IT History Society Blog

From Real Economies to Virtual Ones and Back… Maybe

October 20th, 2008 by Sandra Mols

iceland16It seems I may be stuck into writing about news these days … Indeed, my interest as that of many of us has been caught by the recent world-wide financial crisis. Notwithstanding the risk of political incorrectness of such claim, let me just say that I love the news … as regards to what it reveals about computerisation. Back in time in 1929, on the famous Black Tuesday, stock exchanges went off the roof, leading out to a world-wide crisis, and a complete reorganisation of, and redistribition of wealth in the economy, the so-called Great Depression that ensued. Causes were stock markets losing sight of which shares corresponded to the real economy or which participated to the hype created within stock markets following on from rapid flow of exchanges and speculation among traders. And it was not long before Europe followed in. Quite strikingly the situation is not so different now. Stock markets have crashed massively under the same financially über-ponderous weight of far-too-speculated-with shares that everyone trusted to be safe, and yet were not so. Most financial institutions world-wide are worried sick with painful pecuniary itches from, e.g., having been trusting the stability and reality of the Icelandic financial products. Even conservative people had entered such practices. The University of Cambridge for example is in pass of losing about 11 millions pounds as a consequence of this trust. After Fortis and Dexia, even my more stable conservative bank in Belgium, ING, has signed in for some cash flow from the Dutch governement….

trustAs in 1929, the word everybody has in mind is trust, and collapse of trust, trust in shares, trust in financial institutions, trust in bank managers and management, trust in national regulation of stabilising fund … raising out tricky questions for economies half-virtualised: how do you evaluate just how much you need to support the banking systems on? What should governements do? Buy out shares? At the risk of seeing their own budget fading away at the next hiccup of the stock markets? Who should be blamed for the crisis? Traders? Brokers? Etc. Etc. There is one issue that has barely been questioned or challenged in the press yet, that of the computerisation of stock markets and exchanges and the rise in pace for exchanges rendered possible therewith.

cgon243lComputers are so embedded as normal practices among traders and brokers and the financial world that very few actually take into account the role of the technology as central to these practices, and the financial frailty and problems that ensue, such as the paralysis that occurred in 1989 in Canada when trading was stopped by a computer crash. No…. Of course not. Rather than questioning computerisation, one keeps embracing it, as in the UK where high-raking politicians brand out digitisation as a strategy to help easing up the credit crunch. Some ought to start some good readings in there, for instance Donald MacKenzie‘s works on computarisation and trust, e.g. Mechanizing Proof: Computing, Risk, and Trust or The material production of virtuality. Also, anyone interested to join in Bernardo Batiz-Lazo in his ‘history of computers in banking’ research at the SHOT Special Interest Group Computers, Information and Society ? I am…

2 Responses to “From Real Economies to Virtual Ones and Back… Maybe”

  1. Charles Knight Says:

    “At the risk of seeing their own budget fading away at the next hiccup of the stock markets? Who should be blamed for the crisis? Traders? Brokers?”

    Banking is an example of an emergent system. The recent efforts to personalise the crisis in terms of some of the actors (and indeed that the narrative that government would want to push for one reason and that the media pushes because it provides easy simplistic television to slop out to the masses) and their collective responsibility is to miss the point. The vast majority, upto and including the most senior people, were generally acting rationally within a system not of their own making.

    And ‘the system’ has not and cannot be made or defined by any group, it emerges from transactions, from the market, from regulation, from technology, cross-investment, globalisation, countless other factors.

    Yeah, it has turned out to be a house of cards, but it’s a house of cards that *everyone* was happy to live in.

    Warm Regards,

    Charles Knight

  2. Sandra Mols Says:

    I like the comment. This reminds me of some stuff I did in an essay about Chernobyl being some almost normal fallout of politically-interfered self-run scientific modernity. You’re right in saying that the text calls in for some clarification.
    There is indeed the problem – on the analytical, not popular press, as you rightly mention – side that locally all behaviours of actors were ‘rational’, rationality that was however, at the light of the crisis, also tainted and affected by a trust system that did not provide reward for keeping track of the real economies underlying the virtual ones.
    In some ways, and the comparison may be a bit politically incorrect, this sounds a bit like Bauman’s “Modernity and the Holocaust” argument, that that the Holocaust was a not so abnormal manifestation of modernity gone astray as modernity by its Weberian principles themselves ‘had’ to lead to a social, structural, inevitable process of dislocation of moral responsibility with all actors in the ‘system’ participating happily and rationally to the latter without looking out for or care for the actual acting, behaviour and potential evolution of the system per se.
    Let’s then spell out some questions again then, for the analytical side: where did that running-out, dislocating effect come from? Virtualisation? Virtualisation in the traditional meaning – that is the gradual disappearance of fiduciary grounds for economic transactions – or virtualisation in its new form of practice that involves straight-up trans-worldwide immediate communication – internet, on-line trading, etc.? Changing geographical scope and pace of exchanges? Changing system of location, attribution and empowering of trust?

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