Two sides of the coin

Tales of risk, re­ward and the hu­man con­di­tion

THE (Times Higher Education) - - CONTENTS - Gary Saul Mor­son is Lawrence B. Du­mas pro­fes­sor of the arts and hu­man­i­ties at North­west­ern Univer­sity.

Lit­er­a­ture can ac­tu­ally teach economists some­thing, not just pro­vide pretty il­lus­tra­tions of what they al­ready know

The Wis­dom of Fi­nance: Dis­cov­er­ing Hu­man­ity in the World of Risk and Re­turn By Mi­hir A. De­sai

Pro­file Books, 240pp, £12.99 ISBN 9781788160049 Pub­lished 31 Au­gust 2017

“Ihad al­ways en­joyed sto­ries,” writes Mi­hir De­sai in his new book The Wis­dom of Fi­nance, “but be­com­ing an econ­o­mist made me dis­trust them.”

This is the econ­o­mist’s pro­fes­sional ethos: sto­ries are for the fuzzy-headed dis­ci­plines, while gen­uinely sci­en­tific fields use math­e­mat­i­cal mod­els. And yet some as­pects of life, in­clud­ing eco­nomic be­hav­iour, are best il­lu­mi­nated by sto­ries, which is why we have lit­er­a­ture. This is a theme I have my­self de­vel­oped in a re­cent book with econ­o­mist Mor­ton Schapiro, Cents and Sen­si­bil­ity: What Eco­nom­ics Can Learn from the Hu­man­i­ties, where we ar­gue, like De­sai, that economists need to sup­ple­ment their tool­kit with modes of think­ing de­vel­oped by read­ing great nov­els.

I be­gan to un­der­stand economists’ dis­trust of sto­ries some two decades ago, when I spent a year as a to­ken hu­man­ist at Stan­ford Univer­sity’s Cen­ter for Ad­vanced Study in the Be­hav­ioral Sciences in Palo Alto, then dom­i­nated by ra­tio­nal choice the­ory. As soon as eco­nomic mod­els could be ap­plied to other so­cial dis­ci­plines, every­one seemed to think, these dis­ci­plines too could achieve sci­en­tific sta­tus and do away with nar­ra­tive.

As one col­league ex­plained to me, you can tell that a dis­ci­pline has be­come sci­en­tific when it dis­penses with sto­ries. Think of New­to­nian as­tron­omy: no one would ex­plain the or­bit of Mars by nar­rat­ing where it is mo­ment by mo­ment, since math­e­mat­i­cal for­mu­lae ex­haus­tively ex­plain its po­si­tions. Mod­ern eco­nom­ics was in fact mod­elled on New­to­nian me­chan­ics, and it seemed to fol­low that while sto­ries can serve as il­lus­tra­tions for pur­poses of in­struc­tion they do not ex­plain any­thing. If one calls the need for sto­ries “nar­ra­tive­ness”, then some dis­ci­plines, like his­tory, are high in nar­ra­tive­ness, while oth­ers, like eco­nom­ics, as­pire to zero nar­ra­tive­ness.

De­sai’s book presents it­self at first as a short course in fi­nance us­ing lit­er­a­ture, and so I pre­pared my­self for one of those con­de­scend­ing books such as the an­thol­ogy by Michael Watts,

The Lit­er­ary Book of Eco­nom­ics: In­clud­ing Read­ings from Lit­er­a­ture and Drama on Eco­nomic Con­cepts, Issues, and Themes (2003). Here we learn that Robert Frost’s poem The Road Not Taken is grop­ing to­wards the con­cept of op­por­tu­nity costs, while Mend­ing Wall can help an in­struc­tor get across the con­cept of prop­erty rights. How about Ham­let as il­lus­trat­ing op­por­tu­nity costs or King Lear as a first at­tempt at un­der­stand­ing “prin­ci­pal-agent issues”? The as­sump­tion is that economists have the an­swers, and writers, be­cause they ex­press them­selves so well, pro­vide nice pic­tures suit­able for those with poor maths skills. The idea that great writers ac­tu­ally know some­thing im­por­tant does not seem to cross Watts’ mind, or the minds of many other so­cial sci­en­tists who use lit­er­a­ture.

But De­sai is dif­fer­ent. For him, issues in fi­nance de­rive from some much larger as­pect of hu­man ex­is­tence, like risk, which is also treated by great lit­er­a­ture. Fi­nance can at­tune us to these issues, but when we ap­ply its con­cepts else­where they some­times show their lim­i­ta­tions. Given the hu­man con­di­tion, issues are much more com­plex than first ap­pears, and great lit­er­a­ture can show us pre­cisely how. And so lit­er­a­ture can ac­tu­ally teach economists some­thing, not just pro­vide pretty il­lus­tra­tions of what they al­ready know.

De­sai’s chap­ter “On Value” be­gins with a dis­cus­sion of the New Tes­ta­ment para­ble of the tal­ents, which tells the story of a rich man go­ing on a jour­ney who en­trusts his wealth to three ser­vants. When he re­turns and asks for an ac­count­ing – as God will do at the Last Judge­ment

– he finds that the one to whom he en­trusted five tal­ents and the one to whom he en­trusted three tal­ents have man­aged to dou­ble them, but the one to whom he en­trusted one tal­ent just buried it in the ground out of fear. He re­wards the first two and ban­ishes the third.

After draw­ing ob­vi­ous (and not so ob­vi­ous) con­clu­sions about in­vest­ments, De­sai asks some more per­plex­ing ques­tions. We

all have “tal­ents” in the other sense – this para­ble may be the ori­gin of the usual mean­ing of the word “tal­ent” to­day – and per­haps we should we look at them not as handy things to use as we like but as gifts not of our own mak­ing that we are morally bound to de­velop. As De­sai puts it, “we are stew­ards of those gifts and must make the most of them”. He then turns to Sa­muel John­son, who was per­pet­u­ally plagued by guilt for not mak­ing the most of his gift. His poem

On the Death of Robert Levet con­sid­ers a sim­ple man, sup­ported by John­son, who through his con­stant care and af­fec­tion bright- ened the lives of those around him and so demon­strated “the power of art with­out show”. Good­ness is pro­saic, and John­son chose to il­lus­trate the point by in­vok­ing the para­ble of the tal­ents:

His virtues walk’d their nar­row


Nor made a pause, nor left a void: And soon th’ Eter­nal Mas­ter


The sin­gle tal­ent well em­ploy’d.

John Milton also feared that, as he went blind, he would fail to make the most of his tal­ents, and in the fa­mous son­net on his blind­ness, When I Con­sider How My Life is Spent, he laments that “one tal­ent that is death to hide” is now lodged within him use­less. De­sai ex­plains how Milton an­swers this para­ble with another, about the work­ers in the vine­yard, who start to labour at dif­fer­ent times but at the end of the day get paid the same. The readi­ness to serve also has value. “God does not need/ Ei­ther man’s work or His own gifts…They also serve who only stand and wait.”

In De­sai’s chap­ter on “Fail­ing For­ward”, the case of the Amer­i­can Air­lines bank­ruptcy, and of the CEO who long re­fused to file for it be­cause he be­lieved in the moral obli­ga­tion to hon­our one’s com­mit­ments, raises issues not only in fi­nance but also in ethics more gen­er­ally. “Bankrupt­cies are evoca­tive”, sug­gests De­sai, “be­cause they are about our at­ti­tude to­ward our com­mit­ments and how con­flict­ing obli­ga­tions should be nav­i­gated.” As he glances at Aeschy­lus’ tragedy Agamem­non and the clas­sic In­dian epic, the Bha­gavadgita, he shows why such ques­tions have no easy so­lu­tions. One needs not a for­mula but good judge­ment, which is the prod­uct of ex­pe­ri­ence – and great lit­er­a­ture – sen­si­tively re­flected on. De­sai con­cludes: “Bank­ruptcy is a process that can’t be ap­proached with a sim­ple moral frame or set of de­ci­sion rules. In­stead, it is a process of nav­i­gat­ing deeply felt obli­ga­tions – much as a good life is.”

In his af­ter­word, De­sai con­sid­ers C. P. Snow’s clas­sic es­say on The Two Cul­tures, which deals with the rad­i­cally dif­fer­ent modes of think­ing in the hu­man­i­ties and the hard sciences. “When these two senses [of the world] have grown apart, then no so­ci­ety is go­ing to be able to think with wis­dom,” Snow pleads. If we sub­sti­tute eco­nom­ics and fi­nance for the hard sciences, the same mu­tual in­com­pre­hen­sion ob­tains to­day. De­sai takes a real step to­wards cre­at­ing a di­a­logue of dis­ci­plines. Most of the time he suc­ceeds. If only more peo­ple – whether fi­nanciers or aca­demics – could com­bine with such fi­nesse eco­nomic knowl­edge and an ap­pre­ci­a­tion of the hu­man con­di­tion!

Sow, to reap in the bib­li­cal para­ble of the tal­ents, a man re­wards the ser­vants who in­vest his wealth wisely and pun­ishes one who, out of fear, makes no at­tempt

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