Speculative Communities

Living with Uncertainty in a Financialized World

Aris Komporozos-Athanasiou

• Publisher: University of Chicago Press
• Year: 2022
• ISBN:
  9780226816012
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Speculative Communities investigates the financial world's influence on the social imagination, unraveling its radical effects on our personal and political lives. In Speculative Communities, Aris Komporozos-Athanasiou examines the ways that speculation has moved beyond financial markets to shape fundamental aspects of our social and political lives. As ordinary people make exceptional decisions, such as the American election of a populist demagogue or the British vote to leave the European Union, they are moving from time-honored and -tested practices of governance, toward the speculative promise of a new, more uncertain future. This book shows how even our methods of building community have shifted to the speculative realm as social media platforms enable and amplify our volatile wagers.For Komporozos-Athanasiou, "to speculate" means increasingly "to connect, " to endorse the unknown pre-emptively, and often daringly, as a means of social survival. Grappling with the question of how more uncertainty can lead to its full-throated embrace rather than dissent, Speculative Communities shows how finance has become the model for society writ large. As Komporozos-Athanasiou argues, virtual marketplaces, new social media, and dating apps bring finance's opaque infrastructures into the most intimate realms of our lives, leading to a new type of speculative imagination across economy, culture, and society.

Part I: Speculation

Finance and Capitalism

In common language, speculation is associated with the fancies of global stock markets and the whims of Wall Street’s bulls and bears. But what exactly is the role of speculation in modern capitalist life? Why, after decades of rampant financialization throughout the world, do markets and publics remain today so closely aligned? And how do we account for the paradox of a political economy where debilitating uncertainty about the future brings growing yields for financiers and politicians alike? This first part of the book disentangles these paradoxes by proposing a theory of speculative communities. I argue that, ever since the transition from industrial to finance capitalism, a sweeping speculative imagination has been integrated into everyday life: a profoundly generative social force, whose important role has remained neglected to this day, despite its great influence in shaping capitalist societies and their uneven abilities to cope with the future’s radical uncertainties.

The first chapter sets up the core argument of the book, offering an overview of key concepts underpinning my theory of speculative communities, and situating them vis-à-vis Benedict Anderson’s prominent study of the capitalist nation-state, Imagined Communities. The second chapter traces the historical evolution of these concepts, in order to provide a genealogical account of the speculative imagination. My analysis is both historical and theoretical. I engage the ideas of thinkers including Marx, Weber, and Castoriadis to show how homo speculans—the new political and economic subject of fin de siècle finance capitalism—arrives on the scene to usurp homo economicus from its throne. Unlike its rationality-driven forebear, homo speculans is a more relational and imaginative agent that throws itself in the whirlpool of life’s chaos without the desire to master its contingencies. My intention, specifically, is to illuminate the implications of this momentous development for the historical relationship between markets and publics, as they became imbricated in intense struggles for power from the early days of finance capitalism. I suggest that, although fraught with conflicts between passions and interests, these struggles must be understood in their essence as collective bids to harness the forces of speculative imagination.

Recognizing that some readers may be more interested in contemporary finance and its recent social and political transformations, I provide summaries of these key arguments, so that interested readers can return to this chapter to clarify how I arrive in my analysis of specific examples of speculative communities in parts 2 and 3, from Instagram and TikTok virtual enclaves to the neopopulist movements of Trump’s United States.

1: The Rise of Speculative Communities

Speculation is . . . the genius of discovery . . . that invents, innovates . . . that creates something from nothing.

Pierre-Joseph Proudhon, Manuel du spéculateur à la Bourse, 1857

Every asset class deserves its own volatility index, including volatility itself.

Chicago Board Options Exchange Volatility Index website

The Puzzle of Speculation

Historically, speculators have been seen as both insurers of and gamblers on financial systems. On the one hand, they correct misvaluations, taking on risks others avoid and thus preventing markets from overheating, while on the other hand mastering short-selling games and betting on volatility. From Weber’s “unscrupulous speculators” to Marx’s “commodity fetishizers” and Polanyi’s “fictitious value-dealers,” the function of speculative finance as a motor for capitalist dynamics has long fascinated students of capitalism.1 Pierre-Joseph Proudhon (1857) memorably distinguished between productive speculation (a formidable force driving economic futures, able to “create something from nothing”) and unproductive speculation (the immoral and unjust trading that plays the stock market like a lottery, leading to inequality and exploitation of some classes by others).2 But at its core, the art of speculating always encompasses an imperfect knowledge of the future and the acceptance of high risk; it combines the Lutheran fatalism of an inexhaustible human desire for accumulation with the ingenuity that Adam Smith believed speculation fosters.

In the aftermath of the 2008 financial crisis, accounts of speculation again seized the public imagination. Mainstream media and a series of Hollywood films called out financiers’ greedy trading practices as the main ill of modern capitalism and a key cause of its spectacular demise.3 Speculation came to symbolize a promise that lacks proper foundation—a world of fiction that has taken over reality. Indeed, speculation seems to be a perfect metaphor for capitalism itself: at once loved and hated, daring and creative yet destructive, it is rational in its inventive search for profit opportunities but also just as irrational in its quixotic pursuit of endless wealth. But in the literal sense, speculation is “the forming of a theory or conjecture without firm evidence” or “investment in stocks, property, etc. in the hope of gain but with the risk of loss” (Oxford English Dictionary). Oxford’s Dictionary of Finance and Banking provides more nuance, distinguishing speculation from “investment” in that the former is carried out “for the sole purpose of making a capital gain.”

To a certain extent, our ongoing fascination with the highs and lows of speculative frenzies comes from conflating speculation with “betting”—that is, with risk-taking “for its own sake” and without ambition to generate substantive value. Yet as economists from David Ricardo and Frank Knight to Hyman Minsky and John Maynard Keynes have long demonstrated, reducing speculation to gambling is a mistake because it overlooks the fundamental difference between risk and uncertainty in the behavior of economic agents. Knight’s classic work Risk, Uncertainty and Profit (1921) posits that (unpredictable) uncertainty characterizes much more economic activity than does (probabilistic) risk. Risk is the concern of gamblers, but most economic and social actors are faced with decisions that are in fact conditioned by uncertainty—that is, by incalculable “outcome probability” (everyday life decisions, the outcomes of which are simply impossible to accurately predict). Harvard economist Richard Zeckhauser (2014, 3) illustrates this inescapability of uncertainty in some of the most important decisions that could possibly be made—those concerning life or death in the medical field: “Terms such as relative risk ratios and survival risk pepper the literature. But a patient who presses a physician will learn that aggregate statistics do not apply to the individual’s case, that the physician and delivery institution can significantly affect risk levels, and that no data are so finely parsed as to predict individual outcomes. Uncertainty rules.”4

With this important distinction between risk and uncertainty in mind, speculation can be seen as a complex response to the immeasurable unpredictability of economic life: an imaginative act that confronts uncertainty by way of both hedging and wagering. This function of speculation first came into sharp relief with the dawn of formalized derivatives trading in Chicago’s grain, hog, and cattle markets during the 1870s. Based on a financial technology (the futures contract) that allowed for nonprobabilistic engagement with uncertainty (Lambert 2010), speculating was then—and still is now—much more than calculative risk-taking. In those early days of speculative fever, brokers could see and smell the goods (underlying assets) whose prices they were speculating on. Yet even during that time, traders were selling wheat that had not yet been grown, livestock that had not yet been (and likely never would be) produced. No material commodities were exchanging hands in what were essentially “fictitious dealings.” The distance between the world of trading and the realities of agriculture and farming was growing fast in the pits. Market observers were soon wondering, “Was the practice of setting off a form of productive financial speculation with real benefits for society or were dealers playing with ‘imagined differences’ in their own minds—engaging in an unproductive form of gambling?” (Levy 2006, 245–46).

Meanwhile, in the shadow market of makeshift “bucket shops” that were set up adjacent to the formal futures markets, speculation was breaking away from the elite trading pits to become a game for the many. Bucket-shop trading focused the public imagination on the sensationalist aspect of speculation—what Stäheli (2013) calls “spectacular speculation,” for, unlike consumption, work, and production, speculation abstracted from “real” values intentionally. Yet, just as the fin de siècle explosion of grassroots speculation was met with a mixture of contempt and alarm, the trading activities of those with privileged access to derivatives markets (such as those inside Chicago’s futures market) represented, in the famous words of Supreme Court Justice Oliver Wendell Holmes, “the self-adjustment of society to the probable.”5 Some decades later, Friedrich Hayek echoed this sentiment, seeing in the uncertainty and unknowability undergirding speculative finance the preconditions of a “spontaneous order”—inherent in human agents’ striving for converting contingency into stability and fictions into reality.

I will examine this important early history of speculation and its moral vicissitudes in the next chapter, but the point I would like to stress for now is this: debates surrounding the market crashes of 1893 and 1907 in the United States, the Great Depression of the 1930s, and the real-estate debacle that led to the 2008 global financial crisis, centered markedly on the difficulty of differentiating sober (thus rational) and reckless (thus irrational) speculation (Banner 2017).

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At the center of the speculative imagination is an instrument that binds together present and future, thought and action, the desire for stability and the openness to the unknown. From its inception, the derivative epitomized speculation’s inherent conflict, capturing both its investment and its insurance sides. A contract whose value is derived from the performance of an underlying entity (whether rice and hogs or interest rates and market indices), the derivative is capital’s security form. It aims to provide offsetting compensation (insurance) for an undesired event or, conversely, to take a bet on such an undesired event by speculating that the party seeking insurance will be wrong about the future value of the underlying asset.

The derivative product that emerged in the second half of the twentieth century offers a fruitful terrain on which to explore the speculative mode of today’s political economy because it captures the development of a particularly complex and opaque type of speculation. In their most speculative use, modern-day derivatives are used to increase rather than limit exposure to future volatility, with the hope of profiting from underlying asset price movements.6 Volatility, in that sense, now becomes the means of ensuring all-important finance liquidity. To put it more blandly: if prices don’t move, speculators will induce price movement for gain.7 It was this calamitous exposure, through the trading of collateralized debt obligations and credit default swaps in the 1990s and 2000s, that precipitated the collapse of financial institutions in 2007–8. As Warren Buffet cautioned in his famous 2002 statement, “The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear.”8

Wish-granting genies have spectral, ghostlike properties, including the ability to swiftly disappear from their own masters’ vision. Opacity is a core feature of financial instruments in contemporary markets (and, as I will argue in subsequent chapters, a central tenet of the commoditized technologies permeating modern-day social and political life). In the days of algorithmic high-frequency trading, and the emergence of “dark pools” (the exclusive forums of block trading of securities evading the transparency requirements of exchange markets), the intricate workings of computational bundling of securities and alternative trading systems remain inaccessible not only to the public but to the majority of traders themselves.

A recent stream of critical studies of finance (e.g., LiPuma 2017; Ascher 2016; Appadurai 2016; Martin 2015; Ayache 2010; Bryan and Rafferty 2006) has focused on this technologically augmented form of the derivative as a logic that is deeply implicated in the reordering of economy, politics, and culture. Derivatives can be especially insightful sociologically, because they open a window onto the relationship economic subjects have with their own imagined futures, through (rather than against or despite) the broader dynamics of financialized capitalism. Crucially, the speculative imagination that derivatives facilitate relies on some of capitalism’s most volatile aspects. The derivative is in essence a promissory instrument—a contract that is based on promises about the future, capturing a conscious anticipation of the latter’s unpredictability and of nonquantifiable unknowns. As such, the derivative foregrounds rather than averts life’s radical contingencies—or, according to Elie Ayache’s (2010) well-known account, it breaks out of the prison of probabilistic thinking and enters into the wilderness of contingency.

In that sense, the derivative stands for a particularly interesting way in which financial volatility appears as internalized opportunities for capitalist subjects, unready to question the logic of capital but willing to leap to its speculative far limits. One of the most important transformations represented by the derivative form is thus the “reversal” of neoliberalism’s own promissory logic. In politics and in lucrative derivatives markets alike, the future often no longer harbors the promise of redemption that justifies sacrifice in the present (the logic of austerity)—rather, it signifies increasingly a time-space of repudiation. Speculation, then, can be understood as the very act of endorsing a failed promise or, put another way, the act of knowingly entering into a broken contract. Much like speculating on the degree of volatility prices (regardless of their fall or increase), political speculation centers not on whether a promise will be kept or broken, but on the distance between the promise made and that promise’s likely forswearing.

If all this seems nonsensical, that is because at the heart of this logic lies a paradox. What do speculative agents stand to gain from their wholehearted acceptance of failed promises if not their inclusion in capitalism’s reward system? In what follows, I suggest that while the speculative imagination leaves a set of political promises unfulfilled, it does nonetheless project those broken promises onto a collective realm that is conjured around new political myths and shared narratives of the future. In doing so, speculation pries open possibilities that swell over social and political life. As I will show in part 3, this radically different understanding of speculating subjects and their motivations can lead to both regressive and progressive “collectivizations” of uncertainty—and to different corresponding types of speculative communities. Speculation absolves uncertainty by breathing new life into social groups that have suffered loss of certainty, security, and stability, thus re-enchanting collectivities. But, first, it is important to see how speculation—understood as endorsing a failed promise—tightens the link between the economic and the political in ways we can no longer ignore.

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In the days and years after the 2008 global financial crisis, a range of Nobel laureate economists and central bankers grew increasingly concerned with a strange re-alignment between markets and politics. Stretching beyond the realm of secondary markets, speculation was also coming to be what made a new type of populist politics tick. Akerlof and Shiller (2010) wrote, in their acclaimed Animal Spirits, that post-2008 recovery had been inhibited by two key factors: the future’s rising uncertainty and the public’s anger. Shiller (2015), in his earlier best-selling Irrational Exuberance, had singled out the public’s irrationality as the cause of speculative bubbles and thus a key threat to healthy economies. Alan Greenspan, who first coined the term irrational exuberance in the 1990s, now appeared further alarmed by “irrational populism” at the ten-year anniversary of the 2008 crisis.9 These positions all appear to share a seemingly critical view of speculation’s irrationalities and passions, not merely because of their adverse effects on the economy but because of the way they appear to recalibrate the relationship between political institutions, experts, and publics. As Shiller (2015, 255) puts it,

The high stock market levels did not, as so many imagine, represent the consensus judgment of experts who have carefully weighted the long-term evidence. The markets have been high because of the combined effect of indifferent thinking by millions of people, very few of whom have felt the need to perform careful research[,] . . . who are motivated substantially by their own emotions, random attentions, and perceptions of conventional wisdom. Their all too human behaviour has been heavily influenced by news media that are interested in attracting viewer...