Banking on Words

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In this provocative analysis of a pivotal event, renowned scholar Arjun Appadurai contends that the 2008 economic collapse was ultimately a failure of language, despite being driven by greed, ignorance, and poor regulation. He delves into the realm of derivative finance, which has become central to trading and a major focus of blame for the crisis. Through incisive argumentation, Appadurai navigates this complex world, drawing on thinkers like J. L. Austin, Marcel Mauss, and Max Weber to illustrate how linguistic failures contributed to the disaster. His analysis unfolds in four steps. First, he emphasizes the significance of derivatives as a key innovation in finance. Next, he defines derivatives as written contracts predicting future asset prices, highlighting their nature as promises. In the third step, he utilizes Mauss’s concept of the gift and Austin’s theories on performatives to explain how derivatives exploit the linguistic power of promises, transforming money into an abstract commodity value. Finally, he identifies a critical feature of derivatives, particularly evident in the housing market: they can create promises that other promises will be broken. This characteristic fueled a contagion throughout the market, leading to the systemic liquidity crisis we now recognize. With clarity, Appadurai connects the numerical force of money to the linguistic force of our commitments, shedding light on a crucial aspect of t