Tuesday, May 25, 2010

Reading :: Material Markets

Material Markets: How Economic Agents are Constructed
By Donald MacKenzie

"Financial derivatives" is not a term in good odor these days. In the wake of the 2008 financial crisis, financial derivatives have been characterized by some as a "scam," a way to create money out of thin air via abstract models. In Material Markets, Donald MacKenzie applies actor-network theory (ANT) to a study of finance - including financial derivatives and arbitrage - to examine these apparently abstract, ethereal products as material. The book doesn't break much ground theoretically, but it does provide a solid application of ANT to finances.

Social studies of finance (SSF), MacKenzie tells us, are "inspired by social science research on science and technology" (p.2). And like the research that inspired it, SSF emphasizes "the materiality of markets: their physicality, corporeality, technicality" (p.2). MacKenzie comes up with several fascinating examples of this sort of materiality. For instance, he describes "broker's ear," the ability to fully pay attention to one conversation while simultaneously listening to all the other conversations in a room (p.12). He also emphasizes the role of what is normally translated as "assemblages," but which he insists on calling "agencements" (preserving the French double meaning of arranging/fitting together and of agency; see p.20). He finds "assemblage" to be too passive (p.21). Tracing an agencement, he says, is formally endless; instead, he wants to focus on aspects that are not obvious (p.57). And since he's focusing on finances in particular, he draws more heavily on Callon than on other ANT theorists.

With this grounding, he first turns to derivatives contracts. Contract design, like technological design, is an inherently political problem, requiring balance and compromise so that all participants' interests are represented enough to entice them to trade (p.70). In this chapter, MacKenzie examines the ins and outs of designing, implementing, and using such derivatives, focusing on the material conditions that let them function.

Next, MacKenzie examines how arbitrage is enacted, again taking a materialist standpoint ("a price is a thing," p.92). In the process, he brings in several examples of how this materiality is enacted. Futures traders are encouraged to play video games to increase reaction speeds (p.96). Traders wear platform heels to better their vantage point in the pit, and they jostle and even engage in fistfights in order to gain the best vantage point (p.97). At a desk trades complex, different types of arbitrage correlate to different spatial arrangements and proximities (p.97). Through these and other examples, MacKenzie produces a rich, qualitative understanding of arbitrage, in contrast with the abstract, quantitative understandings that are typically sought by economists (p.107).

MacKenzie turns to other aspects of finance in subsequent chapters: measuring profit, constructing emissions markets. Finally, he concludes by reaffirming that he has attempted to open "the black boxes of finance" (p.177).

Overall, I found this to be a valuable book for examining finance, and a nice proof of concept in terms of applying ANT more broadly. On the other hand, it didn't develop ANT theoretically or present any surprises or development beyond those in the cases themselves. I think these limitations suggest that the book was meant for those interested in finance rather than in ANT more generally. In any case, I'm still glad I read it, and I'd recommend it to those who are interested in applying ANT to other domains.

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