Fischer Black, "Noise," The Journal of Finance 41, no. 3 (1986).
Devin Kennedy, "The Machine in the Market: Computers and the Infrastructure of Price at the New York Stock Exchange, 1965–1975," Social Studies of Science 47, no. 6 (2017).
Ibid.
Friedrich Hayek, "The Use of Knowledge in Society," The American Economic Review XXXV, no. September (1945): 519-20. Italics mine.
Ibid.
A critical first step, as historians such as Philip Mirowski have noted, towards contemporary notions of information economies. Philip Mirowski, Machine Dreams: Economics Becomes a Cyborg Science (Cambridge: Cambridge University Press, 2002); "Twelve Theses Concerning the History of Postwar Neoclassical Price Theory," History of Political Economy 38 (2006); Machine Dreams: Economics Becomes a Cyborg Science (Cambridge: Cambridge University Press, 2002).
“The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all.” Hayek, "The Use of Knowledge in Society," 526.
Paul Erickson et al., How Reason Almost Lost Its Mind: The Strange Career of Cold War Rationality (Chicago: University Of Chicago Press, 2015).
Friedrich Hayek, The Constitution of Liberty, 2011 ed. (Chicago: University of Chicago Press, 1960).
Orit Halpern and Robert Mitchell, The Smartness Mandate (forthcoming 2023).
Frank Rosenblatt, Principles of Neurodynamics: Perceptrons and the Theory of Brain Mechanisms. (Washington D.C.: Spartan Books, 1962).
Ibid., 5. Italics mine.
Frank Rosenblatt, Principles of Neurodynamics: Perceptrons and the Theory of Brain Mechanisms (Washington, D.C.: Spartan Books, 1962), 386-408.
"The Perceptron: A Probabilistic Model for Information Storage and Organization in the Brain," Psychological Review 65, no. 6 (1958): 288-89.
Ibid., 19-20, italics my emphasis.
For more on the influence of cybernetics and systems theories on producing notions of non-conscious growth and evolution in Hayek’s thought: Paul Lewis, "The Emergence of 'Emergence' in the Work of F.A. Hayek: A Historical Analysis," History of Political Economy 48, no. 1; Gabriel Oliva, "The Road to Servomechanisms: The Influence of Cybernetics on Hayek from the Sensory Order to the Social Order," Research in the History of Economic Thought and Methodology, no. 161-198 (2016).
He was apparently fond of quoting Alfred North Whitehead’s remark that “it is a profoundly erroneous truism… that we should cultivate the habit of thinking what we are doing. The precise opposite is the case. Civilization advances by extending the number of important operations we can perform without thinking about them.” Alfred Moore, "Hayek, Conspiracy, and Democracy," Critical Review 28, no. 1 (2016): 50. I am indebted to Moore’s excellent discussion for much of the argument surrounding Hayek, democracy, and information. This quote is from Hayek, "The Use of Knowledge in Society."
For an account of earlier nineteenth and twentieth century models for pricing options, see MacKenzie, 37-88.
The three men most often credited with the formalization of the derivative pricing model are Black, an applied mathematician who had been trained by artificial intelligence pioneer Marvin Minsky; Myron Scholes, a Canadian-American economist from University of Chicago who came to MIT after his PhD under Eugene Fama; and Robert Merton, another economist trained at MIT. Collectively they developed the Black-Scholes-Merton derivative pricing model. While these three figures are hardly singularly responsible for global financialization, their history serves as a mirror to a situation where new computational techniques were produced to address geo-political-environmental transformation. See George G. Szpiro, Pricing the Future: Finance, Physics, and the 300 Year Journey to the Black-Scholes Equation, vol. Kindle Edition (New York: Basic Books, 2011), 116-17.
As Black noted in 1975, “{m}y initial estimates of volatility are based on 10 years of daily data on stock prices and dividends, with more weight on more recent data. Each month, I update the estimates. Roughly speaking, last month’s estimate gets four-fifths weight, and the most recent month’s actual volatility gets one-fifth weight. I also make some use of the changes in volatility on stocks generally, of the direction in which the stock price has been moving, and of the ‘market’s estimates’ of volatility, as suggested by the level of option prices for the stock” (Black 1975b, p. 5, cited in MacKenzie 321, note 18.
A “portfolio” is a collection of multiple investments, which vary in their presumed riskiness, and which aim to maximize profit for a specific level of overall risk; “arbitrage” refers to purportedly risk-free investments, such as the profit that can be made when one takes advantage of slight differences between currency exchanges—or the price of the same stack—in two different locations.
Robert Merton added the concept of continuous time and figured out a derivation equation to smooth the curve of prices. The final equation is essentially the merger of a normal curve with Brownian motion. Satyajit Das, Traders, Guns, and Money: Knowns and Unknowns in the Dazzling World of Derivatives (Edinburgh: Prentice Hall: Financial Times, 2006), 194-95.
MacKenzie, An Engine, Not a Camera How Financial Models Shape Markets, 60-67.
Michael Schaus, "Narrative and Value: Authorship in the Story of Money," Proceedings of RSD7, Relating Systems Thinking and Design 7, 23-26 Oct 2018, Turin, Italy, fig. 18. See ➝.
It is worth noting that the Black Scholes Derivative pricing equation inaugurating the financialization of the global economy was introduced in 1973. For an excellent summary of these links and of the insurance and urban planning fields please see: Kevin Grove, Resilience (New York: Routledge, 2018).
Joshua Ramey, "Neoliberalism as a Political Theology of Chance: The Politics of Divination," Palgrave Communications (2015).
Randy Martin, “What Difference do Derivatives Make? From the Technical to the Political Conjuncture”, Culture Unbound, Volume 6, 2014: 189-210.
Research for this article was supported by the Mellon Foundation, Digital Now Project, at the Center for Canadian Architecture (CCA) and by the staff and archives at the CCA. Further funding was given by the Swiss National Science Foundation, Sinergia Project, Governing Through Design.