8. False Gods, Fake Prophecies
Finance is what economists call money; financial economics is the economics of money. Its pioneering scholars emanated from Chicago’s Graduate Business School (GBS) rather than the economics department because business schools paid better. The GBS shaped modern finance, investments, markets, asset pricing, and especially the measurement and management of risk.
In the 1950s, finance curriculums were rooted in institutional arrangements, legal issues, generalization, common sense, and judgment. Sitting through a Harvard case study on finance, Merton Miller complained: “the solution was not obvious to me...it was frustrating to have no sense of a theory...to tie all this material together.”1 Chicago changed that, using ...
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