Economists’ endorsement legitimated derivatives markets that regulators viewed as gambling

Evidence

Economists (Baumol, Malkiel, and Quandt in the case of the Chicago Board Options Exchange; Friedman in the case of the Chicago Mercantile Exchange) helped make the Chicago financial derivatives markets possible by providing initial legitimacy. Black, Scholes, and Merton provided the capstone, decisively undermining the regulatory view that derivatives were morally dubious instruments of gambling. The modern derivatives markets might have developed even in the absence of this legitimatory role of economics futures markets and at least sporadic markets in options had emerged in previous centuries without much in the way of academic legitimation but there can be little doubt that economics eased their path. — Donald MacKenzie, An Engine, Not a Camera, 1135

Categorization

• XREF: This is core to the performativity thesis frame — economic knowledge as legitimation, not just description. Ties to Callon’s work on economics performing markets. — connects to: Economic theory succeeded in derivatives markets partly by making markets conform to it — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 9; Economic theory helped restore legitimacy to banned financial derivatives — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 9; Derivatives are speculative techniques betting on future asset-price movements — Max Haiven, Cultures of Financialization, 153 (+16 more)

Broader Connections

• Efficient-markets and random-walk theory legitimized options against their scandalous reputation. #corroborates (0.95) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62
• Black-Scholes rhetoric replaced ‘gambling’ with ‘efficient pricing’ in options discourse #corroborates (0.92) — Donald MacKenzie, An Engine, Not a Camera, 705
• Economic theory and actual market practice cannot be radically separated in derivatives #expands (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1182
• Chicago economics directly inspired the financial derivatives and deregulation behind the crisis #corroborates (0.82) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 497
• Neoliberalism inverted the moral status of gambling from vice to virtue #corroborates (0.78) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 345
• Derivatives evolved from risk-hedging tools into a dominant speculative asset class #expands (0.75) — Max Haiven, Cultures of Financialization, 135