7 The Investor as a Cultural Figure of Global Capitalism

ALEX PREDA

The Investor as a Figure of Global Capitalism

We see ourselves as small shareholders, as critical shareholders, as shareholders of ethical businesses, or of venture firms. We are against grand speculators, or dream of becoming one someday; we follow price movements every day, or only now and then, trade online, or go to a trusted broker, watch the news, look at price charts, discuss the market with friends, and so much more. Contemporary capitalism would not be the same without the investor. Against this background, it is surprising that we still lack a sociological analysis. How does this figure work and to what consequences? Its substantial presence and broad societal impact suggest that it is not a new phenomenon, but rather the outcome of a historical process. Since its public prominence is tied to the sec­ond globalization wave (the increased worldwide integration of capital markets since the 1980s), an adequate strategy of inquiry would be to investigate its shape in the first globalization wave (the period between 1850 and 1914, when capital markets witnessed a comparable level of integration). Concomitantly, the figure of the investor raises some crucial questions for the sociology of financial markets concerning the ways in which structural conditions are related to agency, economic action is shaped by cultural factors, and the categories of economic order translate into categories of individual experience.

I make here two arguments: the theoretical one is that the sociological con­cept of figure is a useful tool for analyzing how financial markets generate valid, socially legitimate types of social actors. The empirical argument is that in the first globalization wave (1850—1914)¹ the investor is reconfigured as having universal validity and as legitimating market globalization. I single out two interrelated aspects of this reconfiguration: (a) the transformation of the investor into a scientist bound to discover the universal laws of the mar­kets and (b) the notion that investing is intrinsic to human nature and a basic social right. I begin my examination by developing the sociological concept of figure. I show then that the sociological tradition identifies four basic

This chapter has very much benefitted from the comments of Karin Knorr Cetina, Barbara Grimpe, Aaron Pitluck, and Peimaneh Riahi. My thanks to them all.

figures of capitalism: (1) the manufacturer, (2) the entrepreneur, (3) the accu­mulating capitalist, and (4) the religious capitalist. The missing figure here is that of the investor. In the next step I examine the reconfiguration of the investor along two lines: (a) the investor-scientist and (b) the right to invest. This reconfiguration occurs during the first globalization wave and marks a rupture with the eighteenth century figure of the investor. I show how (a) and (b) contribute to creating a cultural figure with universal validity, which legitimates global market expansion.

I rely in this examination on primary sources from the United States, United Kingdom, and France from 1850-1914. For comparison, I will also draw on primary sources from eighteenth century Britain and France (in the United States, institutionalized financial markets started around 1792). I refer here to investment books, magazines, newspaper articles, and reminis­cences of investors; my arguments are grounded in the examination of over four hundred original documents directly related to and produced in invest­ment activities. My method is that of an analytical reconstruction of the figure of the investor as constituted in the cultural field of investment activit­ies (specified in the fourth section on ‘The Figure of the Investor in the Eighteenth Century’).

The Sociological Concept of Figure

The investor as a figure of capitalism: is he or she then an abstraction, a fictionalized portrait of historical figures? We can easily imagine a fictional­ized amalgamation of ‘grand speculators’, Jay Gould and Cornelius Vanderbilt mixed up with Carl Icahn and Warren Buffett. But is it not defin­ing for these grand figures that they live through hyperbole, through countless stories about their exploits? And what about those investors who are absent from such stories? An amalgamation of historic characters would describe the grand figure rather than explain it. Shall we then understand the investor as a trope, a figure in the discourse of capitalism, a justification for engagement with financial markets, one which went beyond (uncertain) profit? This is intrinsic to the figure of the investor; yet, justification alone cannot bring unrelated actors to engage in similar paths of action, cannot completely explain how social responsibility is placed on them. There is more to the figure of the investor than justification.

If neither a fictional character, nor a trope, then what is the figure of the investor? Generally speaking, we encounter at least three meanings of the con­cept of the figure: (1) In rhetoric, the figure (of speech) or the trope designates a displacement of linguistic meaning, which takes place according to estab­lished rules of communication and is embedded in a pattern of persuasive argument. Thus, metaphors, litotes, or allegories as figures of speech are rule-governed elements of persuasive communication. (2) In literary studies, the figure designates a character in a novel or play, with the following proper­ties: (a) placement in space and time; (b) development; (c) mimesis—that is, imitation of a person or class of persons from real life; (d) involvement in a pattern of action; (e) embeddedness in a web of relationships. (3) By opposi­tion, the sociological concept of figure stresses neither exclusively linguistic aspects nor mimetic character. Note that the notion of figure does not entirely overlap with the sociological concept of role. While the latter is understood as a behavioral script which reflects social-structural constraints at the individual level, the figure implies the reciprocal adaptation between broad cultural cat­egories, on the one hand, and categories of individual experience, on the other. The outcome of this process is a set of dispositions shaping individual paths of action. The concept of figure is grounded in a series of arguments which include, among others, Gabriel Tarde’s examination of the economic act, Erving Goffman’s analysis of the interaction order, and Norbert Elias’ and Pierre Bourdieu’s notions of figuration and figure, respectively.

There are two basic premises to this concept: the first is that the self cannot be constituted through solipsistic acts (i.e. pertaining exclusively to one’s own character or private ego) but emerges in the interaction order. Thus, agency implies an interplay of forces, a system of different positions, roles, and performances on the part of social actors. An important argument in this sense is formulated by Gabriel Tarde: for him, the broader economic order requires a correlate at the individual level. The institutional categories of economic life need individual acts as a correlate, otherwise there would be no economy out there. These individual acts are grounded in beliefs; belief, however, is not a category of individual psychology, but of social interaction. The economic self is constituted at the level of the interaction order: none of her acts can be purely individual. Economic acts will always be coconstituted by interaction elements like commonly held values, moral projections, and collective representations (including fears, exuberance, and the like) (Tarde 1902: 290). Tarde’s arguments resonate with Erving Goffman’s. Goffman (in a larger context) sees the self as constituted by situated rules of interaction in the same way in which a theater figure is constituted on a stage in the interaction with coplayers (1959: 30-31). Since the interaction order is a sui- generis one (irreducible to individual psychological elements, or to biological determinants), it becomes necessary to analyze the process-like constitution of social selves and of the categories in which the social world is experienced. Norbert Elias formulates a related argument, in that he sees agency (a) as depending on the constitution of the self and (b) on the interaction between selves. Elias’ case study is that of the European court societies at the dawn of the modern era. Court societies were intricate webs of social positions, roles, and forces, in which individual selves (i.e. of the king, the nobleman, the court lady) were shaped by the rule-determined interaction process. The self is then not an isolated creation, but a figure situated in a web of interactions in which other figures exert their forces. The concept of figure designates then the interplay between structure and individual agency in an interaction web. Figuration is the process through which individual selves and macrosocial processes are tied to each other: it ensures that social facts are created con­comitantly on the collective and on the individual level (Elias 1983 [1969]: 21, 208-9).

This brings us to the second conceptual premise, namely that structural ele­ments have to be matched by categories of experience on the part of individ­ual actors. Without this match social actors cannot be explained but as robots. Paths of social action (and categories of experience with them), however, are not identical, but similar. Pierre Bourdieu explains (dis)similarities between these paths as being due to the position they occupy in the (literary) field (1996: 129, 132). During the Second Empire in France, for example, we do not encounter a single, homogenous figure of the literate, but several: the bohemian intellectual, the public intellectual, the popular writer, the social critic. These figures are situated in a field of cultural differences, according to the categories in which they experience the social world, to the social and cul­tural capital they dispose of, and to the resources they can mobilize. At the same time, external forces are exerted upon the literary field: for example, by the bourgeoisie who tolerates (or even sponsors) the bohemian, or by the political class. The consequences are that the notion of figure is neither a mechanical translation of structural constraints at the individual level nor reduced to a single set of determinants (economic or political). Figures shape the field (i.e. the structural conditions) in which they act.

Figures of Capitalism

In the sociological tradition, we encounter a continuous preoccupation with the figures generated by the modern capitalist order: the expert, the public man, the consumer, the intellectual are only some major examples. Among the attempts to define capitalism by the figures it generates, at least the following categories figure prominently: (1) the manufacturer, (2) the entre­preneur, (3) the accumulating capitalist, and (4) the religious capitalist. Adam Smith’s manufacturer and Joseph Schumpeter’s entrepreneur belong to (1) and (2), respectively. Karl Marx’s and Max Weber’s respective figures of capitalists are examples of (3) and (4). Their authors saw these figures not as byproducts, but as key with respect to the capitalist order: they are the individual counterpart and the source of the entity called capital.

In the eighteenth century, ‘capitalist’ was understood by social philo­sophers, by economic thinkers, and by the educated public alike as a person who invests money in public debt or in stock, and expects an annuity or a dividend. A capitalist was someone who did not have to work for a living, nor lived off land revenue, nor had profits from manufacture or trade. His revenue was derived from the financial securities he owned and traded. At the dawn of the modern era, being a capitalist meant being an investor (DuPlessis 2002: 36). Only toward the end of the century did Adam Smith’s (1991) Wealth of Nations give a new, abstract twist to the term ‘capitalist’.

The Manufacturer

A superficial observer may say that Adam Smith has not depicted a central figure of capitalism, being too busy with the grand tableau of the national economy. Yet, Smith’s economic landscape is not an empty one, but populated by a whole array of figures, some of which are of central importance. Increasing the nation’s wealth is, in Adam Smith’s eyes, the ultimate aim of economic life. While agriculture, trade, and other economic activities may contribute to wealth increase, great nations excel in manufacturing (Smith 1991 [1776]: 12). All other economic activities—like banking and trade—are subordinated to increasing the manufacture industry of the country (p. 258). The manufacturer is skilled and innovative: he has a deep knowledge of production processes and of local conditions, is geared toward permanent productivity improvements, and is interested in long-term development. Of all social types, wrote Smith, the ‘master manufacturer’ plays the central role; the merchant, another important figure, is subordinated to the manufacturer in the social order of wealth. Manufacturers have the best knowledge of their own interest, a self-interest which is the very spirit of capitalism: ‘during their whole lives (they) are engaged in plans and projects, they have frequently more acute­ness of understanding than the country gentlemen... Their superiority over the country gentleman is not so much in their knowledge of the public interest, as in having a better knowledge of their own interest than he has of his’ (p. 219).

The Entrepreneur

Analogously, Schumpeter’s entrepreneur (1934) is motivated by a constant, almost religious drive for (technical) innovation. In this respect, the entrepre­neur combines Adam Smith’s manufacturer with Max Weber’s charisma. Capitalism is characterized by a ‘habit of mind’: that of striving toward technical innovation for economic profit. Innovation is the motor of economic growth and capitalist expansion. The entrepreneur is its major figure. He is not merely interested in science and technology for their own sake; he is interested in continuous innovation because he equates it with economic advantage. Innovations solve major economic uncertainties and set the stage for imitators. Technical and economic processes are closely related to each other; technology is endogenous to the capitalist economic system (Rosenberg 2000: 12). The entrepreneur is different both from the manager and the ‘capitalist risk-taker’ (i.e. the investor) (Schumpeter 1991: 407-8). He invents or innovates as a response to economic and social pressures and, in doing this, he promotes economic change. At the same time, Schumpeter’s entrepreneur remains separate and independent from the investor; he may put his talents in the service of joint-stock companies, but financial speculation is not his defining feature (1991: 425 n4, n9).

The Accumulating Capitalist

In the introduction to the first edition of the Capital, Karl Marx stated clearly that the figure of the capitalist was the ‘personification of economic categories, bearer of class relationships and interests’ (2002 [1872]: 37). Relevant here is the fact that in the Capital, this figure is determined by the process of accumulation.

For Marx, capitalism is reducible to two key aspects: the worker selling his labor force to the capitalist, and the capitalist being able to obtain surplus value by paying not for the labor, but for the reproduction of the labor force. Hence, the key relationship of capitalism is that between the capitalist and the worker: while the former accumulates, the latter sells his only possession. For the capitalist, the main type of social action is accumulation; for the worker, it is selling his labor force. Accumulation is a purely economic process, free of any ethical determinations. He who accumulates does not need to sell his labor force, and he who has to sell it all the time cannot accu­mulate. These two kinds of complementary actions are paradigmatic for capitalism and for the relationship between these two figures. Capitalism as a social order depends on the relationship between accumulation and the sale of labor force. Marx’s entire analysis is geared toward deducing the laws of capitalism out of this relationship.

The Religious Capitalist

While Marx’s capitalist accumulation is free of ethical determinations, Max Weber saw the capitalist as a religiously motivated man: his drive toward redemption justifies getting rich as a self-contained aim. Since redemption is uncertain, all that is left is hope, which is supported by a constant strive toward accumulating riches. Accumulation, however, has to obey certain rules: the virtuous capitalist accumulates by his own ingenuity, frugality, sus­tained work, and constant preoccupation with economic processes. Religious asceticism forbids accumulation by speculation (Weber 1988 [1920]: 191). While witnessing waves of financial speculation in Germany, Weber did not really view financial markets as being at the core of the capitalist order. The most he could do about them was to write a popularizing brochure (Weber 2000 [1894]). Continuous work and profit through production (Weber 1988 [1920]: 175) are the legitimate means of religious salvation.

These figures are not mere traces in the history of political economy. Historically seen, they may coexist; from the conceptual point of view, how­ever, each claims primacy in explanatory accounts of capitalism.

The Figure of the Investor

Manufacturer, entrepreneur, accumulating capitalist, religious capitalist: some of them are easy to recognize in today’s global capitalism. For instance, the figure of the dot.com entrepreneur was familiar and much cherished in the late 1990s. Other figures may be paler now than one hundred years ago. Nevertheless, striking in this enumeration is the fact that none of these figures is directly related to a fundamental institution of capitalism: financial markets. They are involved in production processes, in manufacture and technology; trade may play here a role too. Financial markets, however, are a notable absence. Of course, Adam Smith was aware of the merchant’s role; but the merchant is subordinated to the manufacturer and is not involved in financial markets. In fact, Adam Smith did not consider these latter to contribute to national wealth; he saw financial markets as a noneconomic domain, a view clearly expressed in the last chapter of the Wealth of Nations (1991 [1776]: 534).

Yet economic opinion has radically changed: contemporary economic his­torians see financial markets—from the moment when they emerged—not as a mere byproduct of capitalism, but as its very motor (Sylla 1999a, b). This change of opinion goes hand in hand with the belief—rooted in eighteenth century illuminist thinking—that the market generates a fundamentally new human type (Hirschman 1992: 109): ‘the archetype of capitalism is the share­holder who places his money in an enterprise and expects a profit’ (Boltanski and Chiapello 1999: 39). Placing money, holding shares, expecting profit: all these actions, attitudes, and expectations are intrinsically related to financial markets as the capitalist institution. As early as 1901, Georg Simmel noticed that the stock exchange—characterized through permanent movement and continuous excitement—is an ‘extreme increase in the rhythm of life’ and the ‘point of the greatest excitement of economic life’ (Simmel 1989 [1901]: 708). If this is so, there must be a fifth, lost figure of capitalism: the investor. Understanding the ‘spirit of capitalism’ cannot ignore a figure tied to one of its core institutions, a figure which has positioned herself at the very center of this order, one on which so many hopes and responsibilities are placed and which has to take so many risks.

On the one hand, the figure of the investor is tied to the paths of action followed by so many unrelated actors: these actions cannot be seen as habit, as unreflected routine; they cannot be seen as coerced, or as automatically induced by education, income, social milieu, profession, and the like. They are similar or complementary, yet not identical: obviously, not everybody buys the same security at the same time. Thus, the figure of the investor should take these paths of action into account and show how they relate to the legitimacy of markets.

On the other hand, the figure of the investor is tied to the legitimacy of capitalist order: being an investor has to do with the social legitimacy of financial markets, with how enterprises are organized and property relations are structured. Among others, the investor is central for how relations of ownership are organized in capitalism, for how firms are conceived. This implies not only the right and the ability to own shares, but also to trade them, actively intervening on the market. The assumptions underlying this organization of ownership go well beyond the sphere of economic concepts: we own some part (however minuscule) of a corporation, we hold and trade securities not only because it is economically profitable (for this is uncertain), but also because it is socially and morally justified, because we accept this arrangement as legitimate. In short, the figure of the investor has to do with capitalism as a justified and just order (Boltanski and Thevenot 1991: 59).

This means taking into account the ‘sets of beliefs associated with the capitalist order, which contribute to justify this order and to support, through legitimating, the modes of action and the dispositions coherent with capital­ism’ (Boltanski and Chiapello 1999: 46). Hence, we have to explain the bind between beliefs in the social and moral legitimacy of investments, and action categories which confirm and reinforce these beliefs. Belief in the social legit­imacy of investments cannot be conflated with belief in their economic profitability. They are apparently flexible and multilayered enough to legiti­mate the grand speculator and the small investor, the billionaire and the employee, the day trader and the occasional buyer of treasury bills. As the recent account of a sociologist and amateur investor puts it, the grand specu­lator and the small investor, the full-time professional and the amateur alike belong to an ‘imagined community’ of market actors (Pollner 2002: 231).

In the same way, categories of social action cannot be limited to the finan­cial marketplace, to trading securities. One reason is that financial transac­tions are tied to and dependent on larger categories of action: gathering information, evaluation procedures, knowing transactions partners, and the like. Another reason is that the notion of financial transaction, of investing in financial securities already presupposes that of the investor: it will be then a logical fallacy to reduce action categories to those of the marketplace.

A further aspect is given by the material arrangements and devices related to the categories of meaningful financial action. Gathering information, for example, depends on communication devices, on the material support of information. At the same time, devices and technologies can in themselves constitute paths of action: an economic study may require from investors different actions than economic gossip. Material devices play an important role in legitimating paths of action as well as the larger social order in which they are embedded (Mukerji 1997). They can make this legitimacy visible for several people at once, symbolize the legitimate order, and corroborate discursive formulations of this order. Consequently, we should not see the figure of the investor as exclusively constituted by (discursive) beliefs and action categories. In investigating this figure, we need to examine the config­urations of mutually supporting beliefs, action categories, and material arrangements (devices, technical artifacts).

These configurations are not straightjackets. They do not impose courses of action; they make them possible, and make these possibilities inevitable. I argue here that the figure of the investor is constituted in a configuration (or field) of discourses about and of investing, material arrangements, and cognit­ive instruments. The discourses about investing establish how investment activities are conceptualized and represented; discourses of investing, related to activities, establish the communication modes between financial actors. Material arrangements, in their turn, determine the settings of investment activities, the quality of financial information, and shape the interaction modes of investors. Cognitive instruments determine how financial informa­tion is processed and by whom, affecting the discourses of investing. The field of investing is not isolated from the political, the technological, or the literary field; agency coming from these fields can produce significant changes in the material arrangements of investing activities or in their legitimacy.

The Figure of the Investor in the Eighteenth Century

There is general agreement that investors are not a sudden, recent occurrence. There have been investors since the emergence of financial markets in Amsterdam, London, and Paris in the late seventeenth and early eighteenth century. While we still lack a systematic, comprehensive quantitative examina­tion of investors in the eighteenth century, we possess descriptions of the financial marketplaces of this time (e.g. Schama 1997 [1987]: 343-71) and partial statistical analyses of company shareholders and of bondholders (e.g. Neal 1990; Carruthers 1996; Sylla 1998; Garber 2000; Wright 2001). The eighteenth century is the century of periodic enthusiasm with investing and speculation, of great periodic bubbles followed by periods of silence. The South Sea, the Mississippi, the Compagnie des Eaux, the Banque Saint Charles, and the Wall Street speculative manias have introduced a permanent notion into the vocabulary of finance: the bubble. If historical descriptions are to be believed, people from all social strata have participated in these speculat­ive frenzies. At the same time, the eighteenth century is the century of heavy moral, economic, and political doubts about investing, of great anti-speculative tides. These doubts concern the relationship between investing and gambling, the effects of financial investing upon the character of the individual, upon the productive forces of society, upon social classes and the state. At the dusk of the century, the French revolution turned the tide against investing by asking for the death penalty on any kind of financial speculation. Edward Chancellor has recently argued that the culture of financial investments in the eighteenth century was carnival-like, characterized by popular participation coupled with ‘a Utopian yearning for freedom and economic equality’ (1999: 29). The notion of carnival culture, however, does not fit well with the overall deep skepticism about the social legitimacy of investments.

In the eighteenth century, the dominant discourses about investment activ­ities were those of the moral pamphlet, comedy, satire, and visual allegory. The knowledge on which investments were based was marked by folly, ‘the passion of avarice, the disease of fools and earth-worms’ (Truth 1733: 13-14). Speculation is a ‘deadly science, a most obscure and deluding game’ (Mirabeau 1785: 77). Financial speculation is a ‘scandalous mechanick’which has no reality in itself; it is bewitching, deadly, a perverted art which ‘com­putes people out of their senses’ (Some Seasonable Considerations 1720: 9). It is a mystery, a ‘machine of trade with unheard-of engines’; it is an ‘impene­trable artifice, poison acting at distance’ (The Villainy 1701: 22). This small sample of metaphors, echoed in numerous publications, puts financial knowledge (and investments) in stark contrast with natural science and social philosophy, bound to discover the laws of the universe and of social order, respectively. A knowledge which is folly and ‘devilish mechanick’ can be integrated neither in the order of nature nor in that of the larger society.

While there are many descriptions of financial markets, we encounter throughout the century merely a single work claiming to be a manual on ‘the Mystery and Iniquity of Stock-Jobbing’: Thomas Mortimer’s Every Man His Own Broker, published in 1761 in London and going through several editions. It had the declared aim of persuading ‘the proprietors of our public funds to transact their own business; to make them the managers of their own property: the only effectual method that can be taken to reduce the great number of Stock-brokers; to diminish the extensive operations of stock­jobbing; and, in the end, to extirpate this infamous practice, which ruins many capital merchants and tradesmen every year’ (Mortimer 1782 [1761]: xvi).

In the eighteenth century, investing was largely identified with gambling and clearly perceived as a noneconomic activity, which in no way can contribute to the wealth of the nation. Personal enrichment may occur, but it is socially ille­gitimate. Correspondingly, the discourses of investing were keyed as burlesque, treachery, blackmailing, and fraud. A widely used means of popular moral education were posters and illustrated brochures about wrecked lives. The pros­titute, the pregnant unmarried woman, the thief, the robber, the liar, the dis­honest merchant were among the usual figures. Crimes were told in lurid detail. Immoral lives always ended tragically, as a deterrent to the reader. Yet, these figures were not the only ones: the financial speculator, the gambler in stocks, was a constant presence in this panoply and his fate was not better than that of robbers (e.g. The Life of Jonathan Wild 1725; A Complete Narrative 1790).

Those who speculate are guilty of the sin of covetousness, which leads to fraud; they are disorderly, immoderate (The Fatal Consequences 1720: 8-10), degenerate, working against the public interest, dishonest, in a state of drunkenness and exaltation (Mirabeau 1787: 10, 19, 53). Stock trading is traffic by deception and cunning and a pernicious commerce. Financial markets destroy social order by attracting people from other professions into investments (Sur la proposition 1789: 8, 12). The public interest is ‘screwed down’ by ‘the fraud, knavery, deceit and illusion’ of financial speculation (The Anatomy 1719: 3-4).

Speculation is a poison which slowly destroys the state and leads to nonpayment of debts, which leads to disorder (Laporte 1789: 50). Financial speculation is a menace for the individual as well as for the social order.

The stage on which investors are encountered is the close universe of pubs, back alleys, and gardens, where the general rules of interaction are suspended. The communicative order of investing is predominantly oral: at the interaction level, the financial marketplace is constituted as a two-tiered conversational system requiring permanent agitation and presence. This con­versational system, well adapted to multiple markets (the rule at the time) ascribes well-defined roles to investors, roles which require special ways of speaking and body techniques. Investors dispose of multiple price lists, more often than not forged. Forging whole issues of newspapers and staging polit­ical events for investment purposes was not very rare. A good example here is the staging of Napoleon’s death for speculation purposes in 1814, a case that I have analyzed elsewhere (see for details Preda 2001). In this field, the typical investor figures are the bull, the bear, the sharper, the pigeon, the pro­jector, the monkey, and the lame duck (see Figure 7.1). While some of these metaphors have become a staple of today’s financial vocabulary, they do not

									Two-tiered conversational system implying: Burlesque Treachery Deception
		Moral pamphlet Comedy Satire Visual allegory
						The Investor: Gambler Bull Bear Monkey Pigeon Projector Sharper Lame duck
								Closed world of alleys and pubs Body techniques determine social roles
	Multiple price lists
			Figure 7.1. The Field of Investing in the Eighteenth Century

anymore identify investor figures in the way they did in the eighteenth century. One may still be bullish or bearish, but without being subjected to the behavioral scripts implied by these terms two centuries ago.

The Reconfiguration of the Investor in the First Globalization Wave: The Investor-Scientist

In the mid-nineteenth century, under the impact of various social forces, the figure of the investor was reconfigured. Among the forces playing an import­ant role here are railway engineers. Around 1845, construction and railway engineers became involved in railway economics and elaborated mathemat­ical models of the demand and supply functions for railway transportation. While thus revolutionizing microeconomics (Ekelund and Hebert 1999: 54-5), engineers were responsible both for technical and economic aspects of railway companies, being involved in the evaluation of railway securities and their marketing to the public. We encounter examples of railway engineering treatises from the 1850s which discuss methods to evaluate railway securities and to speculate in them (Lardner 1850: 310). Engineers transfer the vocabu­lary of physics to the valuation of railway securities. They require observation and analysis in this process. Sheer luck or emotions are seen as irrelevant. The vocabulary of natural science replaces that of the moral pamphlet as the medium for representing financial investments.

This replacement is accompanied by the notion that financial markets are not governed by whims, emotions, or intrigues, but by objective laws. Discovering them is at the core of the efforts made by some stockbrokers in the same period. A prominent example in this respect is Emile Regnault’s Chance Calculus and the Philosophy of the Stock Exchange (1863), which for­mulates for the first time the random walk hypothesis, crucial for the future development of mathematical finance (Jovanovic and Le Gall 2001; Preda

2004)   . Regnault argues that speculation should follow the example of physics and discover the objective laws which govern the market. True speculation must examine and know the constant laws of stock price variations; these laws are as universal as the gravitation laws (Regnault 1863: 143-4). No mar­ket actor can influence price variations in the long run since these obey to ‘superior and providential laws’ (p. 185). His contribution was two ‘laws of differences’, according to which (1) the differences between real and probable prices are a function of the square root of time and (2) prices tend toward the median value of this difference (p. 187). Regnault’s work was followed by Henri Lefevre’s (1870), another stockbroker who catered to individual, non­professional investors. Lefevre developed a graphic method for pricing deriv­atives; he started a mutual fund (the Union Financiere) and devised a plan for national financial education; he invented a mechanical device for pricing derivatives (the auto-compteur), to be used on the floor of the stock exchange (see Preda 2004 for details). His graphic method was modified by Louis Bachelier (1964 [1900]) in his mathematical treatment of derivatives prices, which grounded the random walk hypothesis.

We should not underestimate the importance of the notion that financial markets are governed by objective, probabilistic laws, and not by a group of speculators. This notion relies on the assumption that large numbers of actors are present in the market, so that nobody can control it in the long run. It also purports to develop instruments for intervention in the market (e.g. for pric­ing financial derivatives). This implies not only describing, but changing the ways in which markets operate—a phenomenon analyzed by Donald MacKenzie and Yuval Millo (2003) as performativity. It should be stressed here again that these were investment manuals which did not address aca­demic economists but investors. Developments crucial for derivatives markets and for financial economics were thus initiated in the mid-nineteenth century in the attempt to transform investors into scientists bound to discover the hidden, objective laws of financial investments.

The science of investing contributed to disentangling investments from gambling. The transformation of gambling into a medical condition (Brenner and Brenner 1990: 72-6), as well as the formal, probabilistic treat­ment of gambling problems (Bernstein 1996)—which occurred independently of medicalization—also played a part in this process. This new representation mode, disseminated by numerous investment manuals, stressed careful obser­vation and analysis. It presented financial behavior as dispassionate, calm, grounded in permanent observation of market events and in problem solving (e.g. Castelli 1877; Notions generales 1877: 62-4).

Developments in price-recording technologies reinforced these demands. Until the late 1860s, prices were recorded on paper slips and circulated by courier boys (Downey 2000: 132-3). Multiple markets with multiple prices coexisted in the same building (Vidal 1910: 37-8; Walker 2001: 192-3). In 1867, telegraph engineers developed and introduced the stock ticker to Wall Street; in less than two decades, the ticker became a permanent fixture of Wall Street and of brokerage houses, as well as of the London Stock Exchange. One of the effects of the ticker was that it transformed parallel, sequential price information (as recorded on paper slips) into a continuous flow (Preda 2002). This flow demanded uninterrupted personal attention and observation on the part of investors. Since they had to react quicker to financial informa­tion, investors had to adopt artificial languages, exclusively expressing finan­cial information. Telegraph companies edited and disseminated extensive code books for communicating this information. I will give here only two such examples: the first comes from Hartfield’s Wall Street Code (1905) which con­tained over 450,000 cypher words. An investor would then telegraph his bro­ker ‘gabbiola baissabaci’ instead of ‘are you able to buy hundred shares?’ Those using the manual of the Haight & Freese (a Philadelphia-based bro­kerage firm) would telegraph ‘army event bandit calmly’ instead of ‘Cannot buy Canada Southern at your limit. Please reduce limit to 23’ (Guide to Investors 1899: 385, 396). In this artificial language, one can build sentences using the word bandit, but one cannot build any sentence about bandits.

The new price-recording and communication technologies required body training: investors had to be able to observe the ticker tape uninterruptedly for hours (Wyckoff 1934: 37). Since the stock ticker recorded and visualized minute price differences, price charts became a new quality. A new analytical language was required in order to make sense of price movements, a language provided by chart analysis. In its turn, this reinforced the investor-scientist, bent on analyzing and understanding the hidden laws of financial markets. Here is how one of the pioneers of chart analysis defined the analyst emerging around 1900:

More and more I became impressed with the possibilities of making money through the study of the action of the market itself rather than the study of statistics. I wanted more knowledge on the subject; my subscribers continued to request more light. In many offices, active traders, more or less expert, scanned every transaction that appeared on the tape, evidently trying to scent out coming moves. They ignored statistics or earnings or such information, but they had great respect for previous swings, high and low prices, and other technical indications...Many of these traders sitting on high stools by the tickers had no other vocation; they devoted their entire time to this business of trading in stocks. As they became more expert, they seemed to operate a good deal on intuition. They were especially quick to detect the starting point of new moves, up or down, in stocks which had previously been inactive. (Wyckoff 1930: 171-2).

The general principles promoted by investment manuals (attention, observa­tion, analysis) dovetailed with the categories of experience required by price- recording technologies (permanent attention to the price flow, concentration) and with the price charts which required a new analytical language. As Werner De Bondt shows in Chapter 8, constant study, information, and individual effort still rate high in the value hierarchy of contemporary investors. This does not mean, of course, that all deal-making, market manipulation, or emotions disappeared. Quite the contrary, but the investor-scientist distinguished between the tumultuous surface of the market and the hidden patterns of price movements which could be worked out through observation and analysis. In its turn, this reinforced the idea that the market cannot be consistently beaten in the long run and that its movements have an objective character, irreducible to individual intentions or manipulation. According to Jean Pierre Hassoun (Chapter 5 this volume), emotions do not disappear but become manageable. They are seen not as determining decisions, but as instruments in building up a personal relationship with the market.

The separation of the science of investing from ethics allowed grand specu­lators to represent themselves as strategists and planners, akin to military men, who (aided by technology) conceive, plan, and lead battles against their opponents. The investor Jesse Livermore, writing under the pseudonym of

Edwin Lefevre, described the grand speculator as follows:

Back to the ticker, one elbow leaning on the corner of the ticker-stand, tense, immobile, watching the cascading tape intently, his soul and mind and body merged into a pair of unblinking eyes to which every printed character was full of meaning, surcharged with significance, eloquent in his directness. The first volley had been fired by Dunlap; now Higgins; Willie was obeying orders; Cross and his artillery had arrived . . . The market began to go his way. Blood was being shed, and it was golden blood, and he was unscathed. There might be a day of reckoning later, perhaps tomor­row; to-day there should be one—for the bulls. He was a leader, and the unattached soldiers of fortune—the ‘traders’—gathered under his flag and, without knowing it, fought for him, fought madly for dollars—more dollars—even as Rock fought for railroads, more railroads... the little ticker... sings its marvelous song of triumph and defeat in one. (Lefevre 1907: 53)

This heroic mode of representing grand investors is very much alive today; a fitting example is the styling of George Soros as the man who in the early 1990s single-handedly fought and won the battle against the Bank of England.

The Right to Invest

In the early 1850s, parallel to the transformation of investment into a science, the question of the relationship between investing and human nature is reformulated. Crucial with respect to this was the distinction between ‘true’ and ‘false’ speculation made by some political thinkers and stock­brokers. False speculation or gambling is led by excess, emotions, and lack of study. True speculation is grounded in observation and study, conducted according to rules, useful and honest. It is nothing else than capital put to work and ‘it cannot be lauded and encouraged enough by all governments because it is the veritable source of public credit’ (Regnault 1863: 103). ‘The speculator is the pioneer of progress, he foresees, combines in advance, forecasts’ (Crampon 1863: 158). Pierre-Joseph Proudhon, one of the socialist leaders of the nineteenth century saw speculation as a creative social force (along with industry and trade), as an intrinsic feature of human nature and as an expression of human freedom; all human beings are endowed with this force and must therefore exercise it (1854: 23-5, 31). Consequently, everyone must have the freedom and the right to speculate. The working class must get the right to speculate too; for Proudhon, this meant abolishing the unequal access to the stock exchange and the monopoly of stockbrokers. Other authors concurred: ‘Let the operations of the Bourse be free, give anybody the right to auction himself, at the auctioning hours, the commodities called stocks, bonds, public bonds, etc.’ (Paoli 1864: 12). It also meant legalizing derivatives markets, which in France were illegal until 1885, yet a firm presence in Paris. New York and London made no difference in this respect.

Smaller investors could engage with lesser sums in derivatives trading, compared with the minimum order limits set by official stockbrokers. Consequently, the debates about broader social access to financial markets were enmeshed with arguments about the legality of derivatives markets.

Proudhon and his followers (some of whom, like Henri Lefevre, were stock­brokers) saw financial investments as a means of achieving social equality, of progress and self-enhancement for the working classes. Some prominent British Owenite socialists supported this argument (Thompson 1988: 158). The honest bourgeoisie should help the working classes by participating together in joint stock companies and hence speculating together:

Is it possible to admit that this societal movement [toward joint stock companies], resulting not from utopian theories but from economic necessities, and which invades all branches of production, shall stay eternally closed to the worker? That (financial) action is accessible only to the moneyed classes and that work will never accede to it? Shall we believe that the commercial society, by generalizing itself with an irresistible force, aims at reinstating a caste society, at deepening the cleavage between the bourgeoisie and the working class, and not at leading to the necessary and definitive fusion between these two classes, that is, to their emancipation and triumph? In fifty years, all national capital will be mobilized, all production values will be engaged to a social aim; the field of individual ownership will be reduced to the objects of consumption, or, as the [Civil] Code says, to fungible objects. Will the salary man, this old slave, excluded since the origins of the world from ownership, be still excluded from society, until the end of the world? In fifty years from now, work will have the weight of capital, and the former will write off the latter, and this will come true. (Proudhon 1854: 337)

The argument that the stock exchange can solve tensions between social classes was taken over by authors who saw investing as grounded in objective, scientific rules (e.g. Lefevre 1870: v-vii). The Stock Exchange was the heart of the social organism, recycling money in the same way the heart recycles blood (p. 243). ‘The stock exchange is the expression of public credit. The public credit is the expression of society’s state of progress. In our era, so material and so progressive, everything must converge toward the stock exchange. It’s like the heart which, in a great body receives life and diffuses it throughout all the limbs’ (Regnault 1863: 210).

Thus, the right to invest, grounded in human nature, was presented as an argument in struggles for widening social access to financial investments. In the late nineteenth century United States, the fights between bucket shops and official stockbrokers included the argument (coming from the bucket shops) that small investors have a right to accede financial investments and that bucket shops were fulfilling an important social function (Hochfelder 2003).

The figure of the investor as endowed with rights has come to play a significant role in the regulatory debates triggered by the Enron scandal (see Richard Swedberg, Chapter 9 in this volume). The regulations concerning fair access to financial information (like the Sarbanes-Oxley Act of 2002) rely
on the assumption that smaller investors have a right to true information if financial markets are to allocate resources efficiently. The (information) rights of investors have to be protected as a necessary prerequisite of efficient mar­kets (Spencer 2000: 104-5). With that, financial economics has transformed the issue of rights from a moral and legal topic into a scientific one: rights are embedded into the normative model of market efficiency.

Increasingly, the political economy of the nineteenth century acknow­ledged financial investments as an economic activity. Whereas for Adam Smith and other late eighteenth century thinkers, they were situated outside the economic sphere, political economists a century later began acknowledg­ing financial markets as a key social institution. The most prominent figure here is perhaps Walter Bagehot (1874), though by far not the only one (e.g. Proudhon 1854: 31). This recognition meant that the investor was now conceived as an economic actor fulfilling important functions: his behavior is accounted for in terms of rules, not of emotions or whims (see Figure 7.2). The investor keeps the market moving, attracts capital which otherwise will

			Permanent attention Concentration Examination Analysis Swift response
	Investment manual Business report Economic treatise Price charts

 

The Investor: Scientist Focused person Military strategist Planner Economic man Speculation as feature of human nature Speculation as creative social force ¹ Right to speculate

Price-recording technologies Expanding technological network Body techniques related to attention and observation

Figure 7.2. The Field of Investing in the First Globalization Wave

Above all, it is stagnation that we dread in the financial market, since with stagnation business is paralyzed and values vanish. The speculation, by contrary, by its sudden movements, its vain alarms, its failed illusions, its unexpected chances, its alternatives of high and low, keeps financial activity going and attracts on the stock exchange cap­itals which otherwise would be idle. Not only that speculation prevents markets from being invaded by apathy, but it also helps avoid the dangers of too high differences which menace from time to time public fortune; because, in the time of foolish trust, speculation coldly calculates tomorrow’s deceptions and multiplies its sales; in moments of blind panic, speculation foresees the return to trust and doubles its acquisitions. (Guillard 1875: 539-40).

The acknowledgment of the investor from the left of the political spectrum does not mean that all tensions and criticisms against investing vanish or that all political doctrines suddenly embraced the investor. Nineteenth century US progressivism, for instance, was a vocal critic of speculation in commodities derivatives and of grand speculators (less so of stock markets). The field of investing was not void of tensions; representational modes like pamphlets and satire do not disappear. They continue to exist, but on the fringes of the field; the investor as a fool, an insider, or a manipulator are still with us. But they are counterbalanced by the strategist, the scientist, the planner: he who is not a scientist and a planner is a foolish investor nowadays. In other words, this field generates normative categories of action with respect to which other action paths are constructed as deviant.

Conclusion

I have argued that the cultural legacy of the first globalization wave consists, among others, in the figure of the investor endowed with universal legitimacy and validity. It relies on the interrelated, universal principles that investment is a science and investing is grounded in rights. These principles may obscure the fact that deceit, manipulation, and inequality in the market are still very much with us. But they also open possibilities for action which otherwise would not be there: witness contemporary struggles around investor rights, access to financial information, and correct (true) information. If we would still believe that investing is knavery, fraud, and deceit—that these are perfectly legitimate means in financial transactions—we would accept loss of lifetime savings in financial scandals like Enron as normal. But we do not accept it as normal; we believe in the right to access true financial informa­tion, to study it, to make informed decision, and to defend our rights in the marketplace. We believe in the right to pursue in justice deviants from this norm. The cultural legacy of the first globalization wave (universally valid knowledge and rights) is still with us.

Investor as a Cultural Figure Notes

1.  The main characteristics of the first globalization wave are price convergence and market integration (O’Rourke and Williamson 1999: 2, 4; Rousseau and Sylla 2001: 7). While price convergence means a historically narrowing gap in real wages and cost of capital between the two sides of the Atlantic, integration designates the increasing interdependence (and reciprocal influence) of capital, production factors, and labor markets. This means, among others, that events in one market influence prices in other markets, and that this process gains in speed, so that the time gap between price changes in different markets narrows too. The first global­ization wave is also characterized by social and economic transformations which led to the territorial diffusion of investment activities, their broader social out­reach, and a considerable increase in the number of investors. These transforma­tions, which cannot be detailed here, include the consolidation of the nation-state (Neal 1990), economic policy favoring joint-stock companies (Dobbin 1994; Alborn 1998), international migration (Wilkins 1999) and urbanization, and the rise of the news industry (Blondheim 1994; Leyshon and Thrift 1997). Economic historians however, have been quick to notice that factors like urbanization, international migration, the electric telegraph, or economic policy, while import­ant, are not enough. As Jonathan Baskin and Paul Miranti (1997: 134) put it, market integration and the attraction of capital from wide geographic areas presuppose ‘procedures enabling investors to evaluate the underlying worth of traded securities’ in the same or similar ways. These procedures imply a knowledge framework mutually recognized and accepted over such an area: in other words, one with global features and a potential for expansion. In this framework, finan­cial investments are acknowledged as socially legitimate and even desirable; moral doubts are, for all practical purposes, suspended; social actors can make sense of investing with respect to their personal and social lives.