The Global System of Finance: Scanning Talcott Parsons and Niklas Luhmann for Theoretical Keystones

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HOW CAN WE EXPLAIN a seemingly limitless growth of financial transactions that "is close to 1500 trillion dollars a day, which is more than seventy times the daily volume of international trade of goods" (Goldfinger 2000: 72)? Does the rapid growth of stock markets mirror economic reality (Lowenstein 1988)? What do we observe: One single defining trend? The shift from tangible to intangible, where the economic landscape is no longer shaped by physical flows of material goods and products but by streams of data, images, and symbols (Goldfinger 2002)? And do those streams of data, images, and symbols exist for and refer to the "real" economy of tangibles? If so, the question is how they interact with the real economy.

The academic bazaar of explanations and interpretations of the evolution of the financial system and its impact on the economy is dazzling and multicolored. Some enthusiastic scholars pronounce that the financial system fosters efficient resource allocation. They grasp the financial economy as a vehicle of creative destruction that promotes innovation and eliminates obstacles to development and growth. Other critical thinkers agree on the destructive nature of money but paint a far more pessimistic picture: they proclaim the financialization of the economy, where financial assets replace and destroy physical assets (Froud et al. 2000; Fligstein and Shin 2004; Stockhammer 2004). Most economists clearly reject this view and instead dedicate their research to verifying and explaining positive correlations between financial market development and economic growth. And indeed, most empirical investigations suggest strong two-way linkages. But classical concepts of asymmetric information, financial liberalization, and market efficiency--notwithstanding their explanatory potential--have answered only too few questions. And many other issues need to be addressed on other theoretical grounds than economics.

What does sociology contribute to understanding the relationship of society, economy, and finance? As early as about half a century ago, Parsons and Smelser (1956) declared that sociology has tools that can help explain noneconomic phenomena in economic settings. And programmatically they noticed that "much study is needed to probe to deeper levels of understanding, but it is a very promising field" (1956: 239). Since then, sociologists have contributed various theoretical approaches to understanding social phenomena and mechanisms in the economic and financial settings of our society. Despite their different epistemological backgrounds, they basically share the idea of modern finance as a social reality sui generis. Anthony Giddens (1990: 21ff.), for instance, perceives financial markets as a central aspect of what he calls the disembedding of social systems, a lifting out of social relations from local and national contexts. In the same way, Manuel Castells (1989, 1996) talks about spaces of flows to conceive the development of strong ties between social actors who are spatially divided, and first of all, he makes reference to financial markets. These spaces of flows bear similarities to Saskia Sassen's (1999) spatio-temporal configurations of dematerialized/digital activities of finance on the one hand and materialized activities on the other. But while Sassen claims interacting and overlapping spatial and temporal orders, advocates of postmodern approaches disagree with interactions, and instead declare the uncoupling of financial markets from the "real" economy (Heine 2001). Along these lines and to put it into metaphorical words, financial markets don't mirror economic reality. They are halls of mirrors, "where reflections of reflections, images of images constitute the only reality that matters" (McGoun 1997: 111). Drawing on Jean Baudrillard's (1983) philosophical works, the hyperreality of finance (McGoun 1997) is proclaimed. Finance has become a "hyperreal" game, an emergent social reality that is not a reflection of the "real" economy any more. …