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<nettime> Cybernetics, finance and precarious existence
Brian Holmes on Sat, 7 Nov 2009 20:14:58 +0100 (CET)


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<nettime> Cybernetics, finance and precarious existence


Here's another twist on a perennial theme:

Cybernetics, for someone like Herbert Simon in his book "Sciences of the 
Artificial," comes down to this:

1. the interactions of an agent and an environment can be modeled
2. the crucial variable is information
3. the model environment can be built
4. the agent (human beings) will conform to the built environment and 
its flows of information.

Well, that's what has happened over the course of four decades with
networked financial markets. The initial model was for an instrument
called an option, which is a contract that allows its owner to buy or
sell a stock or commodity for a fixed price at a future date, creating
something like a safe haven amidst the flux and volatility of trading.
The question was, what kind of information about the financial markets
as a whole would you need in order to sell such a contract, that is,
in order to accurately determine its price and make it profitable? The
answer was a mathematical formula, the Black-Scholes option-pricing
formula, which is really the model of an idealized market in which
information about prices is known for many decades in the past and is
continuously updated in the present, so that statistical trends can be
extrapolated for every kind of asset, and random changes in price can
be conceived as blips within a predictable and regular equilibrium of
the market as a whole.

The next step is to build the environment within which the model
can be applied to the information. Well, I live in Chicago now and
they built it here, it's called the Chicago Mercantile Exchange -
"the Merc". Inside that great hall and others like it, traders with
hand-held computers linked to vast databases and lightning-fast
networked information systems are able to calculate prices on the
spot for a veritable galaxy of options, futures, swaps, swaptions and
seemingly endless varieties of derivatives. They make so much money in
that way, that gradually not only the environments inside the great
halls of finance, but also the cities around them, came to conform
to the mathematical world models pioneered by Black and Sholes. To
the point where we live inside an artificial world model: it's the
paradigm of financially regulated informational production, which is
now on the point of collapse, as Alex Foti just pointed out in his
great post on "The Precariat and Climate Justice."

Two artists, Lise Autogena and Joshua Portway, constructed a
magnificent artistic allegory of the fatal universe of finance
capitalism, called "Black Shoals Stock Market Planetarium." Basically
it represents the financial markets as a dome of glittering stars,
and it populates this dome with artificial life creatures whose
algorithms allow them to live, and also to die, inside the artificial
world model that has been created for them. This work is that rarest
of things in contemporary art: a stroke of genius that is beautifully
realized in all its complexity and potential, but also left wide open
to interpretation. When you realize, for example, that Fischer Black
studied artificial intelligence with Marvin Minsky and also worked
for Bolt, Beranek and Newman (the engineering company that built
the Arpanet) as well as for the RAND corporation before going on to
develop the formula that changed the world, then you begin to see just
what a rich piece of art this really is...

I have written an interpretation of the Black Shoals Stock Market
Planetarium under the title "Is it Written in the Stars? Global
Finance, Precarious Destinies." In the text, I try to explain how the
Black-Scholes model works, how our urban environments have gradually
conformed to it, and some of the consequences that brings to fragile
human destinies. Amid the endless piles of books that I ploughed
through over the course of about six months in order to write this
short article, I finally managed to take up what I think is the most
important contribution to Autonomous Marxism in many years, namely
Matteo Pasquinelli's fantastic book, "Animal Spirits," whose political
concepts orient my text from start to finish. So thanks, Matteo, for
the inspiration! My text is here:

http://brianholmes.wordpress.com/2009/11/06/is-it-written-in-the-stars

What I am trying to talk about is really the nature and also
the collapse of the financial paradigm that has regulated the
informational mode of production for the last forty-five years. So I
hope that in parallel with Alex Foti's article, maybe we can have a
good nettime debate on these things.

best, Brian















































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