Saul Bellow: The Victim (1947)

Saul Bellow’s second novel, The Victim, is an exploration of the aporia of ethical responsibility, of the indeterminable limits of the Self’s responsibility for the Other. Although Bellow did not achieve a significant stylistic breakthrough until his next novel, The Adventures of Augie March, The Victim, with its strong echoes of Dostoyevsky and Kafka, works well enough as a refined take on the modern narrative of urban alienation and psychological disquiet. While his wife is away visiting family, Asa Leventhal, “an editor of a small trade magazine in lower Manhattan,” suffers on his own through an intensively hot New York City summer. Emotionally reserved in public and deeply paranoid, Leventhal persistently experiences anxiety in his interactions with others. For example, at the novel’s beginning, Leventhal tries to help the sick child of his brother’s wife, whom his brother has left alone in the city while working elsewhere. Although Leventhal believes he is fulfilling his ethical “duty” in getting the child sent to a hospital, he also guiltily fears that the child’s mother blames him for taking the boy out of her home and care. As a Jew, Leventhal is exposed to anti-Semitism in the workplace, from the Italian mother of his brother’s wife, and even at parties with friends. Leventhal’s paranoia is therefore compounded by his sensitivity to the widespread hostility toward the Jewish race. The novel makes only a few allusions to the Holocaust, but Leventhal’s persecution complex is clearly influenced by his comprehension of the dangerously unsure position of Jews in society. Earlier in his life, Leventhal made a series of bad decisions that led him into poverty and nearly ruined him. At one point he worked as a clerk at a flophouse, where he witnessed the deepest levels of destitution and human misery. When he later reflects on his luck in regaining a respectable position, what he observed at that job haunts him: “He had almost fallen in with that part of humanity of which he was frequently mindful . . . the part that did not get away with it – the lost, the outcast, the overcome, the effaced, the ruined.” This abject humanity, however, one day unexpectedly and uncomfortably imposes itself on Leventhal and punctures his complacency. While walking by himself in the summer heat, Leventhal encounters an uncannily familiar stranger who confronts and begins to speak to him. Leventhal recognizes the stranger as Kirby Allbee, a man he had known many years before. Allbee’s unanticipated verbal attack startles Leventhal: “Leventhal suddenly felt that he had been singled out to be the object of some freakish, insane process, and for an instant he was filled with dread.” It quickly becomes clear that Allbee, who appears to be a homeless alcoholic, holds Leventhal completely responsible for his impoverished state, claiming, “I say you’re entirely to blame, Leventhal.” He argues that Leventhal cost him his job, his wife, and just about everything else when Leventhal fought with a powerful boss that Allbee had arranged Leventhal to meet for a job interview. Allbee is casually and habitually racist, regularly dropping anti-Semitic remarks to Leventhal about the characteristics of “you people,” though he doesn’t come across as being especially harmful or as having particularly bad intentions. Allbee once made fun of a Jewish friend of Leventhal’s who badly sang traditional Jewish songs at a party, and it is this incident that led Allbee to believe Leventhal sought out revenge and deliberately ruined him. Leventhal of course is startled by these accusations and tries to avoid any admission of responsibility, despite his doubts about his unconscious motives in the past, so this first encounter ends quickly. Alcoholism provides Leventhal a convenient explanation for Allbee’s downfall, but when seeking advice from a friend Leventhal discovers that this friend also believes he is responsible. As time passes, Leventhal finds it increasingly difficult to avoid feeling a sense of obligation toward Allbee, and his psyche is persecuted by Allbee’s charge: “You try to put all the blame on me, but you know it’s true that you’re to blame. You and you only. For everything.” Initially appearing as opposites, the lucky and the unlucky, the victimizer and victimized, Leventhal and Allbee begin to mirror and double each other, with the former even adopting the latter’s drunken excesses. So when Allbee tracks Leventhal down to his home, Leventhal eventually offers him a place to stay for a few days. Allbee, however, pushes beyond the limits of Leventhal’s “hospitality,” leading to a violent final confrontation followed by an ambiguous reversal of fortunes in the final chapter. Throughout the novel, Bellow doesn’t offer any easy solution to this singular burden of ethical responsibility that Allbee places on Leventhal: “In a general way, anyone could see that there was great unfairness in one man’s having all the comforts of life while another had nothing. But between man and man, how was this to be dealt with? Any derelict panhandler or bum might buttonhole you on the street and say, ‘The world wasn’t made for you any more than it was for me, was it?’ The error in this was to forget that neither man had made the arrangements, and so it was perfectly right to say, ‘Why pick on me? I didn’t set this up any more than you did.’ Admittedly there was a wrong, a general wrong. Allbee, on the other hand, came along and say ‘You!’ and that was what was so meaningless.”

Donald MacKenzie: An Engine, Not a Camera (2006)

Donald MacKenzie’s An Engine, Not a Camera is a dense, informative study of how the development of finance theory has contributed to the construction, success, and even the crises of modern financial markets. The book follows two particular historical threads: “the emergence of modern economic theories of financial markets” in the 1950s and 60s, and the creation since 1970 of organized derivatives exchanges. Drawing from actor-network theory and social studies of finance, MacKenzie tracks how finance theory helped make possible new financial markets and became embedded in their infrastructures and daily practices. He also shows how the new markets became the subject and testing ground of finance theory, leading to changes in the latter. Finance theory is heavily dependent on models that often simplify reality into precise mathematical forms. Neoclassical (and neoliberal) economics in the postwar era has had a complex relationship with finance theory, but the two approaches have a certain “affinity,” not the least because of their shared belief in the power of models based on simple and single formulas. The simple and sometimes bizarre assumptions of finance theory’s models are easily contradicted by empirical evidence, but the proponents of finance theory have created a defense of their models’ lack of realism by drawing from Milton Friedman’s essay “The Methodology of Positive Economics.” Friedman argued a model was to be judged by its explanatory and predictive capabilities, not by whether it assumed conditions that were empirically accurate. For Friedman, “economic theory was ‘an “engine” to analyze [the world], not a photographic reproduction of it.’” McKenzie, however, revises Friedman’s argument. MacKenzie writes: “Financial economics . . . did more than analyze markets; it altered them. It was an ‘engine’ in a sense not intended by Friedman: an active force transforming its environment, not a camera passively recording it.” Borrowing from Michel Callon the idea that “economics itself is a part of the infrastructure of modern markets,” MacKenzie proposes to investigate “the performativity of economics.” He distinguishes “three levels of the performativity of economics”: “generic performativity,” “effective performativity,” and “Barnesian performativity.” The first, “generic performativity,” is when some part of economics is also used “in the ‘real world’ by market participants, policy makers, regulators, and so on. Instead of being external to economic processes, the aspect of economics in question is ‘performed’ in the generic sense of being used in those processes.” The next level, “effective performativity,” is when economics somehow alters the market once it is used. That is, it ”must make a difference. Perhaps it makes possible an economic process that would otherwise be impossible, or perhaps a process involving use of the aspect of economics in question differs in some significant ways . . . from what would take place if economics was not used.” A final level, “Barnesian performativity,” involves “self-validating feedback loops” and is when the application of economics leads the market to better conform to economic theories and models. It is a kind of performativity “in which the use of a model (or some other aspect of economics) makes it ‘more true.’” McKenzie also proposes a negative, counterperformative variation, in which the application of an economic model makes the model less true. That is, the use of the model changes the market so that the model is no longer accurate. McKenzie avoids calling Barnesian peformativity a “self-fulfilling prophecy” because such a label overemphasizes the “beliefs and world views” of economic actors. The ideas of economic actors are important, but MacKenzie underscores that economics can also be performative through “incorporation into algorithms, procedures, routines, and material devices. An economic model that is incorporated into these can have effects even if those who use them are skeptical of the model’s virtues, unaware of its details, or even ignorant of its very existence.” The first chapter after this discussion of performativity examines “the shift in the United States in the 1950s and the 1960s from descriptive scholarship in finance to the new analytical, mathematical, economics-based approach.” The chapter discusses the early development of finance theory in the work of Franco Modigliani, Merton Miller, Harry Markowitz, and William Sharpe. During this period, these writers and others contributed to the development of two particularly important and influential theories: random-walk and efficient-market theory. Random-walk theory argues “that the movements in the prices of financial securities are in some sense random – and therefore that the mathematical theory of probability can be applied to them.” Efficient-market theory argues that in “efficient” capital markets (which finance theory’s models usually assumed were the case) “prices . . . incorporate – effectively instantaneously – all available price-relevant information.” The two theories supported each other and formed a “largely coherent view of financial markets.” For example, if a market was efficient so that prices fully reflected all available information about the past, present and future, then only “events that could not have been anticipated . . . can move prices. By definition, however, that information was unpredictable and thus ‘random.’” Having outlined the formation of the foundations of finance theory, MacKenzie in his next chapter surveys “how the new finance scholarship developed into the distinct academic subfield of financial economics.” The theory was fairly quickly institutionalized through the creation of a “distinct academic field” with its own journal, incorporation into teaching and textbooks, and the training of new PhDs, particularly at the University of Chicago and MIT. Formerly associated with the “practical” fields of business schools, finance theory had to “academicize” itself, and was aided by its infatuation with sophisticated mathematics. The growth of finance theory during the 1960s and 70s was carried forward by changes in the overall economy, particularly the increasing number and power of mutual funds and the movement of many non-financial corporations into financial speculation. But there was often a strong tension between the finance theorists and the growing number of financial practitioners. For example, many practitioners adhered to “chartism,” the belief that discerning investors can spot good investments or investment trends by charting and graphing stocks and markets. “Chartism never achieved institutionalization in academia, but it became a lasting component of how many financial practitioners think about markets. It offered a vernacular theory of markets (one rooted not in economics but in speculations about investor psychology and perhaps even in the sociology of ‘herd behavior’) and a way of making sense of markets that was, and is, attractive. . . . Much mass-media presentation of markets – with its citation of ‘trends,’ ‘reversals,’ ‘corrections,’ ‘resistance levels,’ and so on, and with its fascination with salient round-number index levels such as a Dow Jones level of 10,000 – is in a sense a diluted form of chartism.” Chartism was often opposed to fundamentalism, which emphasized the study of the fundamental health and prospects of the corporations underlying stocks. Random-walk and efficient-market theory, however, rejected the foundations of both chartism and fundamentalism. According to finance theory, charts were of little use because prices already reflected all available information and price movements were essentially random, and the fundamentals of the corporations were already known in an efficient market or simply irrelevant to the movement of prices. “To practitioners, finance theory – especially random-walk theory and efficient-market theory – appeared to be claiming that ‘the value of investment advice is zero.’” Despite such tensions, there was still a movement, largely lead by the pension funds, toward “passive” investment management based on the fundamentals of finance theory and involving the selection of large “index funds” similar to the S&P 500 that offered limited but safe performances. The heart of MacKenzie’s book studies the development of the Black-Scholes-Merton model for pricing options, which was essential for the creation of derivatives markets, and examines the creation of futures markets in the 1970s. Other chapters discuss how portfolio insurance exacerbated the 1987 stock market crash and investigate the factors that led the hedge fund Long-Term Capital Management (LTCM) to the edge of bankruptcy in 1998. These sections give numerous examples of how economics is performative, of how the use of finance theory led markets to more closely resemble models or sometimes to unexpectedly and dangerously swerve away from all predictions. Near the end of the book, MacKenzie makes an interesting argument about markets as prostheses that seriously muddles traditional political stances for or against the market by situating economics within a posthuman framework. He argues that the limited cognitive abilities of humans are aided by “the ways in which sophisticated economic calculations are nevertheless made possible by material devices . . . by organizational routines, by concepts (such as ‘implied volatility') that simplify complex realities, and so on. An economic actor equipped with all of these is quite different from an unaided human individual.” He goes on, “Indeed, markets themselves can be seen as prostheses in the sense that they enable human beings to achieve outcomes that go beyond their individual cognitive grasp. . . . Markets can indeed be seen as machines or as devices for collective calculation, and with the increasing implementation of market mechanisms in software those are not simply metaphors.”