Since the global financial system blew up in the autumn of 2008, the novelist and journalist John Lanchester has been one of the most reassuring and lucid guides to the baffling and often numbing idiolect spoken by the erstwhile "masters of the universe". In a series of articles for the London Review of Books and then in his 2010 book about the crisis, Whoops! Why everyone owes everyone and no one can pay, Lanchester patiently explained (to those of us who thought we knew but were afraid to try to explain why—in public, at least) the difference between a CDS and the CPI, say, or between a "bull" market and a "bear".
After an interlude during which he published Capital, a "Big Fat London Novel" (his own description) set in the recent past, Lanchester has returned to the topic of "speaking money". His new book, How to Speak Money: What the money people say—and what they really mean, aims to bridge the gap between "the people who understand money and economics and the rest of us." When I spoke to Lanchester recently, he told me he didn't think that had gap had gone away, or even narrowed much, in the four years since the publication of Whoops!
JL: I vowed that I wasn’t going to speak about this stuff again, but I kept being asked to do things in this area. And then it occurred to me that every time I was asked to do something, it always had this common thread of explanation. That was what people seemed to feel was missing. There was a dark comedy element: it was almost always linked to a scandal or disaster—what is Libor? What is a forward-setting ETS? What is the gold spot price? I had a lot of knowledge that I didn’t know where to put, so I thought, “OK, I’ll have one more go at it.”
JD: Someone told me the other day that they’d seen an American edition of How to Speak Money and that it differed in certain ways from the British edition. I don’t know how significant those differences are, but it struck me that, in any case, the Americans “speak money” differently from us …
They do speak it differently from us. One of the main reasons that the landscape of financial stuff in America is different is that gambling is illegal there. So there’s a kind of sport-like aspect to the American coverage of finance. The all-day money channels are amazing. They’re like Final Score! You know—“Oil futures are looking terrible, but copper’s robust. And how are rumours about the iPhone 6 affecting the share price? Over to Mike in Cupertino.”
I wonder if the difference between the way we talk money and the way the Americans do has something to do with the idea of “permission” to speak money that you discuss in the book. You say that “a lot of people don’t feel they have that permission”. But many ordinary Americans do think they have permission to speak money.
I think they do. But because of that it’s also harsher over there. A lot of the things that went on in the run-up to the crash are still happening—they’re just happening in different places. The new big thing that are blowing up is car loans. And there’s a huge problem with student loans being taken on very unfavourable terms.
A Marxist might say that this sense of permission is a form of “false consciousness”...
They probably would say that. A Marxist would also say that it shows that once you lock people up, they can say what they like. The sense of alternatives to the existing order is virtually non-existent. And the pushback against even tiny emendations in favour of debtors, in favour of customers, is absolutely ferocious.
One of the most disconcerting aspects of the financial crisis was that it turned out that many of the main actors in the drama—the CEOs of large investment banks, for example—themselves didn’t understand the exotic financial instruments that had caused the blow-up in the first place.
I agree. It’s not the case that things get less astonishing the more you know about them—it doesn’t normalise it. The more you know about these institutions, their scale and the power they have, and in a way their fragility… once you know them better, it becomes even more astounding. In the most basic and literal sense, they didn’t know what they were doing at the heads of these institutions—you had directors of banks not know what significant parts of their activities were. If you went round and administered truth serum to the directors of the big banks in Britain and Europe, it’d be interesting to see just how clear an account you got. When you look at their balance sheets, you see all this mystery stuff, these derivatives, on both sides. God alone knows what’s going on! Let’s hope they know.
Another theme that recurs several times in the book is the status of economics as a discipline, particularly the claims it makes on its own behalf, the way it lays claim to scientific status. Critics call this “physics envy”. I was interested to see that you prefer to describe economics, in terms you borrow from the conservative thinker Michael Oakeshott, as a “conversation” rather than a hard science.
It’s on a trajectory, economics, towards physics envy, towards being more mathematically based. It’s interesting that undergraduates are now complaining about this. There’s quite a big rumble inside economics about that direction. You turn up as an undergraduate, your little face shining with hope, wanting to talk about Smith, Marx and Friedman, and instead you’re given a bunch of equations, and assumptions about efficient markets, rational actors and so on. “Go forth and build models!” But there’s a built-in tendency to forget that models are models and to take them as the basis for physical laws.
I think it’s more helpful to see economics as [a discipline] that grew out of moral philosophy. There is a moral underpinning to economics. And the kinds of questions that it asks and the kinds of solutions it proposes do seem to me to belong in a more humanistic framework. Oakeshott talks of the humanistic discplines as conversations, cross-generational investigations and debates. Economics is more like that—even the hard numbers. I was reading today that German GDP has shrunk by 0.2 per cent. You’d have thought that’s about as hard-edged a fact as you can find. But actually, at the risk of coming over all Derridean, it has a very contestable status. The whole history of GDP is a series of arguments about this constructed entity. Not long ago you saw a huge jump in many countries’ GDP after they started counting prostitution. On the one hand, with GDP you have about as hard-edged a number as you can find, in terms of the way people measure economic activity, but when you look into it it’s a chaotic, ongoing debate. You can argue about it ontologically—what should be in there?—and epistemologically—how well you can know it? And then practically, historically, the data change. The one thing you can say with complete confidence about the most recent economic data is that in six months they’ll have changed the numbers! And that doesn’t resemble quantum mechanics, where the precisions are absolute. Here, it’s entirely unlike that. All the precisions are artificial. And what the numbers mean is hotly contested.
Wasn’t this one of the lessons of the crisis? You write about the efficient markets hypothesis, for example, and say that it's more a quasi-theological belief than a theoretical model with reliably predictive power.
Right. The hilarious thing about the Nobel Prize in economics last year was that they awarded it to both Eugene Fama and Robert Shiller—the man who effectively created the efficient markets model and the man who proved it not to be true. Talk about hedging your bets! The thing that I think was conclusively disproved [by the crisis] was that the axiom that a problem in a market is contained within that market. I don’t know how obviously false we need that to be, but it is obviously false. The difficulty is, then what?
You discuss at some length in the introduction to the book the way that heightened inequality is almost a prerequisite of what you call “neoliberal economics”. I wondered what you make, therefore, of the extraordinary reception of Thomas Piketty’s book Capital in the Twenty-First Century. Given what you say about the work of the economists Alfred Marshall and Charles Kindelberger, two “heroes” of yours who you praise for approaching the subject "through the prism of history rather than theory or ideology," I take it that Piketty’s empiricist, historicist approach is, for you, part of what makes his work significant.
I totally agree. The historical stuff is… I was going to say “inarguable” but maybe that’s too strong. But even if Piketty’s wrong, he’s right. Even if you can argue about data sets and so on, he describes something that we all feel to be true. He’s provided an exploration of something that we can smell in the air around us. The prescriptive stuff is more contestable, and I don’t feel the same sort of instinctive click as I feel about the historical stuff.
I think you’re right to suggest that Piketty’s prescriptions are much less satisfying or convincing than his empirical and historical analyses. And this is connected, I think, to what you were saying earlier about the dearth of plausible alternatives to the brand of financialised capitalism we’ve been living with for the past 30 years or so.
There was an interesting piece by T J Clark in the New Left Review recently. It was called “For a Left With No Future” and was about the left having been overly preoccupied with distant vistas. Rather than constructing in our heads an ideal order, fixing the things that are wrong with the existing order will have to be enough for now. Broadly speaking, inequality fell for most of the 20th century. It can fall for most of the 21st too, if we make it. But it clearly has to be a conscious, shared ambition.
Isn’t that one of Piketty’s most important lessons—that politics matters?
That’s right. He’s trying to put the politics back in to political economy.
John Lanchester's "How To Speak Money" is published by Faber and Faber (£17.99)
After an interlude during which he published Capital, a "Big Fat London Novel" (his own description) set in the recent past, Lanchester has returned to the topic of "speaking money". His new book, How to Speak Money: What the money people say—and what they really mean, aims to bridge the gap between "the people who understand money and economics and the rest of us." When I spoke to Lanchester recently, he told me he didn't think that had gap had gone away, or even narrowed much, in the four years since the publication of Whoops!
JL: I vowed that I wasn’t going to speak about this stuff again, but I kept being asked to do things in this area. And then it occurred to me that every time I was asked to do something, it always had this common thread of explanation. That was what people seemed to feel was missing. There was a dark comedy element: it was almost always linked to a scandal or disaster—what is Libor? What is a forward-setting ETS? What is the gold spot price? I had a lot of knowledge that I didn’t know where to put, so I thought, “OK, I’ll have one more go at it.”
JD: Someone told me the other day that they’d seen an American edition of How to Speak Money and that it differed in certain ways from the British edition. I don’t know how significant those differences are, but it struck me that, in any case, the Americans “speak money” differently from us …
They do speak it differently from us. One of the main reasons that the landscape of financial stuff in America is different is that gambling is illegal there. So there’s a kind of sport-like aspect to the American coverage of finance. The all-day money channels are amazing. They’re like Final Score! You know—“Oil futures are looking terrible, but copper’s robust. And how are rumours about the iPhone 6 affecting the share price? Over to Mike in Cupertino.”
I wonder if the difference between the way we talk money and the way the Americans do has something to do with the idea of “permission” to speak money that you discuss in the book. You say that “a lot of people don’t feel they have that permission”. But many ordinary Americans do think they have permission to speak money.
I think they do. But because of that it’s also harsher over there. A lot of the things that went on in the run-up to the crash are still happening—they’re just happening in different places. The new big thing that are blowing up is car loans. And there’s a huge problem with student loans being taken on very unfavourable terms.
A Marxist might say that this sense of permission is a form of “false consciousness”...
They probably would say that. A Marxist would also say that it shows that once you lock people up, they can say what they like. The sense of alternatives to the existing order is virtually non-existent. And the pushback against even tiny emendations in favour of debtors, in favour of customers, is absolutely ferocious.
One of the most disconcerting aspects of the financial crisis was that it turned out that many of the main actors in the drama—the CEOs of large investment banks, for example—themselves didn’t understand the exotic financial instruments that had caused the blow-up in the first place.
I agree. It’s not the case that things get less astonishing the more you know about them—it doesn’t normalise it. The more you know about these institutions, their scale and the power they have, and in a way their fragility… once you know them better, it becomes even more astounding. In the most basic and literal sense, they didn’t know what they were doing at the heads of these institutions—you had directors of banks not know what significant parts of their activities were. If you went round and administered truth serum to the directors of the big banks in Britain and Europe, it’d be interesting to see just how clear an account you got. When you look at their balance sheets, you see all this mystery stuff, these derivatives, on both sides. God alone knows what’s going on! Let’s hope they know.
Another theme that recurs several times in the book is the status of economics as a discipline, particularly the claims it makes on its own behalf, the way it lays claim to scientific status. Critics call this “physics envy”. I was interested to see that you prefer to describe economics, in terms you borrow from the conservative thinker Michael Oakeshott, as a “conversation” rather than a hard science.
It’s on a trajectory, economics, towards physics envy, towards being more mathematically based. It’s interesting that undergraduates are now complaining about this. There’s quite a big rumble inside economics about that direction. You turn up as an undergraduate, your little face shining with hope, wanting to talk about Smith, Marx and Friedman, and instead you’re given a bunch of equations, and assumptions about efficient markets, rational actors and so on. “Go forth and build models!” But there’s a built-in tendency to forget that models are models and to take them as the basis for physical laws.
I think it’s more helpful to see economics as [a discipline] that grew out of moral philosophy. There is a moral underpinning to economics. And the kinds of questions that it asks and the kinds of solutions it proposes do seem to me to belong in a more humanistic framework. Oakeshott talks of the humanistic discplines as conversations, cross-generational investigations and debates. Economics is more like that—even the hard numbers. I was reading today that German GDP has shrunk by 0.2 per cent. You’d have thought that’s about as hard-edged a fact as you can find. But actually, at the risk of coming over all Derridean, it has a very contestable status. The whole history of GDP is a series of arguments about this constructed entity. Not long ago you saw a huge jump in many countries’ GDP after they started counting prostitution. On the one hand, with GDP you have about as hard-edged a number as you can find, in terms of the way people measure economic activity, but when you look into it it’s a chaotic, ongoing debate. You can argue about it ontologically—what should be in there?—and epistemologically—how well you can know it? And then practically, historically, the data change. The one thing you can say with complete confidence about the most recent economic data is that in six months they’ll have changed the numbers! And that doesn’t resemble quantum mechanics, where the precisions are absolute. Here, it’s entirely unlike that. All the precisions are artificial. And what the numbers mean is hotly contested.
Wasn’t this one of the lessons of the crisis? You write about the efficient markets hypothesis, for example, and say that it's more a quasi-theological belief than a theoretical model with reliably predictive power.
Right. The hilarious thing about the Nobel Prize in economics last year was that they awarded it to both Eugene Fama and Robert Shiller—the man who effectively created the efficient markets model and the man who proved it not to be true. Talk about hedging your bets! The thing that I think was conclusively disproved [by the crisis] was that the axiom that a problem in a market is contained within that market. I don’t know how obviously false we need that to be, but it is obviously false. The difficulty is, then what?
You discuss at some length in the introduction to the book the way that heightened inequality is almost a prerequisite of what you call “neoliberal economics”. I wondered what you make, therefore, of the extraordinary reception of Thomas Piketty’s book Capital in the Twenty-First Century. Given what you say about the work of the economists Alfred Marshall and Charles Kindelberger, two “heroes” of yours who you praise for approaching the subject "through the prism of history rather than theory or ideology," I take it that Piketty’s empiricist, historicist approach is, for you, part of what makes his work significant.
I totally agree. The historical stuff is… I was going to say “inarguable” but maybe that’s too strong. But even if Piketty’s wrong, he’s right. Even if you can argue about data sets and so on, he describes something that we all feel to be true. He’s provided an exploration of something that we can smell in the air around us. The prescriptive stuff is more contestable, and I don’t feel the same sort of instinctive click as I feel about the historical stuff.
I think you’re right to suggest that Piketty’s prescriptions are much less satisfying or convincing than his empirical and historical analyses. And this is connected, I think, to what you were saying earlier about the dearth of plausible alternatives to the brand of financialised capitalism we’ve been living with for the past 30 years or so.
There was an interesting piece by T J Clark in the New Left Review recently. It was called “For a Left With No Future” and was about the left having been overly preoccupied with distant vistas. Rather than constructing in our heads an ideal order, fixing the things that are wrong with the existing order will have to be enough for now. Broadly speaking, inequality fell for most of the 20th century. It can fall for most of the 21st too, if we make it. But it clearly has to be a conscious, shared ambition.
Isn’t that one of Piketty’s most important lessons—that politics matters?
That’s right. He’s trying to put the politics back in to political economy.
John Lanchester's "How To Speak Money" is published by Faber and Faber (£17.99)
