Arbitrage is the practice of exploiting price differentials for a profit. Arbitrage is based on the Law of One Price: “in an efficient market, all identical goods must have only one price.” From the arbitrageur’s perspective, price differentials are violations of the law, and they profit from correcting the differences. The most basic form of financial arbitrage is interest-rate arbitrage: taking a loan with a low rate of interest and investing it in a higher-yield investment, pocketing the difference. Most global trade is a kind of labor arbitrage: using labor where it is cheap to produce goods for sale where the labor would be expensive. What I’d like to argue here is that philosophy is an act of arbitrage.
Thales of Miletus is often credited as the first philosopher, and he was also one of the most famous arbitrageurs. His philosophical credentials are largely boiled down to the proclamation that that the first principle of all things is water, which is a One Price assertion that I won’t parse here. But just listen to his business credentials: he was dared by his colleagues to put his abstruse knowledge of philosophy to more practical ends. Some tell the story as the victory of meterology: he concluded in the midst of winter that the coming growing season would yield a large crop of olives, and invested in presses while others were not yet sure they would be worthwhile. Aristotle tells us he used a more fundamental form of arbitrage: raising a small sum during the winter, he was able rent all of the olive presses cheaply before the season had even begun, and then had a monopolist’s position from which to bargain on leasing their use. In effect, he used the differential between winter and summer pricing to make a profit.
To understand this philosophically, we need only pretend that price is information or knowledge: it tells us the demand for a certain good. So if price is a kind of knowledge, and arbitrage is a way to profit from price differentials, then philosophical arbitrage is a way to profit from knowledge differentials. The standard Socratic inquiry is a way of puzzling out the scope of various kinds of knowledge: is virtue one or many, is courage distinct from wisdom, wisdom from justice, justice from virtue? Plato depicts Socrates as a man plumbing the difference between what we believe about one-ness and many-ness, about movement and identity, and whenever he sees an inconsistency, he acts the part of an arbitrageur, profiting from the differnences in price, engaging in argument and telling stories until the two ideas, the two prices, have found a level.
Aristotle is justly famous for demanding that we expand the realm of this kind of inquiry to include not just ‘the things said’ but appearances, the things about which we speak, themselves. He expands the scope of philosophy to include not only mathematics, metaphysics and human interaction, but also human practices and the physical world. He notes that the things we say are often quite different from the phenomena that confront us, and he exploits that difference, again profiting from each of the moments of inconsistency, bringing biology and zoology into partial convergence with political science and metaphysics, trading logic and meteorology and ethics until they have found a level.
This is also what contemporary philosophers do. By comparing the knowledge amassed in the natural and social sciences with the metaphysical assumptions and ethical claims made by philosophers, they engage in metaphysical deflation, betting for and against the ‘special cases.’ When they see inconsistencies, they offer to arbitrage the difference. Lately, this has mostly been in the name of naturalizing our metaphysics, reducing the value of inflated claims of unique mental states and deontological obligations until they are explicable within a physical rubric, each time profiting from the deflation of various dualisms and transcendentalists who prentend that there can be mutliple prices for intentions or deities or art or language.
Arbitrage is a fairly low risk activity, but there are ways to lose out on the deal. When it turns out there there is a difference that makes a difference between national currencies or philosophical ideas, the arbitrageur or philosopher will find that his deflationary trades or arguments no longer have buyers. Just look at Long Term Capital Management, which in 1998 went bankrupt and almost took the world economy with it betting against volatility in the bond market, just when Russia defaulted on its bonds and suddenly an opportunity for arbitrage became a very unfortunate, but real and justified price differential. In philosophy, logical and legal positivism is seen as similarly bankrupt, though it has a few investors still holding out hope for a rally.
My Marxist friends will argue that price is a bit less ideal, a bit more than informational. Prices keep people from eating. Price reflects, or ought to reflect, the use value of goods, the labor required to create and sustain human life and human flourishing. As such, financial arbitrageurs are exploiting those with whom they arbitrage by taking advantage of the way that price is no longer truly informative in the true sense, a floating signifier divorced from reality rather than a hard fact about the food one needs to reproduce one’s labor. There’s little to respond, here, except to admit that use value is information, too, secretly transmited in dollars and euros and baht. This secret transmission alienates us from the work of our lives and flourishing but nonetheless (usually) sustains them.
On my view, Marxists are also philosophical arbitrageurs looking to profit from the last, great price differential: that between theory and practice, between interpreting the world and changing it. Though Marx had reason to distinguish his practice from the rationalism of the 18th century and the idealism of the 19th, his basic insight was Aristotelian: to profit from the difference between between the things said and the appearances, between exchange value and use value. In so doing, they hope to level the expropriative difference between the effort of the working class and the profit of the capitalist. That is why they decry the name of philosophy itself, deflating even the activity of deflationary criticism until it is nothing but the practice of propping up class domination though ideology and propaganda. But philosophy is not just ideology: it’s the practice of facing facts and of ferreting out facts in need of facing.
By now it’s become clear that this metaphorical relationship between price and information is doing a lot of work in my account, converting an economic activity to a contemplative one without transaction costs or explanation. I’ve pushed the analogy until there’s nothing left between philosophy and arbitrage… one price, level between them. Perhaps I’ve gone too far, left no distinction where there ought to be some. The real question we ought to be asking is how to speak of profit meaningully if price is nothing more than information. What, other than perhaps ‘truth’ is the profit for a philosopher who engages in this kind of argument? What is risked, other than error or maybe ridicule?
The hedge funds that arbitrage currencies and exchange rates do more than amass information to themselves: they amass material advantages on the basis of the inconsistencies upon which they trade. They become very, very rich with relatively little risk or productive activity. Yet this fact is just another bit of information to be arbitraged: if more people were competing to take advantage of price differentials, there’d be less profit to be made at it. The unhappy fate of hedge funds lately is largely due to the overcrowded field of leveraged bettors taking both sides of each trade, arbitraging away the opportunities as prices converge too quickly to make a profit. That, and human exceptionalism: most people lose out to our unforeseeable tendency to stymie expectations, our habit of surprise which justifies some of the most outrageous price differentials. Now, it takes not only information and intelligence, but luck and market position to become wealthy as an arbitrageur.
Enforcing the Law of One Price still pays better than enforcing the law of noncontradiction, however. In large part, the philosopher’s profit is simply the right to engage in contemplation, to feel justified in thinking and arguing and exchanging reasons. The best philosophical arbitageurs are given positions of relative honor, credited with creativity and thoughtfulness, allowed more time to think and work on new deals, new trades, new differentials in knowledge. Their success has drawn a host of philosophers to the profession, a flood of new students anxious to participate, to trade, to profit. In so doing, we might worry that they will reduce the rewards of philosophy. But any arbitrageur will tell you that the more people become involved in a market, the more they will form islands of exceptionalism that offer moments of opportunity. More philosophers is the same: the more of us there are looking for problems, the more our various attempts at solutions will offer new puzzles and quandaries.