Prices are beautiful, but the modern financial landscape is grotesque.
INFINITY is the ENEMY is a creative effort by artist and entrepreneur t.Rutt to ask: Is physics harmful as it is currently applied to financial markets?
t.Rutt argues that the imposition of laws from Newtonian physics into economics has deeply damaged the ability of financial markets to express empirically healthy prices. The resulting form of financial anti-empiricism was, first and foremost, caused by the Black Scholes Merton model (BSM), which injected thermodynamics and the strange notion of infinite time into financial price modeling. Every day, the BSM model affects the moment-to-moment pricing for over $750 trillion worth of financial assets. Through the boundary conditions it mandates and the hedging behavior it induces, Black Scholes Merton colors and shapes the entire global financial landscape.
The foundation of the Black Scholes Merton model mandates that the boundary condition for pricing financial assets must use an assumption that “time equals infinity.” Or, as Paul Samuelson and Robert C. Merton dictated in 1969, “T = ∞.” However, every day financial prices change within billionths of a second. Consequently, the artist imagines that financial time constantly approaching 1/∞ (time = 1/∞ ) is a more rigorous view of the time within all financial prices. t.Rutt believes that this reality about the hyper-fluidity of financial time liberates and empowers financial markets to discover greater truths about financial prices. The validity of the BSM regime and all arbitrage pricing models is entirely dependent upon an accurate determination of where financial time truly resides on the following continuum:
Like physicists who constantly ponder whether the arrow of time points outward or inward, t.Rutt calls for fresh thought about the financial arrow of time and about which direction it points. t.Rutt implores financial markets to turn away from those physics-based models like Black Scholes Merton that hope for Newtonian notions of “equilibrium.” The beauty of financial markets lies in the hyper-short price equilibriums that they create and re-calibrate every millisecond of every day. This form of “financial disentropy” (where the time between new quantum equilibriums is always approaching 1/∞) sees Einstein’s notions of relativity as the true design of the financial landscape. For healthier financial markets we must re-embrace our uniquely human compulsion to seek and create disentropy. Only then will we empower ourselves and our markets to discover and create the most truthful financial prices.
t.Rutt believes that we all know that financial time does not equal infinity. The artwork probes further into this reality and demonstrates that the false arbitrage boundary created by BSM’s misuse of infinite time has grossly overpriced financial assets, especially derivatives. t.Rutt estimates that the resulting “Infinity Tax” has wasted between $14 trillion and $75 trillion since the dawn of the Black Scholes Merton era in 1973.
INFINITY is the ENEMY also explores the difference between scientific discovery and artistic discovery. The artwork asks why human financial price discovery isn’t perhaps much more like the process of artistic discovery than the process of scientific discovery. t.Rutt argues that human knowledge exists along a continuum between Art and Science. Art is about the discovery and creation of physical things and experiences reliant on human influence of both the creator and the observer. Science is about the discovery and explanation of physical things and experiences, often devoid of human influence. The artwork poses fundamental questions about where the “social science” of economics and finance belongs along this spectrum between Art and Science. Are financial markets discovering prices that are lacking human interaction, or are financial markets always being created by humans?
The artist’s name, t.Rutt, is a reference to Marcel Duchamp’s “R.Mutt” signature on his famous urinal, Fountain. In 1917, Duchamp shocked the New York art world when this “artwork”, a urinal placed on its side, was rejected from an art society’s exhibition that claimed no piece would be turned away. This rejection confirmed Duchamp’s suspicion that certain elite gatekeepers of the art world were harmfully dictating what was and was not considered to be “valid art”. With Duchamp’s audacious use of a urinal to confront the art establishment, he is credited with having launched the modern art movement. Just like Fountain in 1917, t.Rutt’s artwork illustrates context’s influence over content and urges viewers to consider the content of Newtonian physics in the context of modern finance. Although economists are enraptured with physics, is it really possible for the “hard science” of physics to be valid in the very human field of economics? And, like the question about where to put a urinal, in the context of time does infinity belong in the numerator or the denominator?
INFINITY is the ENEMY also asks broader questions about infinity and how it can distort our ability to understand our world and ourselves. If the magical allure of infinity overpowered the ability of famous economists to think clearly, how might infinity be distorting our lives and how we see our world? Is the likelihood that time is always infinitely short a wonderfully liberating insight that we should all embrace?
The artist and author studied at the London School of Economics and holds a graduate degree from Princeton University.