The human face of finance

Book review of 'The Wisdom of Finance'

The Wisdom of Finance

Discovering Humanity in the World of Risk and Return

Mihir Desai  

Hatchette 

Rs 599; 223 pages

For four years, I taught a course in economics at the Asian College of Journalism in Chennai. Very early on I discovered that one of the most difficult things in the world is to make a dull subject such as economics interesting for students who have not been previously exposed to it. 

Mihir Desai, who teaches at an altogether more exalted institution, the Harvard Business School, has found a way to do this. This little book is not about economics, though. It is about something even duller: Finance. 

Mr Desai has tried to make it interesting. Instead of using intimidating things like algebra and geometry, he uses stories. From Dashiell Hammett to Jane Austen to Anthony Trollope, John Milton to Samuel Johnson – all are pressed into service.

As pedagogical devices go, it succeeds very well because it places finance in a social and literary context, albeit of the West. But the issues he deals with – risk and how to mitigate it via insurance – are global. For that reason alone, perhaps, this book should become a must-read for students of finance. 

Or, better still, and before imitations appear, perhaps Mr Desai should attempt a similar book with Indian stories. The Panchatantra would be a good place to start. I can even suggest a story or two from it for him.

One is where the lion asks some animals if his breath stinks. The sheep says yes and is eaten by the lion for telling the truth. Seeing this, the wolf says no and is killed for lying. The fox sees the wisdom of hedging and says he has a cold and can’t smell a thing.

Another is about the fox in the lion’s den. “I say, old chap,” urges the lion, “why don’t you come closer?” After some hemming and hawing the fox replies: “Boss, there so many footprints going in but none going out.”

The moral, at least for un-hedged Indian companies: Don’t take risks till you know how to de-risk.  

Mr Desai says finance is everywhere in our lives, which is true. He also says those who practice it are regarded as moral lepers, which is also true but less so. 

So he has taken upon himself, like those who promise to remove stigmata, to rid finance of its terrible reputation as being the natural habitat of cheats, charlatans and chors. 

This idea has gained credibility in the US in the aftermath of the crash of 2008. This happens when you use money to produce more money and big but notional profits.

This is such a pity, writes Mr Desai and asks: Where would the world be without finance? To quote him, “How do we recover a sense of the virtues of finance so that the practice of finance can be improved?” 

After much wondering about how to convince people that finance is not all, or mostly, about crooks, he hit upon the idea of using literary stories. 

He gave a successful end-of-term lecture linking “life to finance” but faced a new problem when he decided to write a book about it. How could he make it lively enough to achieve the objective he had set for himself, namely, to restore, even if partially, the fair name of finances? 

He decided to do it by taking examples from romance (M&As), literature and philosophy. The result, not least because the writing is so friendly, is just the sort of thing you can take on a short flight, or in your car as insurance against the boredom of a traffic jam. Of course, you would need to be chauffeured. 

There are also some new insights into major historical events. For example, this is the first time I learnt that the French Revolution was the direct result of Louis XVI’s fiscal policy.

His government could not pay the promised annuities to those who had subscribed to its bonds. They were incensed enough to abolish monarchy from France. 

The story of these annuities is fascinating and you will have to read the book to discover the lessons they offer. Suffice it to say, governments have to be careful when they borrow directly from their citizens.  

The Indian government, for example, is very sensible. It borrows from the banks it owns.   

That said, the attempt appears just a little contrived in one or two places. But that’s a risk you can’t insure against, either as a writer or a reader.

Bon aperitif!