Mathematical economics displaced descriptive institutional study of finance in the US

Evidence

By the late 1960s, the descriptive, institutional study of finance had in the United States been eclipsed by the new, analytical, mathematical approaches discussed in this chapter. The financial markets had been captured for economics, so to speak. Other disciplines Dewing’s invocations of history and psychology, “behavioral” studies of organizations in the tradition of Herbert Simon were left on the margins. Modigliani, Miller, and the authors of the Capital Asset Pricing Model and the efficient-market hypothesis shared the view that “securities prices are determined by the interaction of self-interested rational agents” (LeRoy 1989, p. 1613). They were, likewise, all convinced that the processes involved had to be analyzed, not simply described, and that the necessary analytical tools were those of economics, not those of other disciplines. — Donald MacKenzie, An Engine, Not a Camera, 304

Categorization

• XREF: Sets up the performativity thesis: economics ‘capturing’ the market is a precondition for models shaping it. Relates to the reader’s broader finance/financialization reading. — connects to: Financial economics emerged as a mathematical discipline only from the 1960s — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 33; Finance journals published almost no theoretical or mathematical work until the late 1950s — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 161; Markowitz’s math-heavy paper was alien to 1950s academic finance culture — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 217 (+3 more)

Broader Connections

• The new finance theory displaced managerial finance from business school curricula #corroborates (0.90) — Donald MacKenzie, An Engine, Not a Camera, 313