Sunday, August 9, 2009

The Intellectual Capital Market

An ingeniously crafted article by Philip Gerrans, a reader of philosophy at Adelaide University appearing in the Times Higher Education likens the asset bubble that happened in financial markets with the trading of intellectual capital in the Humanities.

He explains it in this manner
The academy, too, is a market - a large one in which the value of any piece of research is ultimately secured against the world. If the world is not as described or predicted in the article or book, the research is worthless...The academic market is also like the financial market in another way. Stocks trade above their value, which leads to bubbles and crashes.
So what are the safe havens in the “intellectual securities” mart? For Gerrans, the AAA rated bonds would be found in the Science department, as
... stocks in science (the papers, grant applications and CVs that secure appointments, salaries and grant funding) trade fairly close to their real value. It is hard to leverage them because there are a lot of investors who are trying to cash in their investments rather than passing them on to some other dupe and taking a fee. Other scientists want to see if the theorem is proved, the prediction verified, the world accurately described or the technology workable.
And the junk bonds? Well, according to him, this distinction belongs to the Humanities as
a lot of the market is unsecured and highly leveraged. By this I mean that people in the humanities often do not write about the world or the people in it. Rather, they write about what somebody wrote about what somebody else wrote about what somebody else wrote... None of this would matter if the market were basically self-correcting like the science market ... When people do not write directly about the world, it is hard to compare what they say against the world. So the main corrective mechanism in the humanities is reputation built on publication and, since publication is often based on reputation, the danger of a bubble is extreme.
Just as it became impossible to distinguish good picks from bad ones with the bundled financial products called CDOs or collateralised debt obligations, it has become as difficult according to Gerrans for governments and universities to do the same with the “mixed bag” existing in their humanities departments.

(Actually, economists will tell us that the practice of bundling commodities, such as packing apples, performed by sellers, has been created in order to economise on transactions costs by preventing buyers from inspecting each item before making a final purchase decision)

From a public investment point of view, Gerrans argues, what is the point of governments bailing out these departments and forcing those from lower socio-economic families who he claims lack the “marks, self-esteem or cultural savvy to get past the government and university spin” to accept the toxic debt of investing in these fields of “anti-knowledge” when they become unemployable in the end?

Unlike a one-off purchase of a disposable commodity like fruit, the choice of field in higher education is something one will have to live with for the rest of his or her working life (live with the debt at least). Surely better information systems can be put in place to help improve decisional quality of aspiring college and training graduates.


  1. Maybe but research does not have to be right to have value if it shows the way to what is ultimatley seen as correct and Humanities has junk bond value maybe but the Pope is doing pretty well with theology which is one of the Humanities.

  2. Ah, theology, once regarded as the "queen of the sciences". Theologians who once argued over the number of angels that could stand on a pin (prior to Copernicus and Galileo), are now confined to the metaphysical realm to secure their arguments.

    Also, I think that what when Philip refers to the “Humanities” he really means the Social Sciences like Psychology, Political Science, History, etc. where assertions are often made regarding the natural world that are purely out of speculation and not grounded on reality. You can’t really ground nor expect to secure Literature or Art against reality.
    Anyway, it was a nice mental exercise to compare the market place for ideas to financial markets.