Financialization shifts markets from calculation to speculation, destroying predictability

Evidence

Foucault, reading Hayek, says that what is distinctive about liberal (economic) governmentality is that the state cannot and should not touch the economy, because it cannot know the economy. See Michel Foucault, The Birth of Biopolitics: Lectures at the Collège de France, 1978–79, ed. Michel Senellart, trans. Graham Burchell (New York: Picador, 2004), p. 283. Similarly, homo oeconomicus is a creature led by interest and calculation, not knowledge: he, too, does not know because he cannot know. “So we have a system in which homo oeconomicus owes the positive nature of his calculation precisely to everything which eludes his calculation” (ibid., p. 278). The premise is that man and state are inherently and necessarily ignorant about the economy, a field of logics that is rational, yet “naturally opaque” because of its nontotalizable quality (ibid., pp. 279–83). But if man and state do not know, does the market know? Theories of supply, demand, and pricing notwithstanding, the assumption persists that the market acts, rather than knows; economics can explain and even predict that action, but it cannot bring it into being. However, financialization changes even this correlation between knowledge and action—its explanatory or predictive quality and its relation to calculation. It evaporates predictability. Financialization changes markets from predictable reactions to supply, demand, and price into markets where speculation is the driving dynamic — from interest to gambling, from stability to instability, from following the crowd to shorting it. But this also means that homo oeconomicus can no longer act on the basis of calculation; rather, he acts on the basis of speculation. And it is very easy to crash. — Wendy Brown, Undoing the Demos, 742

Categorization

• DEEPTHINKING: Dense, paradigm-shifting: connects Hayekian ignorance, Foucault’s reading, and financialization into a single argument that neoliberal homo oeconomicus, built on the premise of unavoidable ignorance, is hollowed out by speculation — a genuinely dense chain worth sitting with.
• XREF: Echoes Keynes’s famous distinction between enterprise (predicting yield) and speculation (predicting the market’s psychology) in The General Theory, and Taleb’s critique of financial predictability. — connects to: Financial-sector growth from asset inflation may have exhausted its own model. — Mark Blyth, Austerity: The History of a Dangerous…, 629; Financialization treats risk as probabilisable, displacing close knowledge of the object valued — Ève Chiapello, Financialisation of Valuation, 35; Financial markets punish redistributive leaders with currency speculation. — Clara E. Mattei, Escape from Capitalism, 303 (+13 more)
• QUESTION: Worth chasing: how does Brown’s point that the state ‘cannot know the economy’ square with central banks’ own quantitative models — is the ignorance premise now practically falsified or only rhetorically sustained?

Broader Connections

• Speculation is an imaginative act detached from asset value, pricing others’ future desires #expands (0.85) — Aris Komporozos-Athanasiou, Speculative Communities, 215
• Prediction markets are the newest form of speculative competition #exemplifies (0.82) — Aris Komporozos-Athanasiou, Speculative Communities, 447
• Fighting financialization requires wielding speculation on shifting ground #responds-to (0.78) — Aris Komporozos-Athanasiou, Speculative Communities, 43
• Compressed decision time makes financial markets prone to cascading collapse #expands (0.75) — David Harvey, The Condition of Postmodernity, 1938