Volume 20, Number 11
Martin Persson’s research explores how financial models sometimes create what they’re trying to measure.
In 1921 a number of leading economists and statesmen came together to form an organization called the Stable Money League. Led by Irving Fisher, a famous economist of the day, the group put pressure on U.S. Congress to adopt policies to put an end to inflation. Although their ideas were widely embraced at the time, and influenced U.S. monetary policy, none of the bills introduced by the group were passed. If they had, the economic world could have looked quite different today.
Ivey Professor Martin Persson studies accounting through the lens of intellectual history. Most accounting research looks as accounting as an act, such as the preparing of financial statements. Persson looks at accounting as an “actor” that changes how we think and do things in society. In a current research study, he is analysing the financial models and political activities of the Stable Money League, for a paper to present to the 2015 World Economic History Congress in Kyoto Japan.
Today we tend to accept a small amount of inflation as a good thing for economic growth. But early in the last century, many influential thinkers thought that any kind of inflation was a destabilizing force in society. Fisher and his association argued that inflation was a constant and serious menace to the national welfare, leading to strikes, profiteering, and general discontent.
The stable price level movement took place against the backdrop of the gold standard. Although the movement was political, Fisher was an economist whose ideas were based on financial models. Persson is conducting his analysis through the lens of social studies of finance and “performativity.” Financial models are often set up to measure something that already exists. Performativity is the idea that some of these models actually create the very phenomena that they are trying to measure.
An example of performativity is the Black Scholes Model for pricing derivatives. “At the beginning, this model was quite poor in pricing securities,” says Persson. “But as more and more people started using the model it became more accurate.”
In his study, Persson intends to show that some of the models adopted by the Stable Money League to argue for the dangers of inflation might be performative. “I believe that Fisher’s ideas about stabilized money and political activities shaped in part the economic phenomenon it sought to remedy,” he says. “My task is to uncover discrepancies between the financial models and the phenomena they purport to describe.” To conduct his research, Persson is drawing on archival material, including Fisher’s private correspondence, from the New York Public Library, Yale University, Princeton University, and Marist College.
When Persson began his study, he was struck by the prominence and political power of the members of the organization. These included luminaries such as John Maynard Keynes, U.S. President William Howard Taft, Secretary of War Henry Simson, John Moody, founder of Moody’s Investors Service, Thomas R. Marshall, Vice-President under Woodrow Wilson, and Frederic Delano, the uncle of Franklin Delano Roosevelt.
The group had a lot of political support at the time, and might easily have achieved their goals. “They could have substantially changed the way we think about the economy and our economic institutions, such as the Federal Reserve or how we choose to print money,” says Persson.
The overarching theme in Persson’s research is that accounting, economics, and financial models are highly political and central to the way we organize our societies and our lives. His ultimate goal is to get people thinking about the status quo. “How things are organized today are really the result of quite recent decisions,” he says.
Had it been up to the members of the Stable Money League, events would have unfolded quite differently. It’s hard to imagine a current system still based on a gold standard, with a fixed exchange between currencies, but Persson believes it’s important to consider alternative narratives. “People sometimes sense that things aren’t quite right, but they don’t have solutions,” he says. “It’s because we have trouble thinking beyond what’s going on now. Sometimes we need to get more theoretical before we get more practical.”