[OPE-L] An Engine, Not a Camera How Financial Models Shape Markets Donald MacKenzie

From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Tue May 16 2006 - 03:28:55 EDT

from MIT press

An Engine, Not a Camera
How Financial Models Shape Markets
Donald MacKenzie

Table of Contents

In An Engine, Not a Camera, Donald MacKenzie argues that the
emergence of modern economic theories of finance affected financial
markets in fundamental ways. These new, Nobel Prize-winning theories,
based on elegant mathematical models of markets, were not simply
external analyses but intrinsic parts of economic processes.

Paraphrasing Milton Friedman, MacKenzie says that economic models are
an engine of inquiry rather than a camera to reproduce empirical
facts. More than that, the emergence of an authoritative theory of
financial markets altered those markets fundamentally. For example,
in 1970, there was almost no trading in financial derivatives such as
"futures." By June of 2004, derivatives contracts totaling $273
trillion were outstanding worldwide. MacKenzie suggests that this
growth could never have happened without the development of theories
that gave derivatives legitimacy and explained their complexities.

MacKenzie examines the role played by finance theory in the two most
serious crises to hit the world's financial markets in recent years:
the stock market crash of 1987 and the market turmoil that engulfed
the hedge fund Long-Term Capital Management in 1998. He also looks at
finance theory that is somewhat beyond the mainstream--chaos theorist
Benoit Mandelbrot's model of "wild" randomness. MacKenzie's
pioneering work in the social studies of finance will interest anyone
who wants to understand how America's financial markets have grown
into their current form.

Donald MacKenzie is Professor of Sociology (Personal Chair) at the
University of Edinburgh. His books include Inventing Accuracy (1990),
Knowing Machines (1996), and Mechanizing Proof (2001), all published
by the MIT Press. Portions of An Engine, not a Camera won the Viviana
A. Zelizer Prize in economic sociology from the American Sociological


"In one lifetime modern finance theory has revolutionized the arts of
canny investing. MacKenzie knows this exciting story, and he tells it
--Paul A. Samuelson, MIT, Nobel Laureate in Economic Sciences (1970)

"Having returned from an audacious incursion into the black box of
modern financial markets, Donald MacKenzie shows how economic theory
has succeeded in capturing and shaping them. This book will be of
substantial interest to specialists in a range of fields including
economics, finance theory, economic sociology, and science and
technology studies. But MacKenzie's tour de force is to make clear,
even to nonspecialists, that through complex technical issues,
alternative forms of economic organization can be imagined and
--Michel Callon, Ecole des Mines de Paris

"Donald MacKenzie has long been one of the world's most brilliant
social and historical analysts of science and technology. Here he
provides an original, astute, and exhaustively researched account of
the development of finance theory and the ways in which it is
intertwined with financial markets. An Engine, Not a Camera is
essential for anyone interested in markets and the forms of knowledge
deployed in them."
--Karin Knorr Cetina, University of Konstanz and University of Chicago

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Winner of the 2005 John Desmond Bernal Prize awarded jointly by the
Society for Social Studies of Science (4S) and the Institute for
Scientific Information.

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