Banking on Words: The Failure of Language in the Age of Derivative Finance by Arjun Appadurai

CHAPTER ON E
T H E L O G I C O F 
PROMISSORY FINANCE
The Argument in Brief
The principal argument of this book is that the failure of the financial 
system in 2007– 8 in the United States was primarily a failure of lan-

guage. This argument does not deny that greed, ignorance, weak regu-

lation, and irresponsible risk- taking were important factors in the col-

lapse. But the new role of language in the marketplace is the condition 
of possibility for all these more easily identifiable flaws.
To make this case requires understanding how language takes on 
a new life in contemporary finance, and this argument takes us into 
a realm not usually explored when financial markets are discussed.
To understand how language takes on the role it does in finance to-

day, four steps are involved. The first is to show how derivatives are 
the core technical innovation that characterizes contemporary finance. 
Edward LiPuma and Benjamin Lee took an initial step in this direction 
in their important book on Financial Derivatives and the Globalization 
of Risk (LiPuma and Lee 2004). Since then, there have been several 
efforts to define and explain derivatives, both within and outside the 
community of finance experts. The second step is to show how deriva-

tives are, essentially, written contracts about the future prices of various 
types of financial assets, the essence of which are promises by the losing 
party to pay the winning party an agreed- upon sum of money in the 
event of a specific future price outcome. Thus the contract is a prom-

ise, and to understand it fully requires a new look at contracts, seen as

promises about the uncertain future. This requires a re- examination of 
Marcel Mauss’s classic study of The Gift (1990) and a rereading of J. L. 
Austin’s work (1962) on performatives and their conditions of felicity. 
This analysis of derivative contracts brings out the special importance 
of language in the financial marketplace. A third step is to show how the 
derivative form exploits the linguistic power of the contract through the 
special form that money takes in the financial world, given that money 
is by definition the most abstract form in which the value of commod-

ities can be expressed. A fourth and final step is to understand that the 
failure of the derivatives market (especially in the domain of housing 
mortgages) is primarily about failed promises (promises being the most 
important in Austin’s typology of performatives), a type of failure that 
was neither occasional nor ad hoc but became systematic and conta-

gious, thus bringing the entire financial market to the brink of disaster.
This introductory chapter elaborates this argument schematically 
and sequentially. The subsequent chapters look more closely at ideas 
about risk, ritual, salvation, performative failure, and (in)dividuality, by 
strategic rereadings of Emile Durkheim, Marcel Mauss, and Max Weber, 
to specify the links in this chain more carefully and more contextually. 
The last three chapters, about the politics of a different approach to de-

rivatives and dividuals, point to a way of learning a progressive political 
lesson from the linguistic heart of contemporary finance.
The Derivative Form
Our current era of financialization is without precedent in the speed 
and scope of the innovations that have characterized it. Financializa-

tion may be broadly defined as the process that permits money to be 
used to make more money through the use of instruments that exploit 
the role of money in credit, speculation, and investment. Its deep his-

torical roots lie in the epoch of the expansion of maritime trade and 
the growth of the idea of insurance against hazard for those merchants 
who shipped their trade goods across large oceanic distances during 

Banking on Words: The Failure of Language in the Age of Derivative Finance by Arjun Appadurai