DT:
S:
T:
r:
σ:
Black-Scholes
differential equation.
72
price of a derivative as a function of time and stock price
price of the stock
maturity
the annualized risk-free interest rate
the volatility of the stock’s returns
Taming Time:
Media of Financialization
JOSEPH VOGL
TRANSLATED BY CHRISTOPHER REID
There are no media—no media, that is, in a substantial and historically stable sense. Media are not reducible to representations such
as theater or film or to techniques such as printing or telegraphy.
Nor are they reducible to symbols such as letters or numbers.
Nevertheless, media are present in all of these things. They cannot
be comprehended simply as a method for the processing, storing,
or transmission of data. One can, however, reach their historical
mode of existence through a special form of questioning: by asking
how media determine the conditions they themselves created for
what they store, process, and transmit.
In this respect, media are nonevident, even insubstantial, objects
from both a historical and systematic standpoint. Media make things
readable, audible, visible, and perceptible, but they do all this with
a tendency to extinguish themselves in these operations—to make
themselves imperceptible. Media become concise objects only
through a constellation of events that are also media events in a
dual sense; that is, they are events that are communicated by media
while media are communicating themselves. This dual becomingmedia—with regard to apparatuses and institutions, techniques and
symbolisms—cannot be prejudged and results on a case-by-case
basis in a structure of heterogeneous elements and conditions. And
this becoming-media sets aside general definitions of mediacy,
putting into consideration local situations where the transformation of things and practices into media takes place.
Media are often forgotten when they work but are apparent
when something goes wrong. In the last few decades the truth of
this axiom has repeatedly been demonstrated in the many opportunities we have had to note breakdowns and bugs on a global
scale—we know them by their dates: 1987, 1990, 1994, 1998, 2000,
and, finally, the collapse of the years 2007 and 2008. These financial crises, which according to theories of probability in economics
are supposed to occur only every few billion years, have not only
demonstrated the fatal efficiency of modern financial economics;
they are also epistemological windfalls because they demonstrate
how in a crisis the noise of the system reveals its channels, its functional elements. In the 1970s, political decisions, business operations,
theoretical implications, mathematical models, and information
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73
technologies started to combine into a media system that began to
work in the 1980s. This configuration is a special type of media
history, the becoming-media of finance.
Although basic financial economic practices—such as lending
or banking—have a long history, the present financial system is surprisingly recent, having been formed in the 1970s. Its beginning is
associated with a date that has repeatedly been described as denoting a “financial revolution,” a “historic watershed,” an epic change
in the economy.1 With the end of the Bretton Woods Agreement in
1971 and 1973, an economic postwar order was dismissed. No
longer would the currencies of developed countries be bound to a
stable relationship with the U.S. dollar and the dollar to a fixed
exchange rate with gold. This break with 2,500 years of financial
history was seen as “condition postmoderne” in economics—a
situation in which turbulence and instability were being steered
toward a flexible system of exchange rates, a regime of floating
signs without an anchor, without the foundation of a transcendental
signifier. A system would now emerge in which currencies related
only to currencies without a stable referent, resting finally upon the
uncertain standard of unsecured “fiat money.”
However one may interpret this discharge of the international
gold standard, it opened the way to a theoretical and practical testing ground and to the programs of a new liberalism. In 1971, Milton
Friedman presented one of the most influential and simple papers
in the history of economics. The paper distinguished itself by providing clear answers to the new financial state of affairs. Friedman
formulated the following argument on behalf of the Chicago
Mercantile Exchange: after Bretton Woods, continuous exchange
rate fluctuations, and thus currency risks, had become a precarious
fact in international capital transactions. These fluctuations created
uncertainty and volatility, which resulted in high insurance costs
for the transactions. An appropriate response, therefore, would be
to make suitable financial instruments available, while leaving insuring procedures to the market mechanism. This could occur only
through the creation of new financial markets and futures trading
in foreign currencies. Floating exchange rates would be hedged
with currency futures contracts—price differences insured with
bets on price differences. Consistent expansion of the new speculative market based on the difference between current and future
prices would create a balancing effect. The need for insurance
would be combined with opportunities for risk and profit. “The larger
the volume of speculative activity,” Friedman remarked, “the better
the market” will work, hedging trade and investment at low costs.2
Monetary policy would be left to the dynamics of the market.
Friedman’s short capitalist manifesto defined expectations for
the new financial markets: the hope for a system of stable exchange
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rates would be replaced by the hope for a stable system of exchange
rates. In 1972 the spot market on the Chicago Mercantile Exchange
was expanded to include an international market for currency
futures. Within three decades, financial derivatives trading—which
did not exist before 1970—developed into the world’s largest
market. From an annual value of a few million dollars in the early
1970s, volume increased to $100 billion in 1990 and to $100 trillion
by the turn of the century, three times the global sales volume for
consumer goods. On the one hand, the stock market became the
model for financial economics, while the financial market became
the model for all markets. On the other hand, this apotheosis implies
the principle of risk transfer and therefore the expectation of being
able to insure price risks by spreading them around and to hedge
speculative trading through speculative trading. The earlier promise
of stability offered by glittering gold is now redeemed by the “magic”
of the financial markets.
Within a few years, markets, products, and operations were created that did not previously exist. And what started to function by
the beginning of the 1980s comprised a wide variety of components
that introduced a new business routine and took on the character
of a globally operating media system.
This foundational moment of modern finance is the result of
theoretical assumptions that relate to the mechanics of the market.
The old economic hypothesis still prevails today that free markets
are governed by an “invisible hand” and tend toward equilibrium.
Since the 1930s, this classic theory has been reformulated as a
“hypothesis of efficient markets” and is now based on the dynamics of financial markets. In this interpretation, the financial markets
represent the markets as such and in their greatest purity. Unburdened
by the complications of transport and production, they are ideal
venues to set prices, to perfect competition, and to let rational (i.e.,
profit-oriented) and reliable actors interact. That is why the movement of prices on these markets reflects immediately all available
information. Insofar as all actors under these optimal conditions of
competition have access to all relevant information, prices always
express the truth of underlying economic events; the corresponding equities are never over- or undervalued. The oscillations, the
ups and downs of the market are due either to annoying impediments to the dynamics of free markets or to new, unforeseen information. Crises are only steps in the process of adaptation; they
document the ineluctable march of economic reason. The market is
the real is the rational.
The financial market is presented as a frictionless universe where
information, prices, and purchases in turn generate information,
prices, and purchases. A further essential condition that has an
effect on modern financial economic models is associated with this
Vogl | Taming Time: Media of Financialization
75
process: the assumption of efficiency implies the assumption that
within market events a stochastic “random walk” is produced. In a
dissertation from 1900 that was rediscovered in the 1960s, mathematician Louis Bachelier, under the supervision of Henri Poincaré,
formalized the oscillation of stock prices following the example of
molecular drift (as in Brownian motion). In Bachelier’s “Théorie de
la spéculation,” successive price changes are linearly independent
and determined by random variables, and the sum of speculative
actions follows a movement that is analogous to the diffusion of
particles in gases.3 In the second half of the twentieth century, these
considerations were given a plausible discursive framework and
merged with the hypothesis of efficient financial markets. If the
prices of these markets always contain all relevant information,
then any change in them is due only to new information that requires
new decisions. And that means (1) when all entrepreneurs have
access to all circulating information, each isolated chance of making
a profit is immediately used; and (2) provided that each of these
operations is reflected immediately in market prices, price variations can appear only randomly and unpredictably. Inherent to the
rationality of the market is that information (i.e., price differences)
is annulled in being utilized. The blessing of competition results in
individual speculations canceling out the speculative nature of the
whole system—arbitrage abolishes the effects of arbitrage.
The path that price series follow between different time periods
now falls in the field of probability and stochastics; it resembles
a nonlinear, “random walk.” On the one hand, the rationality of
financial markets causes the bets on future prices to look like they
were made by a chimpanzee throwing darts at the financial section
of a newspaper while blindfolded.4 The more efficient the market,
the more random the oscillations. On the other hand, a kind of
equilibrium is created in which random fluctuations arrange themselves around the average and follow the dispersion of a normal
distribution, a bell curve. The “invisible hand” of Adam Smith gets
a new theoretical form.
Because the situation in the early 1970s was characterized by the
question of how price risks can be hedged by betting on price risks,
futures transactions accordingly assumed a central function in the
history of the financial economy. They should be recognized as perfect capitalist inventions. They are as old as capitalism itself, and
the tendency toward the future has been an essential motor for the
development of ever-new financial instruments. On the one hand,
futures are trivial and a long-standing element in the functioning of
stock exchanges. They are contracts about the buy-off of commodities at a future date at a predetermined price, a contract that binds
both parties to accept a contingent future. On the other hand, the
history of futures trading shows that it implies a nontrivial detach76
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ment of time trading and commodities exchange. Futures and
options trading avoids the physical conditions of production and
dissolves the identity of commodity and price. That is, in futures
and options trading somebody who does not posses a commodity
and neither expects nor wants to receive it sells it to someone who
does not want it and never gets it.
The dynamics of futures trading, the motor of the capitalist
economy, rests on two main presuppositions. First, on the presupposition of self-referential communication: prices refer not to commodities and goods but to other prices such that present prices for
absent goods are determined by the expectation of future prices for
absent goods. This kind of trade is freed from all material impediments; it performs an act that culminates not in the re-presentation
but in the de-presentation of the world.5 As part of the circulating
money supply, futures ensure maximum liquidity and complete the
logic of modern capital and the credit economy. Second, transactions of this kind rely on what in the tradition of Roman law are
called gambling contracts—contracts that pertain to transactions
with unclear outcomes to unclear future events. This leads to a collapse in differentiation among trading, betting, and gambling. The
name for this phenomenon is speculation. The risky bet, the gamble
with the future, is at the core of all economic activity. Speculation
is the norm of all financial transactions.
Futures transactions therefore represent a logical pendant to
capital and credit institutions, because financial derivatives are a
cash-independent form of money. This poses a fundamental problem for the financial economy. On the one hand, the market is supposed to realize old ideas of equilibrium and stabilize itself by
offsetting price risks with price risks. On the other hand, now
located at the center of this market are futures transactions with
financial assets that are distinguished by the fact that they shift
current price risks to uncertain futures. Contingent futures—that
is, the forces of time—have become a critical factor in this system.
Since the 1970s these issues have occupied economists more than
any others. The logic of the modern financial economy demands a
process wherein economic decisions are linked with future expectations. One must be able to ensure that time will be controlled,
uncertain futures mastered. If the uncertainty of future prices (of
foreign currencies, securities, etc.) can be offset by the prices for the
uncertainty of these prices, then the equalizing force of futures
transactions will succeed in taming time and maintain stability in
the system. The question that has emerged from this since the middle
of the last century concerns which calculation makes the transition
between present futures and future presents probable: How can the
dissimilarity of the future be transformed into a similar present?
The most prominent of these experiments not surprisingly coincided
Vogl | Taming Time: Media of Financialization
77
with the end of Bretton Woods. They focused on introducing probabilistic figures into the heart of financial and economic business
practices. At issue was a well-known formula developed by
mathematicians and economists Robert Merton, Fischer Black, and
Myron Scholes in the early 1970s.
This equation, which was honored with a Nobel Prize and said
to be as significant to the financial markets as Newton’s mechanics
was for physics, addresses the stated problem: How can one eliminate the risks of the financial markets by trading in risks (such as
financial derivatives)? Doing so involves creating expectation products with which the values of future yields may be converted into
present values; it involves stabilizing the dynamic imbalance of the
credit economy and floating currencies. The price calculations for
particular types of financial derivatives demonstrate the efforts of
Black, Scholes, and Merton to manufacture a theoretical object that
combines the mathematical formalization of certain regulatory ideas
with hypotheses about the mechanism of financial markets. They
formulated a general model for the structuring of trade in financial
derivatives and for equalizing trends within the entire system.
The aim was to calculate a price horizon from existing prices (such
as for stocks or credit) that, from the standpoint of a future present,
can become the basis for the evaluation of a present future. The current price of a derivative is justified only if a possible future with
regard to its underlying value recurs in it. Only this replication of
future developments validates the expectation that the risks of floating prices can be compensated by trading with these risks. And that
influences the parameters of Black, Scholes, and Merton’s differential equation, which tries to grasp the stochastic processes with a
function for logarithmic normal distribution (see frontispiece on
p. 72). Simply put, the problematic item, the unknown volatility
(sigma), is calculated according to the random movements of the
underlying values in historical time periods. One does not have
to guess at the events of possible futures but only calculate the
oscillation space within which they could take place. Built into
the calculation is the assumption that what is unpredictable about the
future will behave according to the distribution of past unpredictabilities. The model offers no specific predictions, only the
predictions about distribution patterns.
The usual market logics can be represented mathematically: they
are physicalistic, encoded in the model of differential equations for
diffusion processes in statistical mechanics. The assumptions of
efficient markets and the “random walk” hypothesis are embedded
in this formula. Through it, future expectations are translated into
expected futures, and the forces of time are tamed. Uncertainties
have not simply disappeared; rather, the dynamics of the model suggest that with the expansion of the derivatives market a risk-neutral
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world is created. Uncertainty can be eliminated if the market includes
enough contingent claims or derivative instruments.
Moreover, the translation of economic data into integrated systems provides a representation of a world that knows neither jumps
nor slumps. The advantage of mathematical formalism corresponds
to the theoretical assumption that the system itself functions in a
homogeneous, continuous, and equalizing fashion. In this respect,
the formula developed by Merton, Black, and Scholes is to be understood as a system allegory: the mere representation of a systemic
solution through differential equations must, as the mathematician
James Yorke notes, exclude any chaotic course.6 For this reason, one
can see in the Black-Scholes formula a kind of “enacted theory”; it
documents the performative quality of a calculation. Financial
derivatives generate the conditions of their own possibility and
appeal to a market where their economic rationality can prove to
be true. In talking about adapting economic reality to economic
theory, one can speak of the emergence of a “Black-Scholes world”
that did not yet exist in the 1970s. As a theoretical product the
formula provides a compelling argument for trading in financial
derivatives: the prospect of stabilizing the system while also validating the formula’s own theoretical implications.
The end of the Bretton Woods Agreement created a situation in
which floating foreign exchange rates called for hedging against
unstable exchange rates. Following the emergence of a new liberalism,
recommendations that insured market risks with market risks were
privileged. This means, first, that markets in general were assumed
to tend toward equilibrium (the thesis of the efficiency of financial
markets was established as a basic premise). Second, derivatives
and options trading became the focus of the new financial system.
Since the 1990s at the latest, the volume of this trade has dominated
the economic process. Above all, derivatives and options trading
must be regarded as central to the logic of the financial economy—
as the basis of a business routine that involves the trade of time and
risk. Third, this is the situation in which financial mathematics
became the arcanum of economic knowledge. The Black-Scholes
formula is an example of how the old ideas of equilibrium are realized
by taming time. This mastery of time, however, can be achieved
only through the integration of probabilistic models.
The creation of technological infrastructures is a necessary condition of the new system. Financial markets have always been
structured in terms of the close correlation between the pricing of
exchange transactions and innovations in media technology. Their
rhythm since the nineteenth century has been dictated by the introduction of the telegraph and telephone, the trans-Atlantic cable,
and the stock ticker. The circular flow of prices and information
made financial markets into the engine for the implementation of
Vogl | Taming Time: Media of Financialization
79
new information technologies.
The practices of the current financial economy have been particularly defined by electronic and digital technologies, the systematic
interweaving of information processing and telecommunications.
The first ideas about establishing electronic financial markets
were formulated in the 1950s. In 1993, after the introduction of
electronic trading systems and online brokerages, the World
Wide Web was made available for stock exchanges and financial
transactions. The emergence of a financial machine in which
decisions about human welfare are made can been recognized here,
and this machine would become critical and especially effective
for trading in derivatives. Calculations such as the Black-Scholes
formula demand execution through information technologies.
Initially, options pricing was calculated using this formula on
mainframe computers. The corresponding tabulations were distributed in paper form to interested traders (see figure on opposite
page). As early as 1974, Texas Instruments offered a calculator that
was programmed with the formula and delivered Black-Scholes’s
results for day-trading. Since the emergence of automated futures
trading, an effective fusion of financial theory, mathematics, and
information technology has resulted. The new technologies must
be considered as generators of new financial instruments, and apart
from the fact that they provided for a delocalization of the exchange
business and an unlimited inclusion of players, two important
consequences can be noted.
First, the interaction of the stated elements—options trading,
financial mathematics, and information technology—caused a historic transformation in which monetary standards of all kinds were
replaced by a standard of information. The stabilization of financial
economics and monetary systems is today guaranteed not by a conversion into gold or commodity money but by an exchange between
money and information. Prices in financial markets deliver information on the future of prices, and for this reason information on
money has become more important than money itself in business
transactions. The market installs an automatism of information,
and money is paid for with information. Efficient markets are markets that efficiently distribute information. The financial contest is
a summons to informational competition.
Second, this machine reveals an imitation of theory by economic
reality. Merton foresaw this: “As real-world intermediation and
markets become increasingly more efficient, the continuous time
model’s predictions about actual financial prices, products and
institutions will become increasingly more accurate. In short, reality
will . . . imitate theory.”7 Only under new technological conditions
can the institutionalization of the market be accomplished. Financial
theory, formalization, and technology enter into a productive rela80
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tionship, and the invention of new financial instruments and the
introduction of new markets mutually reinforce their raison d’être.
The synthesis of theory and technology promises that maximum
liquidity, optimal pricing, and efficient data transfer will be realized in the stabilization of the financial markets.
Understanding the current financial economy as a media system
that started to function in the 1980s allows methodological perspectives to be developed that address the question of how scattered practices or technologies transform into functional media—
of how the historical scenes of the becoming-media may be comprehended. A simple preliminary conclusion would be that this
system can be understood only as a combination of different elements. Marshall McLuhan maintained that the investigation of
money as a medium was identical with the process of all media
research.8 The assumption then is that money represents a historically variable social function that is not reducible, for instance, to
a symbolic system. The modern fiat money that determines the
value of our currency and the dynamics of national economies was
brought about equally by political decisions (like the end of Bretton
Woods), certain business practices (like options trading), theoretical
assumptions (like efficient markets), mathematical models, and
technological infrastructures. Media operations are not defined
through codes or technologies. They are defined through heterogeneous hybrids of institutional, technological, theoretical, symbolic,
and practical elements.
The mutual entanglement of these elements means, however,
that the financial system not only organizes everyday business routines but has become a dominant media system precisely because
of the fact that in all its operations it has introduced certain liability
structures (including the binding to uncertain futures) and func-
Fischer Black. Spreadsheet on
United States Steel Corp. stock
price, May 5, 1976. Two-digit
numbers at left are stock prices
and strike prices (indented).
Under the date columns, the
body of the table shows in successive weeks the Black-Scholes
values for call options with given
expiration dates (in July, October,
or January). The smaller numbers
in the table body are the option
“deltas” (the amount an option
contract changes if the stock
price changes by a dollar). At the
head of the table are interest
rates, Black’s assumption about
stock volatility, and details of the
stock dividends.
Vogl | Taming Time: Media of Financialization
81
tions as a new social contract. Here, too, one can speak of media
events in a dual sense: events that determine the production and
representation of events. In this way, the financial system silently
communicates the conditions of its operations (such as the requirement of balancing market forces) with each operation, with each
payment. This system manifests itself as a technologically implemented economic theory; its effectiveness rests on the fact that its
actions and events together create the conditions under which they
will take effect as actions and events in a new market. Media systems
work under terms of redundancy. They communicate themselves
in all their operations. They transmit with their transmissions all
the a priori conditions by which they come to be realized as media
systems. They demonstrate an imperative structure: transmitted
information transmits the command to actualize the media form.
This means media possess, epistemologically, the character of a
possible world. The economic world or the market that materialized step by step from the 1970s on was far from any actuality;
before it began to emerge, it was simply nonexistent or a mere
hypothesis. Media systems are unrelated. Somehow similar, organized world or nature accompanies their systemic quality. They are
instead programs of implementation: their axioms and practices
dictate how reality can be programmed. What is realized in media
systems is neither necessary nor reproductive of any prior consistency but acquires the character of an arbitrary facticity. The historical dimension of media can therefore be comprehended only
under the condition that one dissolves every mimetic substrate in its
related technological concept and assumes the nonidentity of being
and world, being and nature. With Hans Blumensberg, one should
understand media as a preimitation (Vorahmung)—a technological
demand for consistency that faces a mere substantial randomness.9
This is why the historical date, the historical event of media,
does not appear with their operation but with their relation to
the breakdown, the crisis, or the noise. The noise is the epochē of
the medium, its historical index. And here you see the peculiarity
of the modern financial system. On the one hand, its processes
endeavor to tame time. Its rationality, its systemic quality, proves
itself precisely in the fact that it controls the efficacy of a contingent future. “Noise suppression” here means that risks pay off with
the trading of risks, that the forces of temporal processes can be
eliminated. Under the conditions of media, the market dreams the
dream of its timelessness. The neutralization of risk works only if
each pending future can be continued by one more future. On the
other hand, this detemporalizing is assured only through the use of
time-critical processes. The mastery of time is the expected return
on an investment in temporal forces. Whereas the financial system
gains its stability in the production of timelessness, its operation is
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distressed by the return of historical time periods: deadlines, outstanding contracts, payment dates, dates of expiration. The crises
of the last decades may be explained not only as situations in
which the models of financial economics missed the facts of the
real economic world. They must also be seen as endogenous crises
of a media system: the processing of temporal problems creates the
temporal problems that the system tries to process. The system
amplifies noise by suppressing noise. One can describe this—technologically—as the effect of positive feedback. In historical terms,
however, this means that the epochē of the financial economy is the
crisis; that is, it is the return of specific historical time periods
within the system. This could also be characterized as the norm
and the structural inconsistency of the financial economy—but that
would be a different story.
Notes
This paper, first presented at “Media Histories: Epistemology, Materiality,
Temporality,” Columbia University, New York, March 24–26, 2011, considers
ideas about the shape of a media history and media theory that can be called
“occasionalistic”—ideas developed since the late 1990s at the Bauhaus Universität
Weimar and the Humboldt-Universität zu Berlin.
1. See Edward Chancellor, Devil Take the Hindmost: A History of Financial
Speculation (New York: Plume, 2000), 236; Filippo Cesarano, Monetary Theory
and Bretton Woods: The Construction of an International Monetary Order,
(Cambridge, UK: Cambridge University Press, 2006), x; Richard Tilly, Geld und
Kredit in der Wirtschaftsgeschichte (Stuttgart: Franz Steiner Verlag, 2003), 190;
Milton Friedman, The Essence of Friedman, ed. Kurt R. Leube (Stanford, CA:
Hoover Institution Press, 1987), 359, 501.
2. Milton Friedman, “The Need for Futures Markets in Currencies,” in The
Futures Market in Foreign Currencies (Chicago: International Monetary Market of
the Chicago Mercantile Exchange, 1972), 6–12.
3. Louis Bachelier, “Théorie de la speculation,” Annales scientifiques de l’École
Normale Supérieure, ser. 3, vol. 17 (1900): 21–86.
4. Burton G. Malkiel, A Random Walk Down Wall Street (New York: W.W.
Norton, 2003).
5. Samuel Weber, Geld ist Zeit: Gedanken zu Kredit und Krise, trans. Marion
Picker (Berlin: Diaphanes, 2009).
6. See the discussion of Yorke in James Gleick, Chaos: Making a New Science
(London: Penguin, 1987), 67–68.
7. Robert C. Merton, Continuous-Time Finance (Malden, MA: Blackwell, 1990),
470.
8. Marshall McLuhan, Understanding Media (New York: McGraw Hill, 1964),
chp. 14.
9. Hans Blumenberg, “‘Nachahmung der Natur’: Zur Vorgeschichte der Idee
des schöpferischen Menschen,” in Grundlagentexte Kulturphilosophie: Benjamin,
Blumenberg, Cassirer, Foucault, Lévi-Strauss, Simmel, Valéry u.a., ed. Ralf
Konersmann (Hamburg: Felix Meiner Verlag, 2009), 201–232.
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