The Logic of Promissory Finance

The Argument in Brief

The principal argument of this book is that the failure of the financial system in 2007–8 in the United States was primarily a failure of language. This argument does not deny that greed, ignorance, weak regulation, and irresponsible risk-taking were important factors in the collapse. But the new role of language in the marketplace is the condition of possibility for all these more easily identifiable flaws.

To make this case requires understanding how language takes on a new life in contemporary finance, and this argument takes us into a realm not usually explored when financial markets are discussed. To understand how language takes on the role it does in finance today, four steps are involved. The first is to show how derivatives are the core technical innovation that characterizes contemporary finance. Edward LiPuma and Benjamin Lee took an initial step in this direction in their important book on Financial Derivatives and the Globalization of Risk (LiPuma and Lee 2004). Since then, there have been several efforts to define and explain derivatives, both within and outside the community of finance experts. The second step is to show how derivatives are, essentially, written contracts about the future prices of various types of financial assets, the essence of which are promises by the losing party to pay the winning party an agreed-upon sum of money in the event of a specific future price outcome. Thus the contract is a promise, and to understand it fully requires a new look at contracts, seen as promises about the uncertain future. This requires a re-examination of Marcel Mauss's classic study of The Gift (1990) and a rereading of J. L. Austin's work (1962) on performatives and their conditions of felicity. This analysis of derivative contracts brings out the special importance of language in the financial marketplace. A third step is to show how the derivative form exploits the linguistic power of the contract through the special form that money takes in the financial world, given that money is by definition the most abstract form in which the value of commodities can be expressed. A fourth and final step is to understand that the failure of the derivatives market (especially in the domain of housing mortgages) is primarily about failed promises (promises being the most important in Austin's typology of performatives), a type of failure that was neither occasional nor ad hoc but became systematic and contagious, thus bringing the entire financial market to the brink of disaster.

This introductory chapter elaborates this argument schematically and sequentially. The subsequent chapters look more closely at ideas about risk, ritual, salvation, performative failure, and (in)dividuality, by strategic rereadings of Emile Durkheim, Marcel