Portfolio Society: On the Capitalist Mode of Prediction

by Ivan Ascher

As financial markets expand and continue to refashion the world in their own image, the wealth of capitalist societies no longer presents itself, as it did to Karl Marx in the nineteenth century, as a "monstrous collection of commodities." Instead, it appears as an equally monstrous collection of financial securities, and the critique of political economy must proceed accordingly. But what would it mean to write Capital in the twenty-first century? Are we really to believe that risk, rather than labor, is now regarded as the true fount of economic value? Can it truly be the case that the credit relation -- at least in the global North -- has replaced the wage relation as the key site of exploitation and political struggle? And finally, if precarity is indeed the name of today's proletarian condition, what possible future does it actually portend, what analysis does it require?

Through a series of creative substitutions, in Portfolio Society Ivan Ascher extends Marx's critical project in bold and unexpected ways. Ascher not only explains some of the often mystifying processes of contemporary finance, he also invites us to consider what becomes of capitalism itself in those places where the relation of capital to its own future is now mediated by financial markets. In the end, we may find that much has changed and much has not; relations of domination endure, and mystifications abound, but the devil is in the details, and that is where Ascher directs our attention. At once a critique of modern finance and of the societies under its spell, Portfolio Society succeeds in revealing the potential limits of Capital, while reveling still in its limitless potential.

Genres: Economics, Nonfiction, Politics

192 pages, Hardcover

Published September 10, 2016

Reviews

[ART · Rating 4 out of 5]

Portfolio society is such a well-written book of economic and political theory that it is hard to put down–no small feat for the genre. Ascher knows how to tell a story, and, like his model Marx, does so with remarkable wit and charm, even as he accounts for the financialization of the economies of the capitalist core and the accompanying neoliberal turn, which ultimately depend on the creation of a new subjectivity, homo probabilis. He tells this story using a brilliant homology between the creation of the labor relationship (from Capital Volume One) and that of the credit relation, now so central to our economic existence, in a way that sheds light on the 2008 global financial collapse.

The “Great Risk Shift” that started in the 1980s with the dismantling of the welfare state, after which individuals had to begin bearing the risk inherent in capitalism, Ascher does not see as merely a new division of creditor/debtor replacing capital/labor; rather, he finds a new division “that separates those who are free to run the race from those who are free to bet on its outcome,” those whose “credibility” must be “calculable,” from those with the power to calculate.

In order for this to happen, the story goes, a new “financial enclosure” forced an ever increasing number of people into financial markets just as several technologies of risk calculation simultaneously became available. The welfare state and the increased bargaining power of labor had created a post-war “social contract” between workers and employers or workers and the state. As labor’s bargaining power declined in the late 1970s and as government safety nets began to disappear, more and more individuals began to borrow either to maintain their living standards or to meet unexpected contingencies.

The new knowledges and technologies arose out of economic theory and mathematics, but required several simplifications. First, the myth of efficient markets, where perfect information is, in theory, available instantaneously, everywhere and already reflected in the asset prices of securities. Second, the portfolio asset theory posited that risk must be related to its required rate of return, but that the risk of a portfolio is decreased through diversification. Third, the Black-Scholes equation made possible the pricing of “American options,” then of complex derivatives, based on those previous assumptions. Lastly, a double reduction made individual and market risks calculable. The FICO score reduced a borrower’s credit worthiness, “credibility,” to a number, while any contingent economic event was reducible to a likelihood. Suddenly all individuals were comparable, all risks commensurable, in an objective, distant, impartial, mathematical way. Or so it seemed.

But the myth of efficient markets, the 2008 crisis taught, hides the reality of the few “market makers” and “market gamers” who seek “rents” or “arbitrage” profits to the detriment of the many. And the system that makes individual risks less significant within a larger portfolio also makes the individual matter no more than her FICO score. Moreover, the alchemy of diversification appears to work best for those “too big to fail,” if at all. And both these reductions depend on asymmetric relationships not legible in numbers calculated at a distance.

Ascher uncovers a new hidden asymmetric social relation, a new subjectivity, a new mode of violence, that alerts us to the dangers of portfolio theory and quantitative “casino capitalism.” Homo probabilis and the “financial enclosure” are original contributions that help us understand capitalism in the early 21st century. But the book seems to be missing an element, a something to be done. Without it, it ends as a gloomy zombie movie featuring infectious banks in financial meltdown. What about debt relief? What about alternative currencies? Would either of those mitigate the inequity of the violence? What are the possible forms of resistance? One is ultimately left wishing for more of the political, or at least its possibility. But economic life is neither fairy tale nor Hollywood movie, Ascher would undoubtedly reply.

[michal k-c · Rating 3 out of 5]

seems like a gripe i have a lot lately is that a lot of books (theory and otherwise) are far too brief for what they’re trying to accomplish. it’s pretty terrifying that the model of global finance is entirely speculative now that post-industrial capital is basically a cthulhu-type monster that endlessly reproduces itself with little to no human influence

[Alexander · Rating 4 out of 5]

Relevant now. Like, right now.

[Bryan McNeil · Rating 4 out of 5]

"After all, if Archimedes was surely right to imagine that he could move the Earth, did he not also acknowledge that he would need a place on which to stand? Who bears the burden of financialization, one wonders, and whose world does it truly lift?"

Ascher revisits Marx with a compelling and informative thought experiment. If Marx was driven to theorize how capitalism refashions social relations around the wage relationship, Ascher asks how, given the expansion of financial markets that reach deep into everyday life, does the attribution and monetization of risk affect social relations in the contemporary world? The result is a terrifically woven combination of story, history of the 2007-8 financial crisis, exposition of often-byzantine financial instruments, and specific analysis in comparison to passages of Marx's Capital. Ascher exposes what FICO scores deliberately conceal (biases, generalizations) and how they function to create a generalizable, universalizable, and tradable "risk"that functions much the same way as Marx's "socially necessary labour power".

This book is a great companion to the film, The Big Short, and my recent read, "The Wisdom of Finance."

[Dennis · Rating 4 out of 5]

Ascher's essay identifies the development of financial markets and the corresponding process of securitization as the centerpoint of contemporary neoliberal critique. He reads the recent history of financialization against Karl Marx' classical critique of capitalism in Das Kapital to devise further updates in theorizing contemporary capitalism. Lastly, he traces the development of Homo oeconomicus to the financial era, a development from a subject defined by exchange towards that of an investor "having a risk profile all his own, together with a portfolio of assets that it is both his right and responsibility to mangage." (123)