This little known short piece by Fischer Black, titled “Fundamentals of Liquidity”, is worthy of consideration. Black often slips an elusive profundity into the extended consequences of a series of simple statements -and this essay is prototypical of his approach. Just read the piece by itself first; then jump to a secondary source in my “cash flow” entry, which is part of SpecMat’s ongoing Lives of Concepts of Finance project.
My understanding of the essay is this: If we are willing to temporarily indulge Black’s assertion about the possible achievement of a world of equilibrium, and if we are capable of projecting, along with Black, the material impact of synthetic exchange for the property of liquidity, we will see that Black is making a startling ontological forecast about the progressive differentiation of finance: namely, he’s observing that the trajectory of synthetic finance is an ontological movement towards hyperfungibility to the point of absolute non-differentiation between financial assets and their liquidity –which, if universally extended, in turn would mean a perfectly hedged world of exchange, a ubiquitous and incessant reversibility to all financial assets, a radical loosening of all invariance requirements on their properties, and consequently the realization of a world of equilibrium. It would also, not coincidentally, usher the end of the pricing mechanism for financial assets, and on which finance capitalism is predicated.