The efficient-markets hypothesis erased discussion of bubbles and speculation

Evidence

By 1970 or so, however, the study of financial markets seemed to have been taken over by Voltaire’s Dr. Pangloss, who insisted we live in the best of all possible worlds. Discussion of investor irrationality, of bubbles, of destructive speculation had virtually disappeared from academic discourse. The field was dominated by the “efficient markets hypothesis” … which claims that financial markets price assets precisely at their intrinsic worth given all publicly available information … And by the 1980s, finance economists, notably Michael Jensen of the Harvard Business School, were arguing that because financial markets always get prices right, the best thing corporate chieftains can do, not just for themselves but for the sake of the economy, is to maximize their stock prices. In other words, finance economists believed that we should put the capital development of the nation in the hands of what Keynes had called “a casino.” — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 749

Categorization

• DEFINE: Clean definition of EMH coupled to its historical rise and its extreme shareholder-maximization corollary — the casino formulation is the memorable hook.
• XREF: Picks up the critique thread that links shareholder primacy doctrine to the post-2008 austerity discourse Mirowski is exposing throughout. — connects to: Finance’s profits came from three interlinked asset bubbles, not efficient markets — Mark Blyth, Austerity: The History of a Dangerous…, 625; Efficient market theory could not imagine internally-generated systemic crisis — Mark Blyth, Austerity: The History of a Dangerous…, 130; Competitive speculation wipes out predictable price moves — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 279 (+11 more)

Broader Connections

• The efficient market hypothesis survived every empirical refutation and became finance orthodoxy #corroborates (0.80) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 758
• The Efficient Market Hypothesis resists empirical falsification through the protective shield of auxiliary hypotheses #corroborates (0.75) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 753
• The efficient-market hypothesis has survived thousands of studies without consensus #corroborates (0.72) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 751