Postmodern art, postmodern finance?

In a recent issue of The New Yorker, John Lanchester equated financial derivatives with postmodern art and literature. (See "Melting into air," Dec. 10.) In today's financial markets, Lanchester argued, "value" is as difficult to understand as "meaning" in literary deconstruction.

As the author of several books about business and finance, I found this analogy intriguing but ultimately shallow. Just because you can't understand how something works doesn't necessarily mean it's dangerous and you should avoid it. I have no idea what makes a car move forward and backward or what enables an airplane to reach the sky, but I use both routinely to travel from one place to another. I have no idea how the Internet works; nevertheless I make constant use of it.

Bankers' arrogance explained

Lanchester also argues that financial types differ from "artists, sportsmen, surgeons, plumbers, and the rest of us" because people who work with money "can be proved right in the most inhumanly pure way," and therefore they "tend to have such a high opinion of themselves."

But the value of financial assets shifts constantly and with dizzying speed. Today's brilliant deal may look foolish six months later; today's genius is tomorrow's idiot. Even Warren Buffett lost billions this year. My father, who out of sheer inertia kept huge sums in his checking account, looks like a genius since the securities markets collapsed.

In any case, in business (unlike, say, fiction or sports) there are no final chapters, and the only certainty is that every company will collapse sooner or later— even the most celebrated, as recent events on Wall Street have demonstrated. This should be a formula for humility, not arrogance.

Why musicians don't run orchestras

In theory, as I have argued elsewhere, money lacks any intrinsic value and, therefore, financiers would be best advised to perceive themselves as servants rather than masters of the universe. (See Revolution On Wall Street, 1993.) But in practice, their arrogance stems not from what Lanchester calls "the sensation of being proved right" but from the great demand for their commodity. As the late relentless Minnesota entrepreneur Curtis Carlson (he of Gold Bond Stamps, Radisson Hotels, TGI Friday's, etc.) once remarked to me, "Any enterprise requires three components. You need a good idea; you need the talent to execute the idea; and you need the capital to pay for it. Of those three, raising the capital is the toughest part of the equation."

This perception that capital is scarcer than talent (at least in today's marketplace) explains many things. It explains why bankers are paid more than artists or teachers. It explains why orchestras, sports franchises and publications are almost always created by businesspeople rather than by musicians, athletes and writers. It explains why, in the heyday of the junk bond king Michael Milken, his waiting room was always crowded, even at 5 a.m. on a Sunday morning.

Lanchester's closing quip to the effect that Marx was right all along about capitalism struck me as similarly facile. Since capitalism and socialism alike rely on fallible human managers, a calamity in one system doesn't necessarily prove the virtue of the other. I would suggest that free enterprise enjoys an advantage only because its self-correcting mechanisms respond to crises a bit faster than those of collective systems. Ultimately society may develop superior economic models— but they won't be perfect, either.