KARIN KNORR CETINA
University of Chicago, USA
Finance has evolved historically as a distinctive system of activities. If production, consumption, and distribution or exchange – the market interface between production and consumption – are three different spheres of economic activity, then finance is a fourth sphere. It fulfills a specialized function: that of supplying and controlling credit. In a capitalist economy, credit needs to be obtained before a production cycle can start; credit, Keynes argued, is prior to production (e.g., Shapiro 1985, 77). Only after production has been financed can it result in employment income, part of which can then be used to generate savings. Credit can be obtained through two channels: bank lending and financial markets. Manufacturing-oriented economies – such as that of continental Europe, or more specifically Germany – historically developed a financial organization in which bank lending dominated. In Anglo-Saxon countries such as the United States a different pattern emerged, one placing less emphasis on bank lending, while important credit channels were provided by money and securities markets.
The core activities in financial markets are investment and speculation. This follows directly from the credit core of finance. What are bought and sold in financial markets are not consumer goods but financial instruments (e.g., stocks, bonds, currencies) that directly or indirectly provide ...