19 November 2010
Thoughts for Nasser Saber
I had been asked to review volume three of a series of books by Nasser Saber, his theory of "speculative capital." The themes of the series are broadly Marxist, with some slants of Saber's own.
Volume three, in particular, "Speculative Capital: The Enigma of Options," involved as the subtitle implied the valuation of options to buy or sell stock. That justified the title of my review, because the predominant model of the valuation of stock options among non-Marxist finance theorists is known as the Black-Scholes -- or sometimes more elaborately the Black-Scholes-Merton -- theorem. It seems to maintain its prominence sometimes because it makes a valuable target. Still, it does maintain that status.
Saber, by raising the controversies over Black-Scholes to a philosophical plane, performed a valuable function. As it happens, I think Marxism philosophically corrupt, and all its conceptual applications accordingly suspect, but I was happy for the opportunity to say so with his books as a foil.
Saber wrote me after the appearance of my review, irate over several fairly trivial matters. Most irking of his complaints to me was the charge that I had misquoted him by inserting an exclamation point into a quotation where it didn't belong. I had in fact included the exclamation point there because he had put it there. He had apparently failed to confirm his own memory of his text before writing me an irate inaccurate email.
I wrote him back, citing the page on which he could find the accurately quoted exclamation point, and saying -- anent his somewhat more substantive complaints -- that he might want to respond to me in the course of his projected volume four. He said he would likely do that.
I still await volume four, as does the rest of the world.
In the meantime, Saber has a blog, the "Dialectics of Finance," here
A recent entry in that blog denounced the notion of "time preference." This returns me to the heart of his philosophical dispute with Black-Scholes. The question is whether the preference for immediacy is inherent in the productive process, or simply a matter of consumer impatience.
Think of a two-year old child offered a cookie: now or later? The cookie now will always win out. Even a much bigger cookie, later, will fade into insignificance beside the forces of appetite and the present moment. As humans grow older, we learn to control immediate impulses. But the preference for immediacy remains, however tamed. We have to be bribed to accept a wait for the promise of the bigger cookie.
That's consumer impatience, and it certainly sounds like a reason for the phenomenon of interest payments on loans. If I give you money, I am putting off some possible consumption of my own until you pay me back. I need to be bribed for this.
Saber doesn't disagree that the two year old prefers the cookie now, or that Kim Kardashian and Paris Hilton (his examples) prefer shopping now to shopping later, but he says here in his blog, and in the books, that it doesn't apply to all people everywhere, and where it does apply, it is a variable fact (as consumer preferences notoriously are), and thus not a given for an economist.
"Beyond empty-headed women and mountebanks, what gives rise to the illusion of time preference and helps sustain and institutionalize it is the commodity fetishism of a consumer society," Saber writes.
I commented on this blog entry. Since it is a moderated comment section I don't know yet whether ny comment will ever show up, [NOTE: It has show up there] but I'll explain it here anyway.
I postulated two reasons for the time preference (beyond consumer impatience).
The first is simply that we have lives of limited duration, and during the course of those lives we AGE in something more than a purely nominal sense. Our bodies obey the second law of thermodynamics.
This means, if you are a 20 year old with a chance at a professional athletic contract, it is a good idea (ceteris paribus) to take it now rather than next year. Nobody can predict with certainty the number of years during which your body will be able to play at a competitive level, but anyone can predict that there won't be an unlimited supply of them. So you prefer to get started.
Notice that this example isn't about consumption. It is about a particular employment relationship, and one's suitability for it. It is about production -- though what one is producing in this particular case is a spectacle rather than anything more tangible.
So the first reason for time preference: aging, with all it entails. Or, if you prefer: finitude.
The second reason? The processes of life in our fellow inhabitants of this globe -- in animals, plants, and fermentation-generating bacteria, etc. -- require time, and produce value when given that time. In other words: while we are aging, they are growing. Life succumbs, but it doesn't merely succumb to the second law -- it first, and generation-by-generation -- resists that law.
Henry George developed this idea in the course of his critique of an illustration used by Frédéric Bastiat explaining the nature of interest and profit.
Bastiat wrote of two carpenters. One has built himself an extra plane, a crucial tool in the craft they share, and loans it to his colleague. Will he be satisfied with the return of as good a plane in a year? Surely not! He'd expect, Bastiat suggests, a board along with it, as interest. Never mind Bastiat's reasoning, I'd like to focus on George's reply.
George wrote, "I am inclined to think that if all wealth consisted of such things as planes, and all production was such as that of carpenters -- that is to say, if wealth consisted but of the inert matter of the universe, and production of working up this inert matter into different shapes, that interest would be but the robbery of industry, and could not long exist." But some wealth is inherently fruitful, like a pair of breeding cattle, or a vat of grape juice soon to ferment into wine, or a field of wheat. In each case, the processes of life themselves over time generate value.
Planes and other sorts of inert matter (and the most lent item of all—- money itself) earn interest only indirectly, by being part of the same "circle of exchange" with fruitful forms of wealth such as those, so that tying up these forms of wealth over time incurs a opportunity cost.
Notice that neither Bastiat nor George was discussing the sort of consumer impatience on which Saber would re-build the theory of interest.
So living generates a demand for interest (because organisms decay) and the processes of life also provide the ground for the supply of interest (because organisms resist decay).
Time preference then is a rational reflection of the realities of production. QED.
Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.