The guiding methodological idea of this book is to make a comparable interdisciplinary connection. Instead of using natural science as the paradigm for the study of finance, we want to make a connection between finance and philosophy. By re-describing the functioning of financial markets in philosophical term, we want to open up the field to an application of philosophical models and concepts. This application is primarily structured around Slavoj Žižek’s distinction between real, symbolic and imaginary.

Modern finance is a discipline of great systemic complexity and methodological rigour. These qualities have come about largely through the appropriation of mathematics and the empirical natural sciences as the methodological foundations of the discipline. What philosophy has to offer in the study of financial markets is certainly neither of these qualities. Some might even argue that philosophy is characterized by the opposite qualities: speculative analysis and haphazard methodology. While I do not concur with such a view of philosophy, it is indeed the case that the purpose of this investigation is not to support the widespread self-conception among scholars in the field that finance is really a sub-discipline of the natural sciences. Perhaps the purpose of the analysis may be summed up in a very old-fashioned Marxist way: the unveiling of the ideological component in the functioning of financial markets.

The analysis starts with the question: How does money function in financial markets? This is not necessarily a philosophical question. It could just as well initiate an economic analysis. The difference between the philosophical and economic analysis turns on the way we hear the question. Both the philosophical as well as the economic analysis may start out by understanding money in terms of the distinction between value and price. The economic analysis might explain the functioning of money as the pricing of valuable assets. One of the key competencies in economics and finance is the ability to compose models for estimating the price of valuable assets. Black and Scholes’s option pricing model, which we will return to, is perhaps the most prominent of such models in the history of modern finance. Thus, the economic analyst hears the question about the functioning of money in financial markets as, ‘How are valuable assets priced in the market?’

In the terminology of Heidegger, economics is an ontic investigation of the question of money. It translates the question of money into ‘what does money do’. The ontic is an investigation of beings (Seiende) in terms of their ‘what-ness’ (Was-sein). Hence, economics will provide an answer to the question of money by unveiling the pricing mechanisms inherent in the market. Our philosophical approach to money is an ontological investigation, as we are concerned with the very ‘to be’ (Sein) of money. Although we will investigate money in relation to the distinction between value and price, the main purpose of this analysis is to map out the functioning of the market in terms of the interrelation between different ontological domains, which is the very precondition for the phenomenon of money. The question of money is broken down into a series of questions: What is value? What is price? What is the market? The philosophical answer to these questions comes about by assigning each of the components to different ontological domains and explaining their interrelation. To help us turn money and financial markets into objects of philosophical study, we shall invoke the thinking of Slavoj Žižek, in particular his distinction between three ontological orders: the real, the symbolic and the imaginary.

Applying Žižek’s thinking to finance, we can conceive of financial markets as systems of symbolization. In their simplest form, financial markets refer to different underlying assets in the productive economy. A stock refers to the assets of the company that has issued the stock, and it entitles the holder of the stock to a share of the cash flow generated by these assets. A bond refers to the debt of a nation, and it entitles the holder to the cash flow generated by the interest payments on this debt. When a stock or bond is traded at a certain price, this price functions as a symbolic representation of the value of the underlying assets and the value of the expected cash flow.

The meaning of Žižek’s notion of the symbolic becomes clear only when we think of it in relation to the order of the real. Along these lines, we can think of the relation between securities in financial markets and their underlying assets in terms of the distinction between the symbolic and the real. Prices, as established in financial markets, are symbolic expressions of the real value of their underlying assets. Žižek defines the symbolic as a system of signs that emerge as the real is integrated into a social order of language, meaning, law, etc. However, as anyone who has even the slightest experience with financial markets knows, value is an extremely elusive concept. We might even suggest that it is the very elusiveness of value that generates financial trading.

According to Žižek, the operation of symbolization is not determined by qualities inherent in the symbolized objects of the real. On the contrary, certain paradigms of meaning and regularity are reproduced within the symbolic order on the basis of structures inherent in this order. In this respect, Žižek concurs with mainstream social constructivist thinking, as represented by figures such as Wittgenstein, Luhmann or Foucault. If we observe here Žižek’s distinction between the social reality and the real,² we see how the symbolization of the real is a social construction of reality. Along these lines, prices in the financial markets are not determined by some kind of value absolutely inherent in the real assets. Prices are rather social constructions of reality. Prices are determined by market-immanent mechanisms rather than independent qualities of the real.

As the real is transformed into the reality of our social world, the real is at the same time lost. Symbolization bars our access to the real. There is here an affinity with Heidegger’s idea that our preoccupation with the world as beings prevents us from experiencing the world in its immediate ‘to be’. Once the real has become integrated into the symbolic order of language and meaning, it is inaccessible in its immediate and undifferentiated state. We may compare this to the way that the sound and rhythm of a voice eludes us once we become occupied with working out the meaning of the words spoken by the voice. In the world of finance, we see how the trading of stocks at the exchange is typically carried out with regard to nothing except the price and expected future developments in the price of the stock. This means that the qualities of the underlying company are effaced to such an extent that they have no bearing on the price. We thus see how the introduction of a company into a stock exchange sometimes has the effect of diverting the attention of management and owners from the social, ethical and environmental aspects of the company’s activities, narrowing their focus to short-term fluctuations in the stock price. The effect of effacing the qualities of underlying economic entities is further magnified when trading moves into the sphere of derivatives. These financial products, to which we shall return, do not even refer directly to real existing economic entities, but merely to rights and obligations involved in the trading of other financial products at specified future points in time. In the virtual reality of derivatives trading, the real existing economy is often reduced to a mere abstraction and thus lost from view.

Still, it would be a gross oversimplification to reduce financial markets to mere social constructs. In the fluctuations of financial markets, there is a constant interplay between market-immanent forces and events outside the markets. Žižek’s distinction between symbolic reality and the real is well-suited to theorizing this interplay. The point where Žižek breaks off from mainstream social constructivist thinking is in his insistence on the incompleteness or even the impossibility of every system of symbolization. The relation between the real and the symbolic is characterized by an ontological imbalance. On the one hand, symbolization bars our access to the real. But on the other, there is in every operation of symbolization a leftover in the form of a surplus or a deficit of the real. Thus emerges the strange paradox that the real is something we can never reach, but also something we can never get rid of.

This paradox captures the condition of the financial speculator. Sometimes prices in financial markets seem to move independently of the real conditions of the underlying assets. For instance, there may be a drastic increase in the stock price of a company on a day when there no new information is released about the operation of the company. In such cases, the market seems to have taken on a life of its own. At other times, the market is extremely responsive to external events related to the real assets being traded, and new information is immediately registered in stock prices. In philosophical terms, the...