deluded
which are the communicative equivalent of contagious af- speculators, and imitative trading. Such an answer, how-
fect. What is recommended here is that the speculator not ever, does not really address the function of crowd seman-
only refrain from participating in or listening to “idle talk,” tics for the finance economy—it treats crowd semantics
but also that he actively withdraw from the oral culture of merely as an ideology that rationalizes the intrinsic irratio-
the marketplace. Thus, Neill recommends never attending nality of global finance capitalism. My argument has tried
the marketplace without a notepad and a pencil: “Use pad- to escape such a reading of crowd semantics by addressing
and-pencil since it will occupy your mind and concentrate two different questions. First, I tried to take Le Bon seri-
your attention. Try it; you will not be able to chatter and ously when he wrote that we are entering into an “era of
keep track of trades at the same time” (TR, 44). Necessary the crowd.” Of course, my intention was not to argue for
isolation is now produced in a more refined way: the dan- a renewal of crowd psychology, but rather to ask how such
gerous and contagious oral culture of the marketplace is re- a link between modernity and crowd psychology is estab-
placed by writing. Although orality and visuality are seen lished. In order to do this, I returned to Charles Mackay’s
as the medium of the crowd, writing is that of the individ- The Madness of Crowds, which is one of the crucial source
ual. In this sense, the contrarian speculator separates him- books for crowd psychology. My reading of Mackay tried
self from the crowd not necessarily by retreating to a lonely to show that, despite the denunciation of the crowd, the
place, but by using the media technique of writing. Writ- crowd also represents a highly innovative semantics. The
ing, then, articulates two very different purposes: it com- reason for this is that it tries to develop a descriptive vocab-

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ulary for a form of a social “collectivity” radically different nizing the process of inclusion. Whereas in Europe (nota-
from well-established forms of social groupings. Specula- bly in France and Germany) crowd semantics was primarily
tive (and other) crowds are presented as social forms open used for excluding small speculators from the market, the
to everybody. Thus, crowds prove to be indifferent to the American investment philosophy of the contrarians accepts
prevalent identities of stratified societies, such as class, gen- universal inclusion into financial markets and becomes a
der, and ethnicity. Certainly, masses are often characterized tool for constructing a contrarian speculator—a specula-
as proletarian, feminine,54 and southern European, if not tor who is able to withstand the temptations of the market
African. However, this characterization does not alter the crowd. In order to do this, it became necessary to reartic-
astonishing dynamics of the crowd, which includes persons ulate Le Bon’s crowd psychology in at least one crucial as-
from all strata and professions, from every gender and eth- pect. Although market crowds are based on imitation, sug-
nicity. Thus, crowd semantics is the attempt to develop a gestion, and affect, the position of the figure of leader has
semantics that addresses inclusion into social spheres, such radically changed. Now the leader becomes a truly lone-
as politics or the economy, in universal terms. Of course, it ly figure because he ceases to serve as point of identifica-
presents this universal inclusion as a crisis, but it also pre- tion for the market crowd. Otherwise, he could not benefit
pares the discursive terrain for thinking about inclusion in from the mistaken judgments of the market crowd. In line
a new way. My argument is that it is precisely this semantic with this goes a crucial rearticulation of the idea of con-
innovation that is complementary to the semantics of the trol. Although classical crowd psychology tried to control
free market, which also presupposes, at least in principle, the crowd (although with skepticism regarding the odds of
the inclusion of everybody who has the necessary financial success), now it is the contrarian who has to control him-
means or credibility. Thus, the notion of the crowd is able self! Thus, the object of control has shifted from the crowd
to describe this new mode of universal inclusion and to to the former leader. The ingenuity of this “market crowd
criticize it at the same time. psychology” is that it simultaneously provides a technique
Mackay’s phenomenology of speculative crowds re- for observing the market crowd and one for controlling the
mains, however, basically descriptive. It was only with the contrarian speculator. The need to draw a permanent dis-
advent of crowd psychology and its economic rearticula- tinction between the observed crowd and one’s self-obser-
tion that it could become fully integrated into the work- vation becomes a generative principle. The contrarian spec-
ing of financial markets. Now the crowd is not only seen ulator finds himself in a never-ending test—a test not only
as an adequate description of the working of the finance of the economic rightness of his investment decisions, but
economy, but also transformed into a tool for constructing also a test of whether he is still himself or has already joined
the ideal speculator. Although Mackay presented the crowd the crowd. Crowd psychology has thus become a technique
as an odd (albeit innovative) pathology of modern society, for individualizing the ideal speculator. Paradoxically, the
crowd psychology “normalizes” crowds in two ways. First, semantics of the crowd, which is also always a lament for
market crowds are not only an excrescence of an otherwise the end of individualism, serves here as technique for con-
rational economy, but the normal logic of markets. Second, structing the speculator as homo oeconomicus.
this is linked to the usage of crowd psychology for processes
of normalization. Thus, crowd semantics ceases to work ex-
clusively as a crisis semantics and becomes a tool for orga-

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Douglas Lancashire, Modern Times: A Brief History of Enlighten- 4.  Robert Shiller, Irrational Exuberance (Princeton, N.J.:
ment (Hong Kong: Renditions / Research Centre for Translation, Princeton University Press, 2000); Richard Thaler, The Winner’s
1996), 25–27. Curse: Paradoxes and Anomalies of Economic Life (New York: Free
23.  Jean-Jacques Rousseau, “Lettre à d’Alembert,” in Oeuvres Press, 1992).
complètes (Paris: Gallimard, 1995), 5:115. 5.  See, e.g., James Dines, How Investors Can Make Money Us-
ing Mass Psychology (Belvedere, Calif.: James Dines, 1996); Lau-
chapter 11a rence A. Conors and Blake E. Hayward, Investment Secrets of
Hedge Fund Managers: Exploiting the Herd Mentality of the Finan-
1.  Sources: D. C. Lau and Chen Fong Ching, eds., A Con- cial Markets (New York: McGraw-Hill, 1995); Charles D. Ellis,
cordance of the Guoyu (Hong Kong: Commercial Press, 1999); D. Winning the Loser’s Game (New York: McGraw-Hill, 2002).
C. Lau and Chen Fong Ching, eds. A Concordance of the Li ji 6.  Whitney cited in John Steele Gordon, The Great Game:
(Hong Kong: Commercial Press, 1992); Tongyi Wang et al., eds., The Emergence of Wall Street as a World Power, 1653–2000 (New
A New Dictionary of Modern Chinese Language (Haikou, Chi- York: Scribner, 1999), 238.
na: Hainan chubanshe, 1992); Chuang-tzu (Zhuangzi), Chuang- 7.  Gregor Sidis, The Psychology of Suggestion (New York: Ap-
tzu: The Seven Inner Chapters and Other Writings from the book pleton, 1898).
“Chuang-tzu,” trans. A. C. Graham (London: George Allen and 8.  Gustave Le Bon, The Crowd: A Study of the Popular Mind
Unwin, 1981); Ci yuan, rev. ed., vol. 3 (Hong Kong: Shangwu (1895; reprint, New York: Macmillan, 1896), xv. Cf. Don DeL-
yinshu guan, 1979); Confucius, The Analects, trans. David Hin- illo, whose novel Mao II (London: Jonathan Cape, 1991) under-
ton (Washington, D.C.: Counterpoint, 1998); Dacheng yi zhang stands the crowd as a figure of the future: “The future belongs to
(Chapters of the Mahayana Doctrines), http://www.bya.org.hk/ crowds” (16).
html/T44/1851_013.htm; Hanyu da zidian (The dictionary of the 9.  Charles Mackay, Extraordinary Popular Delusions, and the
Chinese language), vol. 5 (Wuhan: hubei cishu chubanshe and Madness of Crowds (1841, rev. 1852; reprint, New York: Three Riv-
sichuan cishu chubanshe, 1986); David Hawkes, A Little Prim- ers Press, 1980); hereafter abbreviated as EPD.
er of Tu Fu (Oxford: Oxford University Press, 1967); Lu Xun, “A 10.  All chapters dealing with financial speculation are part of
Warning to the People,” in Diary of a Madman and Other Stories, the first volume.
trans. William A. Lyell (Honolulu: University of Hawaii Press, 11.  Gustave Le Bon’s eclectic crowd psychology also uses this
1990); Oxford English Dictionary, http://www.oed.com; Xu Shen, argument, when he refers to Völkerpsychologie (the psychology of
Shuowen jiezi zhu, annotated by Duan Yucai (Shanghai: Shang- peoples) to explain why certain “races” fall victim to crowd phe-
hai guji chubanshe, 1981); Zhongwen da cidian (The encyclopedic nomena more often than others (Crowd, 4).
dictionary of the Chinese language) (Taipei: The Institute for Ad- 12.  See, e.g., John Carey, The Intellectuals and the Mass (Lon-
vanced Chinese Studies, 1962). don: Faber and Faber, 1992).
13.  Niklas Luhmann, Social Systems, trans. John Bednarz Jr.
chapter 12 (1984; reprint, Stanford, Calif.: Stanford University Press, 1995),
1.  Adam Smith (pseud.), The Money Game (New York: Ran- 75 ff.
dom House, 1967), 23; hereafter abbreviated as MG. 14.  Urs Stäheli, “Financial Noise: The Popularity of Noise,”
2.  Charles D. Ellis and James R. Vertin, The Investor’s Anthol- Soziale Systeme 9, no. 2 (2003): 244–56.
ogy: Original Ideas from the Industry’s Greatest Minds (New York: 15.  This is an important difference from Le Bon’s crowd psy-
Wiley, 1997). chology, where the figure of the leader becomes crucial. Mackay
3.  Robert Menschel, ed., Markets, Mobs, and Mayhem: A also uses figures of the leader such as John Law, but it is impor-
Modern Look at the Madness of Crowds (New York: Wiley, tant to understand that it is the collective delusion of easy mon-
2002). ey that unifies the crowd, and only secondarily the identification
with John Law.

414    Notes

schnapp new 307ff.indd 414 6/1/06 11:49:22 AM
16.  Thus the speculative imagination links spatial distance 30.  Humphrey Neill, Tape Reading and Market Tactics (1931;
(colonialism) and temporal distance (future profit). reprint, New York: Fraser, 1960), 2; hereafter abbreviated as TR.
17.  Niklas Luhmann, Die Gesellschaft der Gesellschaft, 2 vols. 31.  William C. Moore, Wall Street: Its Mysteries Revealed, Its Se-
(Frankfurt am Main: Suhrkamp, 1997). crets Exposed (New York: Moore William, 1921), 113. In very sim-
18.  I use problematization in the Foucauldian sense as show- ilar words, James Fraser notes that “crowds are wrong in them-
ing the contingency of discursive constructions in order to de- selves simply because they behave normally” (cited in WYWL,
velop techniques for dealing with these problems: “This develop- vii).
ment of a given into a question, this transformation of a group 32.  Humphrey Neill, The Art of Contrary Thinking (1954; re-
of obstacles and difficulties into problems to which the diverse print, Caldwell, Idaho: Caxton Printers, 1967), 5; hereafter ab-
solutions will attempt to produce a response, this is what con- breviated as ACT.
stitutes the point of problematization and the specific work of 33.  It is interesting to see that one of the key papers of new
thought.” Michel Foucault, “Polemics, Politics, and Problema- economic sociology also emphasizes that markets are basically ar-
tizations,” interview in Ethics: Subjectivity and Truth: Essential rangements of mutual observations. Harrison White, “Where Do
Works of Foucault, 1954–1984, vol. 1 (1984; reprint, New York: Markets Come From?” American Journal of Sociology 87, no. 3
New Press, 1997). (1981): 517–47.
19.  Henry Clews, Fifty Years in Wall Street (1908; reprint, New 34.  Safire cited in Menschel, Markets, Mobs, and Mayhem, xi.
York: New York Times Company, 1973), 35. 35.  Cf. Jean-Pierre Dupuy, La Panique (Paris: Delagrange,
20.  Brush cited in James Alexander Ross, Speculation, Stock 1991).
Prices, and Industrial Fluctuations (New York: Ronald Press, 1938), 36.  Frederick Drew Bond, Stock Movements and Speculation
59. (New York: Appleton, 1928). Cf. WYWL, 60.
21.  Henry Crosby Emery, Speculation on the Stock and Product 37.  Neil A. Costa, “The Temple of Boom” (presentation at
Exchanges in the United States (1896; reprint, New York: Green- the Australian Technical Analysts Association, Sydney, 2000),
wood, 1969), 191. http://www.ataa.com.au/a_nc_boom_a.htm.
22.  Business Week, January 2001. 38.  Karin D. Knorr Cetina and Urs Bruegger, “The Market
23.  Justin Fox, “Bubbles, Delusions, and the ‘New Econo- as an Object of Attachment: Exploring Postsocial Relations in Fi-
my,’ “ Trends in Futures 10, no. 40 (2001). nancial Markets,” Canadian Journal of Sociology 25, no. 2 (2000):
24.  Bernard Baruch, introduction to Extraordinary Popular 141–68.
Delusions and the Madness of Crowds by Charles Mackay (1932), 39.  Costa, “Temple of Boom.”
in Menschel, Markets, Mobs, and Mayhem, 37–8. 40.  This is precisely the logic of the “noise trader” in more re-
25.  Other authors influenced by contrarianism include Fred cent finance theory. Fischer Black, “Noise,” Journal of Finance 41
Kelly, James Fraser, “Adam Smith,” and John Maggee. (1986): 529–43.
26.  Cf. notably Shiller, Irrational Exuberance, and Thaler, 41.  Niklas Luhmann, Die Wirtschaft der Gesellschaft (Frank-
Winner’s Curse. furt am Main: Suhrkamp, 1987), 72 ff.
27.  The Collected Writings of John Maynard Keynes, vol. 7, The 42.  This opposition of the heroic individual against the crowd
General Theory of Employment, Interest, and Money (1935; reprint, implicitly draws from American individualism, notably Ralph W.
London: Macmillan, 1973), 155. Emerson. In his often-quoted essay on self-reliance, Emerson dis-
28.  The Collected Writings of John Maynard Keynes, vol. 6, cusses how to maintain one’s individual identity. The ultimate
The Applied Theory of Money (1930; reprint, London: Macmil- test for Emerson is to remain oneself “in the midst of the crowd.”
lan, 1971), 323. “Self-Reliance,” in Essays and English Traits, vol. 5 (1841; reprint,
29.  Fred C. Kelly, Why You Win or Lose: The Psychology of New York: Collier, 1909–1914).
Speculation (New York: Houghton Mifflin, 1930), 21; hereafter 43.  The discourse on the investor and the market crowd is a
abbreviated as WYWL. highly sexualized discourse, firmly embedded within a hetero-

Notes    415

schnapp new 307ff.indd 415 6/1/06 11:49:23 AM
sexual matrix, drawing from the discursive articulation between Pierre Favre, ed., La Manifestation (Paris: Presses de la Fondation
the crowd and femininity. See Urs Stäheli, Spektakuläre Spekula- Nationale des Sciences Politiques, 1990); Olivier Fillieule, Straté-
tion. Das Populäre der Ökonomie (Weilerswist: Velbrück, forth- gies de la rue. Les manifestations en France (Paris: Presses de la Fon-
coming). dation Nationale des Sciences Politiques, 1997); Michel Pigenet
44.  H. J. Wolf, Studies in Stock Speculation (1924; reprint, and Danielle Tartakowsky, eds., “Les marches,” Le mouvement so-
Wells, Vt.: Fraser, 1966), 71. cial 202 (January–March 2003), entire issue; Vincent Robert, Les
45.  Sloan J. Wilson, The Speculator and the Stock Market (Pal- chemins de la manifestation, 1848–1914 (Lyon: Presses Universita-
isades Park, N.J.: Investor’s Library, 1963), 125; hereafter abbrevi- ires de Lyon, 1996); and Danielle Tartakowsky, Les Manifestations
ated as SSM. de rue en France, 1918–1968 (Paris: Publications de la Sorbonne,
46.  Cf. Collected Writings of Keynes, 7:155. 1997).
47.  Cf. David A. Zimmerman, “Frank Norris, Market Panic, 4.  Francesca Polletta, Freedom is an Endless Meeting: Democ-
and the Mesmeric Sublime,” American Literature 75, no. 1 (2003): racy in American Social Movements (Chicago: University of Chi-
61–90, for his discussion of mesmerism, suggestion, and market cago Press, 2002).
psychology. 5.  George Rudé, Wilkes and Liberty (Oxford: Clarendon
48.  Bond, Stock Movements, 13. Press, 1962), 22.
49.  Henry Howard Harper, The Psychology of Speculation: 6.  John Brewer, Party Ideology and Popular Politics at the Ac-
The Human Element in Stock Market Transactions (1926; reprint, cession of George III (Cambridge: Cambridge University Press,
Wells, Vt.: Fraser, 1966), 106. Neill presents the aim of the con- 1976), 168.
trarian in similar words: “attaining a mastery of himself: of his 7.  Ibid., 177.
temperament, emotions, and the other variables that go to make 8.  George Rudé, Hanoverian London, 1714–1808 (London:
human nature” (TR, 1). Secker and Warburg, 1971), 125.
50.  Michel Foucault, Discipline and Punish: The Birth of the 9.  Annual Register 1768, 86.
Prison (London: Allen Lane, 1977). 10.  Charles Tilly, “Speaking Your Mind Without Elections,
51.  Charles Dow, cited in SSM, 122. Surveys, or Social Movements,” Public Opinion Quarterly 47
52.  S. A. Nelson, The ABC of Stock Speculation (1903; reprint, (1983): 461–78.
Wells, Vt.: Fraser, 1964), 66–67. 11.  Rudé, Wilkes and Liberty, 19.
53.  Urs Stäheli, “Der Takt der Börse. Inklusionseffekte 12.  Annual Register 1768, 68.
von Verbreitungsmedien am Fallbeispiel des Börsen-Tickers,” 13.  Annual Register 1768, 71; for details, see Dirk Hoerder,
Zeitschrift für Soziologie 33, no. 3 (2004): 245–63. Crowd Action in Revolutionary Massachusetts, 1765–1780 (New
54.  Andreas Huyssen, “Mass Culture as Woman: Modern- York: Academic Press, 1977), 166–68.
ism’s Other,” in Studies in Entertainment: Critical Approaches to 14.  South Carolina Gazette, June 6, 1768, 3.
Mass Culture, ed. Tania Modleski (Bloomington: Indiana Univer- 15.  South Carolina Gazette, October 3, 1768, 2.
sity Press, 1986), 188–208. 16.  Pauline Maier, From Resistance to Revolution: Colonial
Radicals and the Development of American Opposition to Britain,
chapter 13 1765–1776 (New York: Vintage, 1972), 85.
17.  Ibid., 116.
1.  “War Prompts Street Demonstrations,” http://HomerNews. 18.  John Brewer, The Sinews of Power: War, Money and the
com, April 3, 2003, spacing and punctuation edited. English State, 1688–1783 (New York: Knopf, 1989); Michael Mann,
2.  “Pro-troops Demonstrators to Rally Again This Week,” States, War and Capitalism: Studies in Political Sociology (Oxford:
http://HomerNews.com, April 3, 2003. Blackwell, 1988), 106.
3.  As it happens, French scholars have done by far the most 19.  Charles Tilly, “Parliamentarization of Popular Contention
extensive work on the demonstration’s history. See especially in Great Britain, 1758–1834,” Theory and Society 26 (1997): 245–

416    Notes

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