The veil of authenticity in financial models is not just the by-product of hyper-active rocket-scientists’ spreadsheets. Instead, it extends right down to the most fundamental component of finance and our society…money itself.
One of the skills that sets humans apart from animals is our ability for abstraction. To conceive of something as a model or principle outside of the physical world fuels our ability to create and invent. But the animal in us (our ‘lizard brain’) still finds the physical world much, much easier to comprehend and fathom. Understanding built on the senses and experience. Perhaps the first thing ever ‘abstracted’ is ‘value’ or ‘money’.
Virtualising value introduced massive economic benefits. If you wanted to trade a chicken for a pig, you didn’t have to lug the chicken and pig around. You could ‘store’ the value (more safely than the chicken or an apple with a limited shelf life). But the trick to getting everyone’s head around this first step to virtualisation was the ‘money’ itself. Coin of the realm. Legal tender. Physical tokens which made the mapping of the ‘value representation’ to the ‘value thing’ easier. You might not have a chicken in your hands, but you had a piece of metal or paper which was still physical.
And now even that value is becoming more ‘virtual’. Less a physical token, than a balance on a card or credits in an account. A number in a computer. This approach has great benefit in convenience and versatility…but it is also the coming of age of the Black Boxification of Money.
The lack of an appreciation for what money is and isn’t under the hood lends itself to abuse of this powerful tool. In a process not to dissimilar to snake-oil salespeople exploiting the power of science (the workings underneath that their marks don’t properly understand) to hawk their quack potions…
- “I think Greed and Wall Street have been bedfellows as long as Wall Street has existed. What, I think, is new is the way the ‘pathology’ is concealed. It is easy to cover up greed and its immorality by either deploying a metaphor – these are the way the capital ‘flows’ are going and we have to invest accordingly – or by creating a mathematical equation. In both cases the activity is pushed one step away from what it is – an activity between humans – and so decoupled from anything human such as morality, or ethics or what is good for society. By being denuded of its human element, scientised, as it were, the question of personal responsibility is removed. In other words, the greed is not new. It is the sophistication of the cover up that is new.”
The abstraction not only divorces the token from its inherent ‘value’, but it then ultimate starts to alienate it from ‘values’.