The trouble with financial imagination

In their Capitalism and Schizophrenia, Gilles Deleuze and Félix Guattari (1983, 1987) put together a series of challenging intuitions that are of relevance here. The reader may feel that the promise of a link between capitalism and schizophrenia proper is, as such, often lost in their pages to the benefit of other seemingly unrelated disquisitions. But the link is there. Their investigation is distinctively about what they call regimes of signs. Signs are apparatuses. Signification is an operation. And this operation amounts to some kind of an orchestration, a process of institutional sedimentation that can be characterized in the terms of a specific political disposition. A regime of signs can, hence, be more or less authoritarian, or more or less libertarian, depending on how the semiotic connection to a reference – eventually ultimate and foundational, or, conversely, evasive and groundless – is arranged within this regime. And this is also about the production of subjectivity. A regime of signs may be, then, more or less psychotic, or more or less neurotic, prompting distinctive paths – sometimes spiraling, sometimes fractured – for interpretation.

And capitalism is a regime of signs. Capital features there in that guise, quite explicitly considered as a semiotic engine. Turning things into capital is indeed a signification process, a particular way of encoding, decoding and recoding things. The key to that process is value: valuation, valorization, capital as the vehicle for the valuation and valorization of capital. In the theorization of money offered in Capitalism and Schizophrenia, it is finance – the operation of financing, and then of valuing things according to financial standards – that endows the capitalistic signification apparatus with its defining features. So, then, is this regime of signs of a properly schizophrenic nature? Is capital psychotic? There is no straightforward answer to that question in those pages, nor a frontal examination of the specifics of financial valuation and their paranoid potentials. But the project is there, ready to be confronted.

There is a trap in that project, though. The trap of hastily conflating finance and madness. Who has not read repeatedly about markets gone crazy? About manic traders and investors in panic? About finance being made of delusion? The tropes of mad finance are certainly found everywhere. Narratives of financial insanity abound in mass media accounts, often conveying the idea of the spuriousness and whimsicality of representation in financial markets. They also populate the pages of the scholarly critique of finance, where the vocabulary of mental disorder and behavioral irrationality finds a significant place. And they certainly feature in mainstream doctrines of financial management, for which the trouble with finance – i.e., “crisis” – ought to be solved through recourse to a sane, rational, responsible, realist, intelligent, healthy appraisal of value.

But the idea of rationality in finance is part of the trouble, and so is the concomitant idea of financial irrationality. Thus understood, the conflation of finance and madness represents in fact quite a meager understanding of psychotic logic. Schizophrenia is, by all cogent accounts, a disease of rationality. It is characterized, most saliently, by an obsessive sense of rational inquiry, an excess of interpretation, a fixation with the logic of things, a compulsion to decode, and a radical search for the ultimate foundation of everything. It is a spiraling search, full of pain and despair. But it has rationality – overabundant – at its core. It is the rationality of finance, and not the lack of it, that can evolve toward a delirious form. Signaling a delusional periphery at the margins of financial sanity means missing the prodromal syndrome that lies at its heart.

And what is this financial rationality about, then? Accounts of finance as madness typically focus on the stereotype of “speculative value.” That is, of a value given by the market solely on the grounds of the anticipation of that market value. The trouble with finance would then be caused by a delusional reliance on virtual, fictitious, immediate value, and an incapacity to refer to a real economy where fundamental, veracious, long-standing value is to be found. Finance is then considered as a mirage. A mirage that would make sense, as such, against the benchmark of something that would not: the palpable, concrete value of productive investment. But this is a mistake. This is a truncated picture of finance: one that neglects the core of financial imagination.

Speculative value is certainly part of the language of finance. But so is “fundamental value.” This notion is at the center of the myriad guidelines and textbooks that form the financial mind. Asset managers and financial analysts use it routinely. In his ethnographic account of mundane valuation practices in investment banks, Horacio Ortiz (2014, 2021) observes the tensions at work between what finance professionals themselves call speculative value and fundamental value. The speculative value of an asset refers to the market, to its moods and fancies, and to the prices that are formed there. The fundamental value, in turn, resides in the asset’s power to generate a return in the future. It is the value of investing in that asset, and it demands calculation: it is about gauging that prospective yield while assessing its likelihood. When finance professionals speak of an asset being “overvalued” or “undervalued,” they explicitly mean that the market price – speculative value – does not reflect correctly the actual worth – fundamental value – of that asset. Finance thus relies on a critique of speculative value. Yet it is a paradoxical critique, grounded as it is on the idea that markets can eventually correct and end up reflecting fundamental value efficiently.

Here, perhaps, lies the prime trouble with financial imagination. The financial industry, a gigantic structure within which the power to make money with money is organized, is controlled by a justification template at the center of which operates a vernacular notion of value. Of true value and false value. Of true value that is said to derive from the future, to be created on the basis of rational valuation standards, to be assessed against the odds of uncertainty. And of false value originating in short-term speculation, in the wobbly standards of market opinion, and in the thrill of gambling. Two kinds of value that can morph into each other: sometimes auspiciously, as when market opinion is correctly informed and successfully reflects the fundamental value of things; fatally some other times, as when risk assessment is corrupted by the excesses of market fads. When finance professionals speak of crisis they mean precisely this: a crack in valuation, with market prices not making sense to investors who cannot appraise the proper value of things anymore.

So financial imagination is entirely about that. It is about investors estimating the fundamental value of things, meeting in the market to express their valuation and freely interacting accordingly. It is about money being wisely allocated in order to create value, which means making money with money, but in a virtuous, veracious fashion, since that value creation is what allows society to thrive. It is about making sense of the disruption of that process in the terms of a crisis of valuation, a crisis in which the market is no longer able to express the true value of things, with investors losing confidence, liquidity being lost and the flow of money drying out, unable to irrigate the economy, unable to fecundate it, unable to create more value. When the critique of finance is articulated in the terms of protecting fundamental value from the perils of speculative value, of defending real value creation against the malevolent dissipation of value, it is located within the perimeter of financial imagination, not outside of it.

The moral ascendancy of finance is particularly noticeable when its vocabulary extends its metaphorical grip. The jargon of value creation recurrently moves to the terrain of social problems, for example, with virtuous financiers and caring entrepreneurs exerting their investment gaze in order to fulfill the promise of social impact. A pragmatic ductility – if not indeterminacy – of the notion of value is found at work there, as Emily Barman (2016) notes. Making money and doing good become the same. More than that: making money guarantees the very possibility of doing good. It is not so much that there are conflicting values, with some being financial and some others being moral. Finance is one type of moral discourse. It is rather that the very notion of value (including so-called social value) works as an effective metaphor that unleashes the potentials of the idea of virtuous reality being the outcome of a will to invest.

Financial imagination is in fact packed with metaphors. The metaphor of value creation is perhaps the most insidious one, and perhaps also the most operative and consequential. Operative and consequential: metaphors are indeed taken here from the standpoint of their institutive capacity. They open spaces of signification, they serve as vehicles for realization, they operate as cognitive instruments, providing clarity and obscurity at once. Their generative power needs to be considered with the precaution advocated throughout the philosophical scrutiny of this...