The Alchemy of Finance

For a few years in the late 1990s, the myth of a New Economy was everywhere. The old economy, with its pesky booms and busts, was a thing of the past, replaced by a new era of infinite prosperity ...

For a few years in the late 1990s, the myth of a New Economy was everywhere. The old economy, with its pesky booms and busts, was a thing of the past, replaced by a new era of infinite prosperity powered by globalization, the Internet, and—most of all—the stock market. Lured on by the promise of a market that would never fall, Americans played at becoming day traders, invested in mutual funds, piled into 401(k) plans. At the time, the idea of “risk,” popularized by economist Peter Bernstein’s 1996 book, Against the Gods, was ubiquitous. Risk made the free ride of the market into a sign of your own virtue and perspicacity. Even though it still had a bit of the frisson of gambling, success in the market wasn’t mere chance: if you were clever enough, picked the right mix for your portfolio, held onto the options just the right amount of time, you too could become wealthy beyond your wildest dreams.

Of course, the downside of risk became evident just a few years later when the tech bubble crashed; suddenly, the 401(k) plans of Enron’s employees looked a lot less appealing than a boring old pension with regular payouts. But its allure did not disappear, either for bankers or for people eager to hold onto (or attain) a middle-class life—a proposition that seemed more and more of a long shot. The draw of risk reappeared with the expansion of mortgage lending in the early 2000s, following the tech-bubble crash. This time, it was accompanied by the promise of security. Investors in mortgage-backed securities sought to “pool” economic dangers, making it easier and safer to make home loans by spreading out the risk of default. And for the people buying and refinancing their homes, the purchase represented a way to hedge against the risks of life by owning a valuable financial asset—one that doubled as a dwelling place. Yet, as we all now know, these efforts to manage risk wound up making the economy as a whole far more unstable and dangerous.

Subprime mortgages, mutual funds, and 401(k) plans are all relatively recent financial inventions. So, too, is the idea that the model for an individual life should be that of the stock market entrepreneur. But the story of risk, as Jonathan Levy shows us in Freaks of Fortune: The Emerging World of Capitalism and Risk in America, is anything but new. Levy traces the evolution and popularization of the idea of “risk” from the early nineteenth century, which he sees as the origin point of our contemporary American entanglement with finance.

The new economic order of rising capitalism was as uncertain and dangerous as the world of the oceans once had been, fraught with instability, recession, panics, and booms.

At the start of the nineteenth century, risk was primarily associated with marine trade, the unpredictable, chaotic world of the seas. By its end, the idea that being a responsible, free individual meant assuming your own financial risk had penetrated all parts of American society. As Levy puts it, the new economic order of rising capitalism was as uncertain and dangerous as the world of the oceans once had been, fraught with instability, recession, panics, and booms. To cope, people sought out ways of managing risk. New financial instruments were created—insurance, futures contracts, profit sharing—and new ideas of selfhood came about, as people began to understand themselves as individual financial agents navigating a dangerous, though exciting, world.

In contrast to older histories of capitalism that focus on changes in property ownership, the class structure, or the expansion of the market, Levy deals with financial institutions and the rise of a network of financial relationships. His interest in these, though, is not so much their economic function as their cultural and intellectual influence. The question is not how futures contracts changed the economy, but how they both invented and were part of a new way of thinking about time and about material reality. Insurance is interesting to him as a way of understanding how people came to consider their lives and labors as assets—commodities to be insured. The interlocking history of the rise of accounting and the abolitionist movement suggests something important about new ideas of freedom. Levy’s purpose is to think about and take apart the daily reality and underlying assumptions of life and selfhood under capitalism, and to show the history that lies beneath our most mundane conceptions of ourselves. “Analyzing the nitty-gritty details of new financial practices demonstrates how risk burrowed into popular consciousness,” as he puts it.

In this way, Freaks of Fortune is an excellent example of the recent move in American historiography toward writing the “history of capitalism,” which promises to jettison the divisions between labor, economic, and business history, offering instead an expansive vision of how to write about the political, cultural, and intellectual meaning of the economy. These histories seek to undo the economist’s image of the market as a space that transcends history, in which categories such as “risk” are essentially timeless, by showing how much of what we take for granted as natural today is in fact the product of historical change. Freaks of Fortune is not just an important book in its own right, but a model of a new kind of scholarship—and accordingly it offers a chance to think about both the insights afforded and the questions raised by this new approach.


The story of the rise of capitalism in the United States over the course of the nineteenth century—the transformation of the United States from a rural, agricultural backwater  to an industrial behemoth—is one of the great narratives of American history. It can be told from the right, as a triumph of commercial ingenuity and can-do Yankee spirit, or from the left, as a declension narrative of the fall away from a democratic past. Either way, it is one of the central themes of American history.

But the familiar narrative appears new in Levy’s telling, because of his emphasis on finance. His central concern is less with inequality than with the instability and rapid fluctuations of the new commercial order, the way that it opened up the future and made it a realm of uncertainty, and the myriad efforts of nineteenth-century Americans to seek some material security within the chaotic new economy. The Industrial Revolution is not at the center of his story, which is focused to a surprisingly large extent on the transformation of the agricultural economy by finance. And in contrast to historians such as Jackson Lears and Ann Fabian, who have explored the obsession with risk and chance in the late nineteenth century by examining the cultural fascination with gambling, so apparently out of step with the sober morality of the commercial ethos, Levy offers a different way of thinking about economic culture—one that is grounded in legal decisions and financial relationships rather than art and literature, the mainstream instead of the underground. What readers may find surprising is that, for Levy, finance emerges as a tool to contain the turbulence of the market. The book, he suggests, tells the story of a “countermovement” against the rise of market society. On one level, many people were drawn to “the existential thrill of taking a risk.” The tantalizing prospect of self-invention, the idea that one’s social status was determined by one’s own actions instead of inherited from the past, seemed to open up a new landscape in which the distribution of economic resources reflected individual virtues.

Levy sees the dream of landed independence as an effort to find a form of security that could transcend the new “economic chance-world.” Even slavery appears to him a “hedge” against the market.

The assumption of risk came to be freighted with moral meaning, a “liberal ideal of self-ownership” according to which people were essentially responsible alone for their futures—the “master of their own personal destiny.” Yet this isolation, while bracing, was also terrifying. Desperate to find security, some people stepped outside the marketplace: to the hierarchies and mutual obligations of the family, to the religious idea that the world unfolded according to the plans of God rather than human choice, a divine Providence that shaped people’s ends and guided their lives. Levy sees the dream of landed independence as an effort to find a form of security that could transcend the new “economic chance-world.” Even slavery appears to him a “hedge” against the market. Although these preceded the nineteenth-century world, Levy suggests that they were transformed by the new insecurities of life in the fully commercial society.

But even as some people tried to retreat from the market, others began to seek ways to regulate and contain their risks within the new financial order itself—by purchasing insurance, taking out a mortgage on the farm, or trading futures on agricultural crops. All these seem to Levy to be efforts to manage the inevitable insecurity of life under capitalism by using the tools and instruments of finance. Yet these financial instruments also tend to facilitate speculation, and so they ultimately undermine collective long-term security, even as individual fortunes may be won (or lost).

Freaks of Fortune begins with the slave trade. The merchant capitalists of the eighteenth century, Levy argues, developed multiple techniques for coping with the financial uncertainty that accompanied long-distance commerce. Traders could purchase insurance to cover the costs of various kinds of losses that came from doing business on the waters—the “perils of the seas,” the storms, floods, or other acts of God that could ruin the cargo while it was in transit. But slavery posed a special problem: how to think about slave revolt? Was this a risk that could be insured against, and, if so, how could one admit the possibility of rebellion while at the same time insuring the human cargo aboard the ship? Looking at the legal arguments made by insurance companies after an 1841 slave mutiny, Levy shows that the insurers tried to argue that in the act of rebellion, slaves were reclaiming their own “risks”—their own futures, which made it impossible for them to be considered property (and which meant that the insurer didn’t need to pay).

In this way, among others, slavery came to be the institution against which freedom would be defined in the late nineteenth century. Yet, with a focus on risk, freedom would not be seen so much in terms of landed independence, self-sufficiency, or even control over one’s own labor; rather, freedom came to be a question of the ability to shape a future life for oneself. Being free was at heart a question of the individual’s relationship to time, and to the uncertainty of the unknown.

The book then moves through the tumultuous history of the nineteenth century, through a series of chapters that read a bit like independent meditations on the theme of risk and on the role of finance in both managing risk and at the same time opening people up to it in new and unexpected ways. We learn the story of Elizur Wright, an American abolitionist who helped bring life insurance to the United States. We see Reconstruction through the story of the Freedmen’s Bank, a savings bank where freed slaves were encouraged to deposit their new earnings (it failed in 1874, brought down by the panic and depression of the previous year, shortly after none other than Frederick Douglass assumed its presidency). The ability to save would demonstrate that the former slaves had truly taken control of their lives and futures. As the first president of the bank put it, “Slavery prevented all forecasting of thought,” but with emancipation “a change has come.” What was more, many in the North hoped that financial independence would replace the freedmen’s dream of landed autonomy based on potential government redistribution of the planters’ lands.

Levy explores the westward expansion of the country by looking at the story of the mortgages that underwrote new farms, and the “mortgage-backed securities”—long predating those that drove the financial crisis of 2008—that helped to finance the move west. (He also suggests that the new life insurance companies played a major role in financing this move; thus again he links the financial innovations of the east to those that drove the market into every aspect of western farm life.) He looks at the fraternal societies of the late nineteenth century, which he argues were a working-class rejection of the actuarial science of insurance. And he writes about Progressivism through the figure of George Perkins, a vice president at the House of Morgan who proselytized in the early twentieth century on behalf of profit-sharing plans, or what Levy calls “finance-led, corporate socialism.” Through owning stocks, American workers could buy into the risks that their companies pursued. By World War I, however, even Perkins had turned his eyes toward the federal government as the one institution that could effectively manage risk.

The phrase that provides Levy with his title captures the underlying nineteenth-century uncertainty about the moral legitimacy of capitalism.

Perhaps the best chapter in the book deals with the fierce controversy at the end of the nineteenth century over the Chicago futures markets, which were initially seen as vehicles for speculation and faced many legal challenges. None other than Justice Oliver Wendell Holmes ultimately wrote the ruling that legitimized them. The new markets in “futures” transformed the very meaning of the economy itself—turning thoughts about prices into financial products to be bought and sold, echoing the intellectual revolution of Pragmatism, in which ideas about the world came to be as important as some kind of objective, external reality: “The uncertainty of a particular financial transaction modeled the fundamental metaphysical uncertainty of the universe.”

Taken as a whole, Freaks of Fortune reveals a nineteenth-century world that is eerily reminiscent of our own. There is the same sharp ambivalence about finance and debt, the same longing for wealth mixed with a sense of the unpredictability and unfairness of the marketplace, the same entanglement of aspiration and anxiety. The phrase that provides Levy with his title—“freaks of fortune,” often used in the mid-nineteenth century to describe people who seemed able to capitalize on the chance to become phenomenally wealthy, or, conversely, who lost all their money through little fault of their own but simply because of the vicissitudes of the market—captures the underlying nineteenth-century uncertainty about the moral legitimacy of capitalism. In this new economic order, “the freaks defied every possible moral explanation for why an individual might become very rich or very poor.” There was a morality to risk, an ethical imperative to take responsibility for oneself in an uncertain world, not to mention a sheer excitement to flinging oneself into the gears of chance. But at the same time, the very riskiness of capitalism made it seem random, unpredictable, inherently perilous and amoral. Faith and certitude drained out of the world; several of the people whose stories Levy tells begin as evangelicals and wind up as atheists.

In his epilogue, Levy compares the nineteenth-century world of the “freaks of fortune” with our contemporary economy. Coming directly after the Great Crash, the New Deal (especially through Social Security) sought to tame the ferocity of the market: “It stumbled towards constituting the nation as a risk community, thereby making baseline economic security a fundamental right of American citizenship.” Postwar American capitalism was much less tumultuous than that of the nineteenth century, characterized by steady growth and mass consumption. But then, in the 1970s, that changed. And even before the recession of that decade heralded the end of the postwar economic order, there had been hints of hostility toward managed capitalism throughout the postwar years from people across the political spectrum—from C. Wright Mills to George Gilder—who yearned for “a reinvigoration of the old link among freedom, self-ownership, and the personal assumption of risk.” The era of the “freaks of fortune” was not past, but prologue.


Freaks of Fortune is a compelling book, one that uncovers a vast amount of primary material and offers a new interpretation of the nineteenth century. Yet the very strengths of the book raise questions about what it means to write the “history of capitalism,” and how this new approach differs from older ways of thinking about political economy. In a way, Levy’s very focus on risk reflects the historical changes he touches on in the book’s epilogue, namely the transformation of the American economy that took place in the 1970s and 1980s: the deindustrialization of the Northeast and Midwest and the simultaneous explosion of finance as a source of profit, as described by sociologist Greta Krippner. Our fascination with the idea of risk and our sense of its centrality in contemporary capitalism reflect these shifts in the structure of economic life, as do the decline of collective forms of security and the sense that each of us is on our own. Risk feels relevant because the economic landscape today seems so unstable, built as it is on consumer debt that papers over underlying inequalities, powered by speculative bubbles and profits generated through finance alone, with the markets seen as being at least as powerful as the state.

The scholarly turn that has produced the new “history of capitalism” has a similar historical source. Just as it is difficult to think of risk having its resurgence without the euphoric rise of the financial markets that followed the fall of the Berlin Wall, it is hard to imagine the idea of the “history of capitalism” emerging before the end of the Cold War. The crumpling of the Soviet Union led to a new celebration of capitalism and the free market in the West, the utopianism of which simultaneously opened up the category anew as a subject for study and critique. Historians, sociologists, anthropologists, and even scholars of literature began to write about political economy, seeking to rescue it from economists who approached it in the narrowest possible way. They sought to bring the perspective of history to the study of capitalism, to view it as an evolving social order instead of one universal timeless market, as the economists would have it. Yet, at the same time, in their hands the very category of capitalism has been less polemical and acutely political than it was in those of an earlier generation of Marxian scholars, for whom the central story of capitalism was class conflict. In a way, for at least some of these historians, capitalism is becoming a category the way that modernity is—not something to be for or against, to oppose or to celebrate, but rather the world in which everything operates, the social air we all breathe, whether we like it or not.

The central problem with capitalism is not so much exploitation or inequality, but rather the “generative insecurity and radical uncertainty” that make the system work.

Seen this way, Levy’s book models a particular way of writing capitalism’s history. For him, capitalism appears a mode of being in the world, a new conceptual infrastructure, as much as it is a set of class relationships or an economic order defined by private property and the quest for profit. The central problem with capitalism is not so much exploitation or inequality, but rather the “generative insecurity and radical uncertainty” that make the system work. In this, Levy’s major influence is Karl Polanyi, who suggested that all society would come to revolt against the instability of the free market, instead of Karl Marx, who saw the social classes divided against each other. His major concern is the bizarre, surreal nature of the process of commodification—the way that the market comes to treat life, the land, and even time itself, none of which are “true” commodities, as though they can simply be bought and sold, and the impact that this has on social relationships. Although Levy is keenly aware that the transformations he describes were facilitated by (and made possible) the rise of powerful financial corporations, his emphasis is not really on the banks, the elites who operate them, or the politicians who give them leeway, but rather the small farmers who buy the mortgages, the freedmen who invest their savings, and occasionally the vice president who devises the profit-sharing plan. These characters do not freely choose the social language of finance invented by the insurance companies, futures traders, and banks all operating within a new set of legal rules, but all become participants in the alchemy of commodification; all are destabilized and transformed by it. For to live under capitalism means learning to think of the self, of the family, of time and life itself in ways radically different from the past. To historicize this social order—which claims to be the most natural imaginable, to flourish because it corresponds so perfectly to innate human nature—is to reintroduce history into a world that constantly seems to cast it away.

This analysis of the culture of capitalism from within helps to illuminate the way that the pyrotechnics of finance, rather than being the machinations of distant elites, become part of the way that we all see the world. And yet the virtual absence from Freaks of Fortune of the world of the Industrial Revolution and its class relationships (which are present here primarily as a backdrop, the source of the uncertainty that risk managers sought to hedge against) makes the past too easily comparable to the present: as historian Steve Fraser has argued, the turn to finance in the nineteenth century accompanied the rise of the United States as an industrial power, in contrast to the hollowing out of the manufacturing economy today.  It also raises the question of whether the worldview of risk was really as widely accepted as Levy suggests. Is risk an experience that floats free of class? And does it make sense to write about risk without also exploring as deeply the changes in class structure—especially the rise of a new working class and the creation of an elite on a national scale (and international à la J. P. Morgan)—that were central to the late nineteenth century? For many in the nineteenth century, to say nothing of today, individual risk-taking never amounted to real security. One could make the case that the increasing reliance on financial instruments in the late nineteenth century reflected the weakness of workers in the marketplace, more than an embrace of the principle of risk, just as the turn to credit today is the result of decades of economic stagnation. Viewed this way, finance seems not so much a way of managing risk, but a technique for distributing corporate ownership and economic power (as journalist Doug Henwood argued in his 1997 book, Wall Street). And risk is a very particular way of talking about the world, a rhetorical stance that helps transform the domain of politics into one of individual choices and calculations.

Both the late nineteenth century and the present day are characterized by an economic volatility that seems to go hand in hand with the ossification of social inequality. There is the dazzling inventiveness of the markets, the gripping drama of the upswing and the plunge. Yet at the same time there is stasis: the wild ride never seems to unsettle the static divisions of wealth and power. Freaks of Fortune implicitly raises the question of how we should think about the connection between “risk”—both as a social fact and as a way of thinking about the world—and this social gulf. All the tumult of capitalism and the market in recent economic history has not led to some great upheaval in the social order; on the contrary, it has been accompanied by a solidification of wealth and power at the top. It is as though we assume all the downside risks, while they take the upside ones. Chance may seem to have “the last featuring blow at events,” as Levy quotes Herman Melville in his epigraph. But on another level, risk is a fiction too, and the insecurities of capitalism, like so much else, are distributed far more to some of us than they are to others. icon