The Wisdom of Finance: Discovering Humanity in the World of Risk and Return by Mihir A. Desai (review)

Mihir A. Desai’s The Wisdom of Finance: Discovering Humanity in the World of Risk and Return begins with an epigram not from any of the great social novels of business, finance, or economics, which have been among the most sensitive records of modern financial life, but from a poet who hardly ever wrote about finance at all: “Money is a kind of poetry,” Wallace Stevens had written in a notebook of aphorisms published after his death (CPP 905), a tantalizing but not very illuminating remark that Desai places atop his attempt to “[bridge] finance to the humanities” (8).

Of course, humanists started building that bridge from the opposite bank a long time ago, in a large body of work centrally engaged with the vast apparatus of modern finance: the gold standard, credit, life insurance, speculation, valuation, domestic economy, and those global systems of capital accumulation and exchange that both derived from and fueled centuries of colonialism. Desai’s book is really a spirited defense of finance from the other side of this disciplinary divide, and deserves commendation for taking what is, in his own terminology, a great risk with a rather uncertain return from his own field. With a distinguished career in far more technical forms of financial analysis, Desai ventures into an impressive range of literary texts about finance—not just the old chestnuts—and his readings are often refreshing. The first three chapters describe the financial logic of insurance, options, and asset pricing through an eclectic and engaging literary ensemble: Elizabeth Bennet and Stringer Bell, The Maltese Falcon and the parable of the talents, Stevens and Charles Sanders Peirce. His account of the parable of the talents, and of John Milton’s struggle with its ruthless logic of merit, is especially illuminating. The Wisdom of Finance is at its best at moments like that, when it shows how literature and finance both can struggle to make sense of even the most familiar economic assumptions.

The remaining five chapters take a more practical interest in what Desai often calls the “chaos” or “muddle” of corporate finance, on topics including mergers, debt leverage, bankruptcy, and conflicts between principals and agents. With more frequent reliance on classic business school case studies, such as the bankruptcy of American Airlines after 9/11, Desai weaves his way through Mel Brooks’s The Producers, Shakespeare’s The Merchant of Venice, Willa Cather’s O Pioneers!, and the financing strategies of the artist Jeff Koons, among other exhibits. Uniting all these chapters is the fundamental claim that, as Peirce suggested, the world is fundamentally chaotic, and that finance is better understood not just as money management, but as the whole repertoire of probabilistic methods and practical strategies for preserving value on this teetering planet.

For that reason, Stevens and the field of insurance play a key role at the beginning of The Wisdom of Finance. Insurance is the branch of finance that most clearly stabilizes and socializes, for against the vicissitudes of risk it pools resources and redistributes them to those in direst need. As long as insurance remains sufficiently abstract, as it did for Peirce, this view of insurance as a kind of socially formative system of hedge bets proves persuasive, but at many points in Desai’s book one wishes for more historical detail. Yes, insurance has socializing functions, but in some forms it also conceals horizontal social relations almost completely, which allows everyone to imagine themselves as more individualized after all. Similarly, there are many kinds of insurance, but Stevens’s field of surety bonding did not depend either on probabilism or on the aggregation of risks in any appreciable way. The cases were too few, and the sums too great. Instead, surety bonding depended on having good lawyers like Stevens to wade into the courts after a default and recover whatever assets remained.

It may well be that “For Stevens . . . imagination was the...