An Engine, Not a Camera: How Financial Models Shape Markets (Inside Technology Series)

New
Illustrated
2008
$34.13

In An Engine, Not a Camera, Donald MacKenzie argues that the emergence of modern economic theories of finance affected financial markets in fundamental ways. These new, Nobel Prize-winning theories, based on elegant mathematical models of markets, were not simply external analyses but intrinsic parts of economic processes. Paraphrasing Milton Friedman, MacKenzie says that economic models are an engine of inquiry rather than a camera to reproduce empirical facts. More than that, the emergence of an authoritative theory of financial markets altered those markets fundamentally. For example, in 1970, there was almost no trading in financial derivatives such as futures. By June of 2004, derivatives contracts totaling $273 trillion were outstanding worldwide. MacKenzie suggests that this growth could never have happened without the development of theories that gave derivatives legitimacy and explained their complexities. MacKenzie examines the role played by finance theory in the two most serious crises to hit the world's financial markets in recent years: the stock market crash of 1987 and the market turmoil that engulfed the hedge fund Long-Term Capital Management in 1998. He also looks at finance theory that is somewhat beyond the mainstream-chaos theorist Benoit Mandelbrot's model of wild randomness. MacKenzie's pioneering work in the social studies of finance will interest anyone who wants to understand how America's financial markets have grown into their current form.

Synopsis

In An Engine, Not a Camera, Donald MacKenzie argues that the emergence of modern economic theories of finance affected financial markets in fundamental ways. These new, Nobel Prize-winning theories, based on elegant mathematical models of markets, were not simply external analyses but intrinsic parts of economic processes. Paraphrasing Milton Friedman, MacKenzie says that economic models are an engine of inquiry rather than a camera to reproduce empirical facts. More than that, the emergence of an authoritative theory of financial markets altered those markets fundamentally. For example, in 1970, there was almost no trading in financial derivatives such as futures. By June of 2004, derivatives contracts totaling $273 trillion were outstanding worldwide. MacKenzie suggests that this growth could never have happened without the development of theories that gave derivatives legitimacy and explained their complexities. MacKenzie examines the role played by finance theory in the two most serious crises to hit the world's financial markets in recent years: the stock market crash of 1987 and the market turmoil that engulfed the hedge fund Long-Term Capital Management in 1998. He also looks at finance theory that is somewhat beyond the mainstream-chaos theorist Benoit Mandelbrot's model of wild randomness. MacKenzie's pioneering work in the social studies of finance will interest anyone who wants to understand how America's financial markets have grown into their current form.

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More Information

Format: Illustrated
Pages: 392
Edition: Illustrated
Publisher: MIT Press
Published: 22 Aug 2008
ISBN 10: 0262633671
ISBN 13: 9780262633673
Book Overview: In one lifetime modern finance theory has revolutionized the arts of canny investing. MacKenzie knows this exciting story, and he tells it well. -- Paul A. Samuelson, MIT, Nobel Laureate in Economic Sciences Donald MacKenzie has long been one of the world's most brilliant social and historical analysts of science and technology. Here he provides an original, astute, and exhaustively researched account of the development of finance theory and the ways in which it is intertwined with financial markets. An Engine, Not a Camera is essential for anyone interested in markets and the forms of knowledge deployed in them. -- Karin Knorr Cetina, University of Konstanz and The University of Chicago An Engine, Not a Camera is a compelling, detailed, and elegantly written exploration of the conditions in which finance economists help to make the world they seek to describe and predict. Donald MacKenzie has long been without equal as a sociologist of how late modern futures are brought into being and made authoritative. This is his best work yet. -- Steven Shapin, Franklin L. Ford Professor of the History of Science, Harvard University

Media Reviews

An Engine, Not a Camera provides an insightful appreciation of the ways in which financial models influence and shape the world they seek to understand. -Anthony Hopwood, Times Higher Education Supplement
A brilliant, extremely lucid account of the connections between financial economics and the development of futures, options, and derivatives markets between the 1950s and 2001. -Neil Fligstein, American Journal of Sociology

Author Bio

Donald MacKenzie is Professor of Sociology (Personal Chair) at the University of Edinburgh. His books include Inventing Accuracy (1990), Knowing Machines (1996), and Mechanizing Proof (2001), all published by the MIT Press. Portions of An Engine, not a Camera won the Viviana A. Zelizer Prize in economic sociology from the American Sociological Association. Wiebe E. Bijker is Professor at Maastricht University and the author of Of Bicycles, Bakelites, and Bulbs: Toward a Theory of Sociotechnical Change (MIT Press) and other books. Trevor Pinch is Goldwin Smith Professor of Science and Technology Studies at Cornell University and coeditor of The Social Construction of Technological Systems: New Directions in the Sociology and History of Technology (anniversary edition, MIT Press).