Economy of the War Machine (Part I of IV)

Part I. Introduction to an Economy of the War Machine

 

Did you know that in Chapter 9 of A Thousand Plateaus Deleuze & Guattari outline an ordinal concept of value aligned with, in continuation of, and subsidiary to that which is developed throughout the heterodox economic project that is Deleuze’s oeuvre? Or that in Chapter 1 (Introduction: Rhizome) D&G outline three models of economy, argue for advancement of the third model over the other two; and then in Chapter 12 (Treatise On Nomadology –the War Machine) elaborate first a sketch –part history, part non-fiction, at times approaching science fiction– of what an actualization of this third model might involve, and second an itemization of some issues to address when attempting to move forward its notion? Chapter 9 (Micropolitics & Segmentarity), then –or rather the concept of ordinal value outlined in Chapter 9– serves as the ontological plateau linking the introduction of the model of economy outlined in Chapter 1 to the development and prospective application of its notion in Chapter 12.

If you’ve spent time reading some TP but didn’t know this, it’s understandable why. Already in the opening passages of Chapter 1 the reader encounters a foreign but wholly-formed, fully-operational conceptual machine just whizzing right along (This can cause a thin layer of subtle anxiety to immediately coat a panoply of ambiguous emotions in the reader: it’s a first feeling comparable to that surreptitious uneasiness convoked when opening a door connecting a familiar, quiet room, where one has long-been residing in a kind of equilibrium, or steady state, a room absent any discernable human sounds from within or without, to now an new and unfamiliar adjacent room. A profound anxiety infuses such experience: there is that brief glimpse of a moment as we reach for the door, grab its handle, and now open the door –and as we oscillate back and forth on the cusp of a single moment in time, we are not actually moving at all yet all possibility of motion surrounds us; that singularity of a moment when we will be realizing, are realizing, now realize, and have been realizing that we find ourselves stepping into a new, expansive, much larger room whose blueprint resists immediate cognitive mapping (at this moment we are unable to, as we say, ‘get our bearings’). We step into this new room to see that it’s chocked-full of people, most of whom we do not know, all of whom are seemingly amidst unapologetically loud and lively discussions; their conversations are already en media res (how will I ever be capable of intervening, entering into a discussion? With whom will I discourse?); people are socializing (how will I ever regain the confidence I suddenly realize I lack to carry on social intercourse? –am I even capable of social intercourse?); and at that, they appear to be having a good time (will I have a good time? Will I be the only one who is not having a good time? Will it be clear to the others that I’m not having a good time –will I perhaps ruin another’s good time? –will they resent me for this? ….–Oh, I hate this party!)).[1]

Straight away in Chapter 1 the reader is inundated by a set of alien concepts used by D&G to construct a fluid, analytically-aparallel morphology of the distribution of flows? “What flows? Flows of what?” A long answer involves elaboration on the assertion, “the distribution of flows comprising an object –any object, whether small or large, simple or complex.” A shorter answer is, “well, that depends…..” A shorter-than-long but longer-than-short answer is “flows of capital or cash flows, or monetary flows, more generally” –which means our object will be “economics”. This is the answer whose topic we will choose.

Let us open up to Chapter 1 to observe this morphology of flows.

D&G ostensibly spend much of TP’s opening Chapter itemizing the manner of flows which distribute themselves in the actualization, or progressive differentiation of a book. But there’s also a bit more to it than this. D&G are using their Introduction to preliminarily familiarize their reader with a core constitutive concept, which is by far the most important concept for understanding the whole of Deleuze’s project. This is the concept of the multiplicity.

While D&G are saying here, “yes, ‘[t]he two of us wrote [our last book] Anti-Oedipus’, and yes, we wrote this book, A Thousand Plateaus, as well; the flip side is that ‘each of us was already several, [and so] there was already quite a crowd’ (–“Oh I see what you’re doing there”, the reader thinks’, “very clever….very, very, (un)clever: each of you are objects qua individual authors, but you’re also assemblages of authors as well, i.e. the object of this book, like any book, is a transitory meeting ground for what you, the authors, have read, ideas to which you’ve been exposed, ideas with various dates and speeds which have formally and informally influenced you; so that the signifiers “Deleuze” and “Guattari” of course denote objects –objects as authors. But you’re also assembled varieties of authors, who in turn are assembled varieties of authors, and so on.”). This is no doubt true. However, while in Chapter 1 D&G are both in fact and ostensibly talking about a book, the flows composing a book –that ‘[a] book has neither object nor subject; it is made of variously formed matters, and very different dates and speeds’,[2] it’s important to observe that rather than identifying the object of “book”, or author as “object”, D&G could have just as easily invoked the signifier “self”, or “subject”, or for that matter “financial asset”, “finance”, or “economic system” –which is to say they could have invoked any putative object whatsoever.

Why? As D&G note, if we are attempting to think an object, we must be willing to think what it becomes, what it was, is, and will be.[3] If we are attempting to think the becoming of an object, we must be capable of thinking the object as a heterogeneous mess of different attractors and their affects, intensive and extensive properties (including processes as properties), as well as the phase singularities around which these elements and their relations are shuffled, reshuffled, and again. So if we are thinking an object as its singularities and collection of morphogenetic properties, then we are thinking the object –which could be any object– as a multiplicity. D&G clarify their commitment to this approach at the outset of Ch.1, when they say:

‘In a book, as in all things, there are lines of articulation or segmentarity, strata, and territories; but also lines of flight, movements or deterritorialization and destratification. Comparative rates of flow on these lines produce phenomena of relative slowness or viscosity, or, on the contrary, of acceleration and rupture. All this, lines and measurable speeds, constitutes an assemblage.’[4]

 Ok, fine. By page 3 of Ch. 1 the reader is now realizing she will be stepping out of that quiet boxed-in room, with whose contents she is relatively familiar, and is going to step, is stepping, and has now stepped into a new, much larger, utterly-foreign room: it is an n-dimensional and open-ended room, an expansive non-Euclidean room, a room of flux and friction and foreign forces, a room ‘of lines and speeds’, of aperiodic oscillations, comparative rates and rhythms of continuously alternating flows –it is the room of deterministic chaos, also known as the room of becoming.[5]

“Ok, great”, the reader might now say, “I think I’ve been down a similar philosophical road before: becoming, heterogeneity, and all that –it’s called ‘post-structuralism’, right?[6] So go ahead D&G, and tell me more: but please try to do so without confusing me with counterintuitive assertions, and especially without introducing more foreign concepts.”

For good reasons this reader’s request is impossible to satisfy. Deleuze, throughout his oeuvre is constantly giving rigorous, technically-proficient, deep philosophical transformation to mathematical and scientific concepts, and is now doing as much with Guattari in TP. From mathematics, we will see technical treatments of Euclidean and non-Euclidean geometries, topology, differential calculus, group theory, and fractals. From science, we will see technical treatments of natural studies of symmetry, morphogenesis, theoretical biology, physics, and especially and above all a benevolent synthesis of nonlinear dynamics and chaos theory. (Our reader must know that for shorthand purposes, in this essay, we will always denote this collective aforementioned set of conceptual fields with the simple term “DST” (dynamical systems theory), taking the broadest possible purview of its hyper-interdisciplinary synthetic method.) Without a working understanding of the endemic concepts of these mathematic and scientific fields of inquiry, one will, perhaps unfortunately, have to learn them from D&G at the same time that one is working to understand their philosophical transformation, conceptual reformulation, and subsequent project-specific application.

Can this be done? Admittingly it’s not the easiest task in the world (note: this may better explain why it is the case, if it is the case, that our own reader didn’t know that there’s an economic concept of ordinal value in Chapter 9). But that’s at least one reason why this essay has been written. And our position here will be this: If we’re capable of preventing our anxiety about what we don’t know from preventing us from learning about what we don’t but should know, with a little effort we will understand D&G’s radical inaugural attempt to reconceptualize the project of economics: this includes their proposal for a minor science of political finance, whose intention is to move us towards an economic mode of nomadic distribution, an economy of a war machine –or in a word, dromocracy.

So to begin with, we will combine the previous block quote with now the following statement by D&G….. :

 ‘One side of the machinic assemblage faces the strata, which doubtless makes it a kind of organism, or signifying totality, or determination attributable to a subject: it also has a side facing a body without organs, which is continually dismantling the organism, causing asignifying particles or pure intensities to pass or circulate and attributing to itself subjects that it leaves with nothing more than a name as the trace of an intensity.’[7]

 ….and we will see that we now have before us, already by page 4, enough of the base elements of the whole Deleuzian ontology –often found in a more technical but perhaps less accessible form in some of Deleuze’s earlier works (e.g. Difference & Repetition, The Logic of Sense)– to both carry the “box” with us while yet thinking-outside it. What is this “box”? What is the “thinking” that will take place “outside it”? Namely, the “box” is that which contains so many previous economic ideologies –proto-capitalism, quasi-capitalism, socialism, and communism– and by “thinking outside the box” we mean D&G’s itemization of the conditions of possibility for a radical alternative model of economy, the proposition of an economy of the war machine.

So then let us repeat and propose: In Chapter 1 of TP, D&G outline for us a wholly novel model of economy, a refashioned image of political economic thought, radically different from that model of thought shared in common by proponents of bubble-gum capitalism, tobacco-pipe socialism, and leather-cap communism alike. One result is, in Chapter 9, their introduction of an economic concept of an ordinal value, commensurate with the ontological insights derived from dynamical systems theory, and therefore radically-unlike those cardinal theories of value, whose advocates implicitly presume a sedentary, periodic, thoroughly-Euclidean conception of economic space. And then in Chapter 12, D&G provide an inaugural itemization of the questions and issues that such a heterodox economic project must confront when moving forward towards an economy of the war machine.

Our contribution is, first, is to guide our reader through these three Chapters (1, 9, 12). And second, to illustrate that the dromocratic model of economy outlined in A Thousand Plateaus is best actualized as a combination of (a) clusters of exotic options, and (b) a universal synthetic CDO, which we label a H2Ofall economy.

What model of economy do D&G propose in TP? A horizontally-propulsive economy, a nomadic distribution of economic flows, rhizomatically-arranged so that the pistons of difference are free to propound, proliferate, and pump away; yet without so much of the hierarchical-violence of fascicular capitalism, nor the veridical narcissisms of those arborescent economies of liberal equality, e.g. as found in classical versions of socialism or communism. For this reason our essay is the story of an economy of the war machine. Its wager is the nomadic distribution of economic space. It’s an essay On Dromocracy.

 

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(And in case you want to follow the trajectory of Parts II-IV with your copy of TP, here’s the outline:)

Part I. Introduction

Part II. Three Models of Economies in Chapter 1

Part III. The Economic Concept of Ordinal Value in Chapter 9

Part IV. The Elements of Nomadic Distribution in Chapter 12 

 

[1] We have just colloquially described a social instantiation of the phase transition to a state of deterministic chaos. We will, however, concern ourselves with questions involving economic transitions from low-parameter equilibrium to higher parameter equilibrium, marking the transition from a steady-state fix point attractor to a steady-state oscillation between two points now on a limit cycle attractor, and especially the economic significance of what Lorenz has shown (“The Problem of Deducing the Climate From the Governing Equations”, Tellus 16 (1964)) –namely, that beyond a certain point, chaos unfolds. The model of economy that is dromocracy is founded on a rhizomatic mode of distribution. The rhizomatic mode of distribution is, fundamentally speaking, deterministic chaos.

[2] TP pg. 3

[3] Deleuze’s deep philosophical commitment to dynamical systems theory is a compelling and magnanimous but colossal topic. Here, we merely note a good enough definition (‘Dynamical systems theory is the study of things that change, of phenomena that vary in time.’ “Introduction to Dynamical Systems”, S.G. Eubank and J.D. Farmer, in Introduction to Nonlinear Physics, Lui Lam (ed.), Springer, 1996 pg. 58), followed by a pledge to our reader to pry open up some of its profundities throughout, when and where relevant analytic opportunities permit or demand it.

[4] TP pg. 3-4 {my emphasis}

[5] Navier-Stokes provides us with a brilliant mathematical description of the becoming that is deterministic chaos. We are here reminded of Von Neumann’s account of the unstable complexities of this canonical equation in fluid dynamics –the Navier-Stokes equation– in which the inconstancy of the relationships exhibit a stable disorder of the highest aperiodic irregularity (what Gleick, who also cites Neumann, fittingly describes as ‘walking through a maze whose walls rearrange themselves with each step you take.’  (James Gleick, Chaos: Making a New Science, Penguin Books, 1987 pg. 24) –which is likely why our imaginary aforementioned party-goer was unable to ‘get her bearings’. Von Neumann echoes our party-goer’s anxiety over the experience with chaos: ‘The character of [the Navier-Stokes] equation….changes simultaneously in all relevant respects: Both order and degree change. Hence bad mathematical difficulties must be expected.’  John Von Neumann, “Recent Theories of Turbulence (1949), in Collected Works, ed. A.H. Taub, Pergamon Press, 1963, 6:437

[6] We will see that nothing could be further from the truth.

[7] TP pg. 4. In the spirit of our exercise, our reader may wish to reread this quote by substituting for the term “subject” the term “economy”.

 

 

 

 

SIVs, which are bodies without organs, are now available

If you’ve followed the concepts we’ve been outlining, which are found starting with this, then this, and finally this post, then you, like SpecMaters everywhere, now have the beginning of a good handle on the peculiar but profound materiality of synthetic finance.

To recap, we’ve now covered:

i. credit default swaps and total return swaps (as two instances of single name credit derivatives)

then:

ii. tranches (which are the re-differentiating second step to the de-differentiating first step of pooling: tranching and pooling comprising the two sequential steps to any securitization) {please note: the plastic arrangement of attachment and detachment points endemic to tranching, as we will show in Infinite Leverage, is a powerful method for the arrangement of singularities -the importance of this is difficult to overstate}

and then most recently:

iii. credit linked notes (which are generic financial assets, but also the synthetically-derived incarnation of the asset-backed commercial paper (ABCP) which stand to the right-side of any tranches, and the sale of which funds the whole structured financial operation to begin with -but which, we also strove to elaborate, is a method for converting the outcome of maximum profitability from a zero-sum game (i.e. in which the house wins or the gambler wins, but never both) into now a non-zero sum game, wherein everyone could own CLNs whose notional value is tied to the notional value of every individual’s (synthetic) portfolio; and thus everyone would be leveraged on top of everyone else, and therefore simultaneously a debtor and creditor to everyone else -and importantly, of course (since that’s the whole point!), in a way that makes all parties better off, viz. wealthier). This is part of what we meant when we said before that today the “speculative” (in speculative materialism) is all about the general, and that “communism” is all about the particular.

What more, then, do we need to do before we’re in a position to think about tinkering with the divergent evolutionary capacities with which the qualitative multiplicities that are synthetic financial assets are chocked-full?

There are a couple things. Most immediately, though -which is the reason for this post- there is one more thing we need to know about before we (a) outright build a traditional synthetic CDO for you, and then (b) we start tinkering with it (e.g. its parties, cash-flows, notional values, distribution of risks), in order to convoke a set of questions and issues we must address going forward, and then finally (c) to bring all this commencement to a close, unpack the ontological contours of this proposal by demonstrating that we’re actually proposing a war machine economy (note: we’ll do this in the future by illustrating that Deleuze & Guattari’s proposal in Ch. 12 “On Nomadology -On the War Machine” in their Thousand Plateaus, is the generative force of our project).

What is this one more thing? Namely, we need to know about SIVs (structured investment vehicles). Our examination of this is found here.   

Topology & Fiscal Federalism in the EU

In his analogous coda on the perennial search for the phase singularities of cardiac arrhythmias (i.e., the arrhythmia’s temporospacial raison d’être), biologist Arthur Winfree draws on an industrial consultant’s inability to compile a complete set of answers for his/her final report. As is the nature of a human’s cerebral difficulty in approaching the intensive properties of dynamical systems, which are not only often unpredictable, but simultaneously function within a highly topological temporospacial scale (thus, rendering it almost entirely impossible to create any sort of cerebral tableau), the consultant concludes that his/her report has not, in fact, acted as a true coda, but simply created further confusion and further questions, which have naturally arisen out of the attempt to circumscribe some preliminary answers. But for Winfree, the lack of concrete answers ought not to predicate a state of delirum. Rather, the confusion is now superior a posteriori, as in it has elevated the questions to a “higher level,” (i.e. the consultant and the affected parties are now questioning which key fits in which lock, rather than deliriously questioning what the rudimentary purpose of the lock mechanism even is).

As the thing called finance evolves, the political economist, the financial consultant, et.al fall more and more in line with Winfree’s allegory. This is currently the case in the European Union, which is facing, amongst other things, post-crisis financial fragility, which the International Monetary Fund confabulated on in a report[1] prepared for last weekend’s G20 Summit in Australia. A posteriori the IMF has now begun raising pertinent questions regarding the future security of and in finance in the Eurozone. The report states that intensive international financial regulations in the EU have the potential to boost the global economy’s size by over $2 trillion in the face of the current state of fragile, post-crisis recovery in Europe. While global economic and financial activity has picked up amongst advanced international economies, the IMF report states that substantial exogenous and endogenous risks continues to plague emerging economies (e.g. Brazil, Indonesia, Turkey, South Africa), which have recently experienced volatility in equity markets, rising balance-sheet spreads, and currency depreciation. Among the proposed measures, the IMF has called for product and labor market reforms and increased cooperative, international policy measures, which if implemented, and correctly, will supposedly both raise economic growth by 0.5 percentage points annually, and reduce the risk of future shocks to the global financial system.

The IMF report—which builds upon recent discussions throughout the EU to implement a more dynamic EU-wide paradigm of financial regulations and implementation—has brought a topological approach to post-crisis financial questions. Before the implementation of the Euro in 2001, the EU struggled, some may even say failed,[2] in its implementation of a single European currency. Subsequently, its Growth and Stability Pact[3] faltered in the face of credulity due to “purely mathematical parameters without any discretionary powers or political instruments to enforce it.”[4]

As of late, discussions throughout the EU have pointed toward a system of so-called fiscal federalism, whereby the deployment of EU-wide Euro Bonds could act as a form of risk-averting securitization in which the pooling (i.e. de-differentiating) of Euro bonds would result in the tranching (i.e. re-differentiating) of said bonds in order to create a nomadic form of debt oscillation between EU member states—essentially, the move toward a more defined EU-wide financial system, similar to the U.S.’s federal/state relationship. From a topological (and Deleuzian) standpoint, the proposed idea of fiscal federalism roots itself within dynamical systems theory, along with a form of Nietzschean genealogy, in which Euclidian lock-and-key tests are eschewed in replacement of an empirical, constitutive approach to the inherently international dynamism of financial markets and their interconnected relationship with different systems, such as political relationships and regulations. The IMF reports a perennial state of post-crisis fragility existing within the EU, which requires, according to the IMF, the aforementioned topological approach (i.e. as of now, advanced economies appear to be ascending; however, we know future external shocks or perturbations will inevitably disrupt the oscillation of debt within the not-so-financially-unified EU). The presumption behind fiscal federalism is a type of Deleuze-cum-Rawls ideology, in which the difference principle is applied to states within a union—granting the premise that economic inequality is inevitable amongst states: therefore, the better-off states buoy-up the struggling states via a dynamic, but centralized system of pooling and tranching with so-called Eurobonds (a sort of distributive-financial justice).

Here’s Winfree on dynamical systems’ susceptibility to lethal stimuli with regards to the circadian rhythms of mosquitos: “The focus is on the organization in time that we sense in circadian rhythms and its susceptibility to shattering by a flash of light near midnight; and on the quicker rhythms of the mammalian heartbeat, their electrical signatures, and the susceptibility of the rhythm to lethal disruption by an unfortunately timed stimulus.”[5]

Compare Winfree’s work with the critique in last week’s IMF report, which states, “[a] new risk stems from very low inflation in the euro area, where long-term inflation expectations might drift down, raising deflation risks in the event of a serious adverse shock to activity…Vulnerabilities related to built-up positions, including a substantial increase in foreign holdings of domestic sovereign bonds and higher leverage, both in the form of more direct FX borrowing by corporations and a rapid increase in domestic credit, could amplify the impact of shocks.”[6]

As advanced economies continue to grow, a number of insidious progressions within the world of finance have the potential to “amplify the impact of a shock,” such as foreign holdings of domestic sovereign bonds and assets (e.g. Goldman Sach’s recent purchase of Denmark’s previously-public DONG Energy). However, the IMF report approaches the potentiality of shocks from a topological viewpoint, taking in mind domestic, foreign, money and capital markets with regards to international finance and macroeconomics, while additionally drawing upon bifurcated systems such as China’s shadow banking sector and the effects of international corporate funding.

That being said, the IMF report is not without criticism. Robin Harding of the Financial Times has referred to the recommended regulations as “politically difficult,” stating, “[i]t is not clear whether coordinating reforms at the G20 will make individual countries more likely to carry them out.”[7] Following the release of previously-secret documents last Friday regarding the Fed’s expansion of hundreds of billions of dollars in aid to foreign countries in 2008, discussions appear to be moving more toward the international interconnectivity of finance. “To the rest of the world, I don’t think these transcripts are going to be very reassuring,” Eswar S. Prasad, a Cornell economist and author of ‘The Dollar Trap,’” was quoted in Tuesday’s New York Times. “What they show is that the U.S. policymakers are very narrowly focused on U.S. interests, and their actions are not so much determined by any moral obligation to save the world economy, but rather a clear self-interest in preserving U.S. economic interests.”[8] Thus, the EU may predicate further financial decisions on alleviating what some see as a potentially detrimental relationship with the U.S via topological regulations. That being said, the IMF report, while not entirely comprehensive, approaches the U.S.-E.U. relationship from a topological stance, calling for specified regulations regarding international financial relationships rather than instituting a series of credulous, codified regulations aimed at alleviating ostensibly pernicious behavior (i.e. the Fed’s recent consideration to subject U.S. arms of foreign banks to annual stress tests).[9] Regardless, the IMF report and the movement toward fiscal federalism appears to be moving towards a more dynamical and topological approach, or at least—as with Winfree’s industrial consultant—increasingly asking the right questions.


[1] International Monetary Fund, Global Prospects and Policy Challenges. Feb. 22-23, 2014. http://www.imf.org/external/np/g20/pdf/2014/021914.pdf

[2] Romano Prodi, “A big step toward fiscal federalism in Europe,” The Financial Times. 20 May, 2010. Web. http://www.ft.com/intl/cms/s/0/3f74c1d8-6444-11df-8618-00144feab49a.html – axzz2uFsW6ZHD

[3] An EU financial “regulation,” which attempted to avert risk within member states (i.e., a given nation’s debt could not exceed 60 percent of its GDP)

[4] Note 3 [supra]

[5] Arthur Winfree, When Time Breaks Down: The Three-Dimensional Dynamics of Electrochemical Waves and Cardiac Arrhythmias, (New Jersey: Princeton University Press, 1987), 6.

[6] Note 2 [supra]

[7] Robin Harding, “IMF says Reforms Could Add $2.25tn to Global Economy,” Financial Times, 19 Feb. 2014. Web. http://www.ft.com/intl/cms/s/0/dc48dfa2-99b1-11e3-b3a2-00144feab7de.html?siteedition=intl – axzz2tqmgxD1p

[8] Neil Irwin. “Fed Extended Rescue Effort Globally in 08’ Crisis,” International New York Times. 25 Feb. 2014. Print.

[9] Banks are selling assets or considering moving business into legal structures outside the purview of U.S. regulators…Bank executives say the steps they are considering are legitimate ways of adhering to increasingly onerous regulations, while minimizing costs to shareholders…The new rules are likely to force European banks to add billions of dollars to loss-absorbing capital to their U.S. units.” Max Colchester and David Enrich. “Banks Parry U.S. Rules,” from The Wall Street Journal. 11 Feb. 2014. (a) To avert this regulation, U.S. companies can sell so-called convertible bonds to their parent companies to build equity in order to fall above this $50 million threshold. Analysts worry of the bonds’ potential to harm the system by quantitatively increasing the substratum of funding debt. So-called convertible bonds are another example of shocks resulting in the bifurcation of trajectories. I.e., in Deleuzian terms this utilization of lock-and-key mechanisms w/r/t regulations continues to ignore the substratum of attraction w/r/t banks and financial institutions following consistent singularities (e.g., risk management, building capital and increasing equity.) However, these “onerous” regulations are meant to better tests banks’ potential risks and strengths in the face of future perturbations, which the tests will attempt to track. Thus, there is a slight paradox of Deleuzian ideologue at play within the Fed’s actions. The intent of the stress tests seemingly revolve around the need to map the actualization of future (i.e., virtual) financial shocks and perturbations (i.e., a sort of Winfree-esque test to track the affects of perturbations on a given system. Here, the light is simply replaced with the Fed’s stress test, while the mosquitos mime the foreign arms of U.S. banks). However, ironically, the tests are simply an off-shoot of a larger regulation, which, like the Volcker Rule, seemingly eschews a contextual view of financial intermediaries; thus, surrendering itself to exactly what the WSJ states: banks are seeking to continue on their longstanding trajectories toward attractors by simply bifurcating their trading schema into different areas (convertible bonds).

— by Alex Montero

And from the synthetic we can now derive the referent….

Our set of tutorials on the nomadic distributive capacities of synthetic finance formally commenced here, and then went here.

If you’ve moved with us, you now have a good enough understanding of credit default swaps, total return swaps, single name credit derivatives in general, and tranches (the latter of which is the redifferentiating counterstep to the dedifferentiating step of pooling -as the two steps to any securitization).

Now then, it’s time to move deeper into our consideration of the fungible material process of structuring finance assets -i.e. taking a preexisting generic or synthetic asset, dividing the asset, and (you know the drill:) in the course of its division, we are now capable of changing the asset in kind. So take an asset, any asset, and securitize it; this asset has been transmogrified: it is now a security (and all the economic properties that differentiate concomitant with this act therein!).

A correlative point to keep in mind here, is that as the geometer observes the loosening of a series of invariance requirements present and placed on Euclidean (or even some non-Euclidean) geometric transformations, and as we ascend down the scale of regressive differentiation in mathematics’ birth to form of topology, topological transformations, and topological invariants, it is not the case that there is now too much white symmetry, and everything is rendered into some kind of formless, homogeneous, thoroughly dedifferentiated blob of geometric properties. No, not at all. In fact, as we observe the loosening of invariance requirements that were previously in place, we see the birth to differentiation of a wholly new set of geometric properties which were real and virtual but still yet unactualized, and therefore inaccessible, under more rigid restrictions marking the earlier class of transformations. For example, continuity, closure, and so on; these new properties are specific to topology only because and as a result of the act of loosening. We see the same thing and more so with the synthetic financial economic transformations we call synthetic exchange.  We have already seen this in our earlier work on Tranches. We will continue to see this throughout.

Now please follow this link to learn about the role of CLNs in Tranching.

Tranching, A redifferentiating technology, is now available

Ontological inquiries into the mechanisms of financial systemic oscillations and their entrainment by capital flows, leverage ratios, and other critical economic stimuli, has led us to thinking more generally about phase-setting experiments. To this end, we will be modelling a universal synthetic CDO and a H2O fall economy to realize a fully-equitable H2O fall economy -Lozano says here you’d get all the war machine of the market without the conservativism of State-violenced capitalism, and the pistons of difference can pump away, free from the sedentarist constraints of re-distribution.

Great, we think. Tell me more. How?

This post is an entry en media res with a series of tutorials (the first 3 of which can be accessed here) on how to use synthetically-structured financial assets as an instrument for effecting a radical nomadic distribution -we could label these series of tutorials Communism & Credit Derivatives if we were hoping people might get the wrong idea about the right object, or rather the right idea about the wrong object, but we’re not going to do this. We didn’t just do this.

Structured finance is fundamentally a technology for de-differentiating (pooling) and re-differentiating (tranching) risk and cash flow -fungibly, flexibly, plastically, and as we wish. Tranching comprises an activity by which we divide an asset (generic or synthetic), and in the process of dividing we change that asset in kind.

So the purpose of this post is to tell you that you can read about Tranches, that is to say our tutorial on Tranches can be found, here.

So once we grasp the powerful material capacities of Tranching -its capacities to arrange economic singularities-  we will then be able to think about CLNs (which is the derivation of a generic referent from a synthetic exchange -i.e. the value of a referent here derives from the derivative, the copy fashions its own model), and then after that, we’ll be ready to directly consider how to build a synthetic CDO; and then after that we’ll be able to think about tinkering with a few things in a traditional synthetic CDO to get a universal synthetic CDO, the latter of which is the technology whose radical nomadic distributive capacities can only with some difficulty be overstated.

We’ll explain the H2O fall economy sometime later.

Single-Name Credit Derivatives are now available

We will ultimately want to illustrate that artificial leverage and natural leverage are two kinds of leverage that differ in kind.

Artificial leverage is exogenously introjected into the asset (to augment the volume of gains and losses), while natural leverage is endogenous, intensive, natural, i.e. built into the exchange of the asset itself.

We wish to demonstrate that structured finance is an organic mode of production of natural leverage, which if universally distributed, could be infinite.

When we show these two things, we will be doing so in order to convey that a universal waterfall economy amounts to a phase-resetting mechanism whereby the rhythm, rate, and plastic channels to the distribution of all risk and cash flow can be hyperfungibly annihilated, modified, or altogether reset -and importantly, in a way that is nontotalitarian, nonplanned, noncapitalist, but somehow a set of “free” markets (if we are still permitted to use that term) that are fully-equitable and make all parties involved better off. No biggie.

It is true that this truth is predicated on the existence of topological invariants, singularities, and affects to the spatial timing of the nonlinear oscillators comprising financial markets (of course if one grasps the subtle but profound ontological claim made by dynamical systems theory (that Deleuze aptly labels the univocity of being) the argument has already been made, and we have no good reason to doubt the radical nomadic distributive capacities of nonadditive stimuli endemic to nonlinear systems when induced into conditions far-from-equilibrium).

This requires our reader to understand what the hell even is a waterfall economy?

To begin to answer this latter question, Lozano here at specmat (who, again, is only one specmater -he doesn’t even speak for himself, let alone anyone else) has elected to pursue the strategy of tutorials -in derivative satisfaction of the project objectives of The Lives of Concepts of Finance– on synthetic finance: he will move from ontological examinations of single-name credit default swaps, single-name total return swaps, and single-name credit derivatives (all three of which are currently available here and here and here), to then some key concepts in structured finance (e.g. tranches, CLNs, CDOs); and from there we will be an informed position to appreciate the impetus of the aformentioned claim.

We will also greatly augment our understanding of synthetic finance, which will aid our understanding of Deleuze’s Guidebook to Synthetic Finance (which will recommence shortly).   

Archimedes & Leverage. a first note

Archimedes did not invent the technology of the lever, but deployed a little geometric reasoning to exploit its basic physical principal. Plutarch relays Archimedes’ use of the principal of mechanical advantage, by way of simple block-and-tackle pulley, to lever a ship by hand.

‘…Archimedes, who was a kinsman and friend of King Hiero, wrote to him that with any given force it was possible to move any given weight; and emboldened, as we are told, by the strength of his demonstration, he declared that, if there were another world, and he could go to it, he could move this. Hiero was astonished, and begged him to put his proposition into execution, and show him some great weight moved by a slight force. Archimedes therefore fixed upon a three-masted merchantman of the royal fleet, which had been dragged ashore by the great labours of many men, and after putting on board many passengers and the customary freight, he seated himself at a distance from her, and without any great effort, but quietly setting in motion with his hand a system of compound pulleys, drew her towards him smoothly and evenly, as though she were gliding through the water.’ [1]

If later, an economic historian like A.P. Usher turns the latter-half of his craft to write a History of Mechanical Inventions, and in the process observes that Archimedes achieves his great material feat on the back of the block-and-tackle pulley, it’s because such instrument is a subclass of a class of instrument known to financial economics and mechanics alike –namely, the instrument of a ‘lever’.

webexclusive_Power_clip_image001

To lever is to leverage. And leverage, in its utmost generality, is that activity which –in a thoroughly non-theological sense– miraculously seizes while yet preserving an input power to manage force against movement, to therein realize an excess of output force incommensurate with its input. In mechanics, as our careful reader will already detect in Plutarch’s version, and no doubt understandably so, we see all emphasis fall to the spatiality of leverage, with little more than an implicit nod to the productive role of positive differences whose spatial mediation requires a certain metrics of oscillation, and is therefore also and equally so temporal in kind.

To then commence our inquiry into leverage, we will naively implore Archimedes: ‘to lift a heavy ship by mortal hand? – Archimedes, please tell us, how this is possible?’

His curt reply will be, ‘through leverage.’

Or when feeling more loquacious, he may even elaborate, ‘by way of agent employing an otherwise inert instrument to exploit a set of positive differences between spatio-temporal properties.’

Or more fully still, that ‘when a quasi-causal operator arranges differences in force at different distances around a fulcrum, a certain timing is arranged in space –or rather a spatial distribution begins to ‘take up’ difference, to make up difference in time; the order of this distribution is the production of differences in temporalities, different temporalities are differentiated. This is, in short, the transformation of an inert object of the lever into a powerful technology capable of pivoting-on, and exploiting, but simultaneously (and paradoxically so) also producing such differences.

For indeed, we will now add, and by repeating our definition of leverage in its ‘utmost generality’: when positive differences are arranged at a sensitive point in an oscillation, at a critical value, and with the correct quantity and quality of inducement, the otherwise inert fulcrum spins on its singularity, and transforms into a dynamical instrument capable of producing an amplification of output power in excess of its original input. How far removed is this dynamic of leverage from the dynamic of leverage deployed in finance. As we will see, not very. It’s all a matter of knowing the difference between artificial leverage –sedentary, cardinal, convergent, and non-additive by nature– and natural leverage –which is nomadic, ordinal, divergent, and non-additive by nature.

So from here we commence our inaugural examination of financial leverage, and as we begin to move towards the proposition of infinite leverage. What do we have? We have a singularity combined with a set of affects, i.e. capacities to affect and in turn to be affected; there is the arrangement and exploitation of positive differences in space-time through intervention by a quasi-causal operator; and the dynamical use of an inert instrument to affect nonadditive outputs to matter and energy. These will suffice as our illustratives –our material illustratives for the miraculous power of leverage.


FOOTNOTE.

[1] This passage is worth reading in full:

‘For the art of mechanics, now so celebrated and admired, was first originated by Eudoxus and Archytas, who embellished geometry with its subtleties, and gave to problems incapable of proof by word and diagram, a support derived from mechanical illustrations that were patent to the senses. For instance, in solving the problem of finding two mean proportional lines, a necessary requisite for many geometrical figures, both mathematicians had recourse to mechanical arrangements, adapting to their purposes certain intermediate portions of curved lines and sections. But Plato was incensed at this, and inveighed against them as corrupters and destroyers of the pure excellence of geometry, which thus turned her back upon the incorporeal things of abstract thought and descended to the things of sense, making use, moreover, of objects which required much mean and manual labour. For this reason mechanics was made entirely distinct from geometry, and being for a long time ignored by philosophers, came to be regarded as one of the military arts.

And yet even Archimedes, who was a kinsman and friend of King Hiero, wrote to him that with any given force it was possible to move any given weight; and emboldened, as we are told, by the strength of his demonstration, he declared that, if there were another world, and he could go to it, he could move this. Hiero was astonished, and begged him to put his proposition into execution, and show him some great weight moved by a slight force. Archimedes therefore fixed upon a three-masted merchantman of the royal fleet, which had been dragged ashore by the great labours of many men, and after putting on board many passengers and the customary freight, he seated himself at a distance from her, and without any great effort, but quietly setting in motion with his hand a system of compound pulleys, drew her towards him smoothly and evenly, as though she were gliding through the water.’

a five-year plan

To effect the project objectives of Lozano’s version of speculative materialism, we’re required to perform a disciplinary integration. To perform this disciplinary integration, we’re required to master three literature sets and their respective fields of inquiry: (i) dynamical systems theory and the sciences of morphogenesis, non-Euclidean geometry, topology, and group theory; (ii) the work of Gilles Deleuze; and (iii) the technical discourse of finance –especially on the topics of credit derivatives, securitization, and synthetically-structured debt, and whose historical-materialist development effects the institutional differentiation of shadow banking out of traditional intermediation.

When the philosopher sets his aperture to finance, he encounters a veritable pantheon of ontological profundities. The first result of this integration is discovery of an important isomorphism between the nonlinear dynamics of finance as a complex system, and the profound demonstration by dynamical systems theory of the ontological univocity characterizing complex behavior, writ large. Dynamical systems theory employs the analytical tools of topology, group theory, and natural studies on symmetry to study complex systems, therein revealing common characteristics among different classes of systems (e.g. biological, social, etc.). Speculative materialism, the study of the ontology of finance, under this approach discovers that finance is one such class of system, and from this discovery sets out to examine the singularities and affects endemic to its processes.

This gives birth to a new methodology and research project whose topics to begin with include, but are not limited to: study of the topological invariants of varieties of financial assets (e.g. options, credit derivatives, securitized products, convertible bonds, synthetic ETFs); study of reversible and irreversible processes endemic to financial phenomena; study of the basins of attraction and nonlinear causes of financial crises; experimentation with the critical values and nonlinear dynamics involving far-from-equilibrium conditions; and ultimately the theoretic union of a macroeconomic and microeconomic discourse consistent with the principles of each. Topological and group-theoretic conceptual resources developed by both dynamical systems theory and Deleuze lend us powerful analytical capacities for sifting-out some structure to finance’s spaces of possibility –even amidst ostensibly stochastic phenomena. The study of the ontology of finance seeks to trace these logics, the logics of the virtual, back to where possibilities for finance set up their camp. Only then, as operators, can we begin tinkering with its divergent evolutionary capacities.

The phases of Lozano’s research can be temporally divided between the present, a projected immediate-future, and a projected extended-future.

the present

Of Synthetic Finance: Three Essays of Speculative Materialism (2014)

Of Synthetic Finance is scheduled for publication in 2014. This book is the formal event that convokes into being the field of study of the ontology of finance.

This book demonstrates:

(i) That synthetic financial assets have a hyperfungibility and higher degree of symmetry than generic financial assets, e.g. traditional debt and equity. This includes an ontological examination of generic finance and synthetic finance to outline the topological invariants of the latter.

(ii) That this means synthetic assets can not only “do” more things, plastically, effectively, and readily to create and distribute risk and cash flow, but that the universal distribution of risk and cash flow is organic to their technology. This includes an ontological exposition of credit derivatives and their securitized incarnation in synthetic CDOs; and an elaboration of the methodological resources Deleuze provides when in his philosophical treatment of dynamical systems theory, he illustrates the peculiar but profound material capacities of the synthetic.

(iii) That given the advanced plasticity, hyperfungibility, and radical materiality of synthetic finance, we really have no idea what our financial technologies are actually capable of. This includes the development of Deleuze’s concept of ‘nomadic distribution’ to wager that the progressive differentiation of synthetic finance signals the contingent historical development of an untapped awesome capacity for the universal distribution of risk and cash flow in a way that makes all parties wealthier.

Lozano’s 5 years of intensive research in the three aforementioned fields generated material for several topically-different books, but which still fall under the general project of speculative materialism: Infinite Leverage (2015); An Image without Likeness: A Nonlinear History of Finance (2016); Continuous Recalibration of Natural Leverage in a Universal Synthetic CDO (2017); and his magnum opus, Being & Finance (2018); followed by Promises of Utopia (2019). The following is an itemization of this projected future.

 

a projected immediate-future

Infinite Leverage (2015)

For strategic purposes, Of Synthetic Finance (2014) deliberately pursues a nontechnical ontological exposition of synthetic finance when outlining the methodology of speculative materialism. By contrast, Infinite Leverage provides a more technical description of the isomorphism between topological transformations and synthetically-structured financial exchange. This involves an examination of the nonadditive material capacities of ‘natural leverage’ –labeled ‘mechanical advantage’ or sometimes ‘virtual work’ in physics– through the ‘pooling and tranching’ processes of structured finance. The space of structured financial exchange is what topologists classify as a nonorientable surface.

This examination illustrates that in finance, as in other nonlinear systems, the introduction of a subtle or small stimulus at a specific time, for a definite duration, and at a critical value, can induce dramatic effects incommensurate with the amplitude of its causes. In this respect, the book also provides an outline of a theory of financial crisis: when an operator or sets of operators induce nonlinear conditions of far-from-equilibrium, the principle of superposition is supplanted by a new principle; this is the principle of nonadditivity. However, there’s a flip side to system instability: from the principle of the nonadditivity of nonlinear causes we derive Deleuze’s concept of ‘nomadic distribution’ –which does not entail a redistribution of economic objects in a pre-produced space, but now rather an ex nihilo distribution of economic space itself. When the principle of superposition breaks down, a high volume of natural leverage, if correctly channeled, can also activate a nomadic distribution of economic space itself. It is this potentially ex nihilo and ad infinitum capacity of leverage we must seek to tap. For this would realize the all-upside-promise of infinite leverage.

4501_reid_topology_diffeng

 

An Image without Likeness: A Nonlinear History of Synthetic Finance (2016)

This book is a history of synthetic finance, from the Ancient to Medieval to Modern and now contemporary world. It provides a nonlinear account of the historical differentiation of the class of exchange of synthetic finance (e.g. credit derivatives and synthetically-structured financial assets) from out of the class of exchange of generic finance (e.g. traditional debt and equity), and therein maps the phase transition from traditional intermediation (aka the “Jimmy Stewart” model of banking) to shadow banking.

This book also draws on Felix Klein’s powerful group-theoretic method of arranging non-Euclidean transformations according to their geometric invariance requirements, in order to both outline a mathematically-intoned philosophy of the history of finance, and to illustrate that the differentiation of synthetic finance signals a progressive becoming-topological of the financial asset.

a projected extended-future

Continuous Recalibration of Natural Leverage in a Universal Synthetic CDO (2017)

This book advances a short, dense, technical argument that the technological fusion of, on the one hand, contemporary reworkings of the Black-Scholes-Merton options pricing model’s method of continuous recalibration, with on the other hand, the fungible risk and cash flow distributive technology of a synthetic CDO, can effect a dynamically-hedged universal distribution of risk and cash flow that makes all parties better-off.

Lozano is currently in the inaugural stages of modelling this proposal (note: he also needs a mathematician, a financial engineer, an accountant, a behavioral economist, a (Laplanchian) psychoanalyst ((LPNNA) Lacanians please need not apply), and a game theorist). In actuality this book is a tax-policy proposal which, if tested, adopted, and found viable, would inaugurate a concrete speculative materialist economic program. At the very least, it’s a test model –whose experiment draws on scientific, philosophical, and psychological studies on altruism and egoism– to translate and synchronize several profound analytical contributions from financial engineering, social philosophy, behavioral psychology, and dynamical systems theory to build more robust (and hopefully accurate!) financial risk models, albeit now, and essentially so, with universal economic equitability as its aim.

Being & Finance (2018)

This book explicitly illustrates the becoming-topological or regressive differentiation of capital in its synthetic-systemic incarnation. It comprehensively exposits the complete philosophical synthesis of the combined insights of dynamical systems theory and the study of the ontology of finance.

Promises of Utopia (2019)

Starting next year (2014), Lozano will commence intensive research on the history and ideologies of utopias. He will then weave Nietzsche’s advocation for a politics of difference grounded in joy and affirmation into an itemized account of the promises of utopias. Drawing on his technical understanding of synthetic finance, Lozano proposes a project for radically reengineering synthetic financial technologies for universal equitability –or in a word, to realize the promises of utopia.

…But wait a minute, Lozano’s only one guy. What else will speculative materialism have been 5 years from now?

 

 

*Thanks to Jon Rafman for the featured image in this post.

Towards a social logic of the derivative

This week is honorary Randy Martin week here at SpecMat.

Its not that we’ve been too preoccupied with other stuff to write anything worth reading lately; for instance:

It’s not that we’ve been watching too much TV, no –I don’t even like watching exciting baseball.

It’s not that we’ve been zealously following the soap opera called Washington DC (and the “I kidnap your money” (i.e. Congressional budgetary nonfunding of the US government) and then say “now give me the fucking baby!” (i.e. Obamacare/Affordable Care Act) logic; which reminded us how easy it is to watch Bill O’Rielly (on an empty stomach))…No that’s not why either.

It’s not that we’ve begun working on a new book titled Infinite Leverage, and that we’ve found that by connecting the deep history of financial leverage (or ‘gearing’ if your in the UK) -whereby you employ debt to augment the volume of gains and losses- with the principle of mechanical advantage -whereby an inert instrument (like a lever) exploits the positive differences between force and movement to amplify an output of power far beyond that of your input- we’ve opened up a veritable pantheon of financial ontology only akin to the veritable pantheon of culinary delights boasted by the (original, Japanese version of) The Iron Chef…No it couldn’t be that.

Allez cuisine! (translation: 'maniacal aggression never tasted so good)
Allez cuisine! (translation: ‘maniacal aggression never tasted so good’)

It’s not that we’ve been depressed because Walt died –which is natural and justice, of course; but honestly isn’t Jesse just as responsible for just as much objective violence (e.g. when someone smoked the blue stuff and neglects their kid, then their kid dies -this means that Walt and Jesse just killed the kid, indirectly, but objectively: they are both equally responsible for the countless deaths of people just like Brock)?..That’s not why we haven’t been posting things. No. that’s definitely not why. That would be stupid, it’s just a show.

It’s not that we’ve been making lots of money trading, because making money trading off Japanese monetary policy and emerging market debt is easier than losing money by believing that Gold will go way up when the money is kidnapped and held as ransom, and babies are demanded in exchange for ransom…I assure, dear reader, that would not be the reason, either. (Actually if you study the correlation you’ll see that Gold only eventually goes way up -so its just not time yet.)

No, its honorary Randy Martin week because Randy has written the best piece on the social logic of the derivative, period.

Randy identifies and defines a derivative sociality as a body without organs (as he puts it: ‘a decentered social kinesthetic…derivative mobilizations that do not require unity to move together’), and suggests that in the topological or ‘horizontal propulsion’ of dance and derivatives lie an aesthetic, a becoming-culture, a radical ensemble of practices of precarity.

This is really compelling to me, to us, and to those who are and have been and will be attending to the thought of what more our economic and social institutions could be, but which they currently are not. In Lozano’s Of Synthetic Finance, he pursues a case study on credit derivatives, in which he outlines a proposal for modifying and universalizing the technology of synthetic CDOs -which he wagers would act as a kind of lock and key mechanism (rather than requiring a wholesale systemic mutation –whatever that would even mean), and whereby operating a seemingly minor variation to our mode or distributing economic space could rearrange the interrelations between the metrics of our (financial) order. He argues that this could effect a nomadic distribution of economic space -and now wagers the notion that through the pooling and tranching procedure of synthetically-structured finance, we could, if universalized, effect an infinite leverage with all upside and no downside (i.e. we have no idea what our institutions are actually capable; let’s experiment with infinite leverage, universally, and find out). But this notion by Lozano, to be clear, is strictly an economic, quasi-tax-policy-oriented financial proposition grounded in his technical understanding of the peculiar but profound and monstrous material capacities of synthetic finance. But Randy’s thinking on this is one or two light years ahead; his piece goes a big step further by clarifying that the radicality of the synthetic is a social aesthetic as well: and after all, isn’t economics just a subset of social logic? To paraphrase Deleuze, we make and remake the topology of our identities on a moving horizon of fluid activities, interests, desires, and dark precursors. I agree. That’s why it’s honorary Randy Martin week.

His piece, which is beautifully written, can be found here.

project statement

There is at last no longer any serious pretense that our financial world is capable of monogamous symbolization by the stable period motions of economic equilibrium models, whose analytic analog derives from classical mechanics. It is now conceived as a world of instabilities, intrinsic and extrinsic, if such distinction still holds; deterministic and simultaneously by chance; perpetual fluctuations; permeated through and through with ambiguous anxieties; overdetermined by noise, perturbations, and pathological deviations; but which in turn -we must not overlook- is responsible for rich varieties of fungible properties, forms of assets, and a mobile horizon of institutional structures constantly coming into and out of existence. Do we really understand what all they can do?

New conceptual tools are needed to think finance, to think between and through and along with its being, its logic, its ontology, viz. its logic of being. Speculative materialism is a forum for the study of the materialism and ontology of finance, and so is a site for exploring methods capable of examining its complexity -at the level of economic properties, assets, the markets they populate, and the subsystems comprising the rhizomatic systems of exchange we call ‘finance’.

Now, Lozano is only one speculative materialist. But Lozano reads, and believes he understands, Deleuze. This means that his current heterodox political economic interests involve questions of the possible applications of two fields of scientific inquiry that have been progressively revolutionizing the philosophic disposition of science towards complexity.  {note: thanks to I. Prigogine, Exploring Complexity, for this inspiration}

(i) The first is studies on nonequilibrium -and in particular the peculiar material properties and processes exhibited by far-from-equilibrium conditions (note: when Lozano openly imagines a continuously-recalibrated universal synthetic CDO that nomadically distributes economic space by manner of the ‘infinite leverage’ production-capacities of structured financial technologies, he’s advocating experimentation with operations of far-from-equilibrium -which is why he likes to say: “hey look, I might be wrong, in fact I probably am wrong; but if I’m wrong than I’m wrong for the right reasons.” (ed. note: he’s obviously a bit of a jerk)).

(ii) The second is modern dynamical systems theory -and in particular its investigations of the amplifications of the effects of profound changes to a system from small or slight modifications of initial conditions and/or nonlinear causes.

Lozano believes that when a heterodox political economist successfully scavenges the conceptual resources from these methods, at the very least the result will be a more thorough understanding of our object of analysis -i.e. the ontology and the deep material capacities of finance. And at the very more? -this is for another post.

Pooh_meets_Tigger,_illustration_by_EH_Shepard

Wherever we look in finance today we observe divergent evolution, along with a precarious fleeting set of moments of stability amongst a flux of deviations from equilibrium. The ontological consistency of the world of financial objects is a truly pluralistic world, wherein we find acute determinism (e.g. the prices of bonds and their yields always move inversely) alongside or even within stochastic phenomena (e.g. price series of bonds), and reversible processes (e.g. any given exchange) that give rise by degrees to qualitatively irreversible changes in kind (e.g. a series of exchanges progressively gives rise to new markets and institutions, whose differentiation is irreversible, i.e. its actuality only moves one way).

In some respects perhaps this is no surprise. Many complex systems are marked by this elusive dynamic; moreover, this elusive dynamic even cuts across complex systems themselves. Physicists explain that already the motions of a ‘simple’ frictionless pendulum are wholly reversible, that the pendulum’s past and future can move in either direction of the arrow of time, and that each is equally as capable of playing the same role in the equations describing its dynamics: this truth is absolute. But it is just as much the case that biological evolution, chemical reactions, and diffusion processes -are these not equally absolute, albeit now in their very irreversibility?

Let us then consider. In the (neo)classical political economic paradigm, the political economist is an investigator who is thought to be exogenous to the forces of the system which she observes. She is capable of calculating, rationally, independently, and making autonomous decisions about the phenomena presented to her in the course of her studies therein. Contrarily, it is the system itself that is subject to deterministic laws, while the political economist is the decider, awesome and free. It is the system -even if and when comprised of individuals- who is stupid, pathological, inert, an undead-dead matter that conforms to a predetermined plan. Today, however, already in behavioral finance’s opening salvo, and now in sociological applications of science and technology studies to finance, we are getting progressively further from this aforementioned applied-Cartesian conception of the subject. Not only in the human sciences and even physics, but afortiori in finance and economics as well, we are now expected as subjects, spectators, subjects of the spectacle, but also as actors and activists as well. No longer then, too, must the domain of exchange we call finance necessarily imply a predetermined future predicated on a perpetual present. Rather, our world is rife and open with possibility, for we perpetually inhabit and cohabit the construction of a time and space of which we are active participants.

This is one conviction of a speculative materialist.

This is one wager as we we proceed to examine the materialism and ontology of finance.

This is also why we seek to move beyond critique and off to engineering. But if engineering truly is the benevolent fusion of art and science, of creative aesthetics fused onto physical laws, we must begin with step one -which is a clarification of method -and then commence the process of tinkering with matter.