The centenary of Marshall McLuhan’s birth this year has given rise to numerous newspaper and magazine articles recalling the enormous influence of the University of Toronto professor on perceptions of emerging electronic media in the 1960s. The cultural writer–critic Tom Wolfe postulated that McLuhan might be “the most important thinker since Newton, Darwin, Freud, Einstein and Pavlov… the Oracle of modern times.” Even allowing for Wolfe’s characteristic hyperbole, the facts demonstrate that the author of such books as Understanding Media and The Gutenberg Galaxy, the coiner of such expressions as “the global village” and “the medium is the message,” and the predictor of the World Wide Web 30 years before it was invented, was certainly the most influential and famous thinker that Canada has ever produced. Before McLuhan, no Western philosopher had studied the relation of social and psychic change to human beings’ artifacts in such depth. In the 1960s, his perceptions and insights into the cultural effects of electronic media, particularly the new medium of television, and his witty, provocative style of communicating (a contrast to traditional dry academic discourse) placed him on the covers of many leading magazines. He became a popular guest on TV talk shows and the most sought-after speaker at conferences and seminars, as well as a personal adviser to numerous politicians, CEOs, and celebrities.

…who is asking the questions that McLuhan would be asking today if he were alive?

Despite his fame, McLuhan’s work has sometimes been undervalued. His cross-disciplinary approach and preference for poetic and polemic styles of communication over rigorously supported scientific arguments often infuriated the academic community and confused the general public. However, among serious researchers into the effects of media on culture, McLuhan is now acknowledged to have been a monumental figure to whom we owe a huge debt for illuminating our understanding of how we relate to our technological environment and whose predictions for the future have proven extraordinarily prescient.

McLuhan argued that every new technology changes the balance of human beings’ senses. The technologies of the electronic age in which we live — telephone, radio, television, computers, and most recently, the internet — have created a new environment, not merely augmented the old human environment. They have radically changed the way people use their five senses and altered their mental states. The aggregate effects of these media are more significant than the content they convey (hence McLuhan’s aphorism “the medium is the message”), and they link us all together in ways that virtually eliminate geographic distance (hence his phrase “the global village”). The electronic environment of today is essentially a kinetic, aural, and tactile one in which people get their information and communicate with others directly through sight and sound. This environment has in large part replaced the print-based environment that began with Gutenberg’s invention of the printing press in the 15th century and about 200 years ago achieved dominance. Print and the phonetic alphabet on which it is based convert sights and sounds into abstract symbols or letters. Print is orderly and facilitates categorization, logical, linear thinking, and specialization. It has led to the proliferation of science, the modern economy, bureaucratic government, administrative structures in government and business, and tended to encourage distinct nations as we know them. Electronic media are causing an implosion, bringing people close together again in a preliterate, aural, tactile tribal unity. People are receiving information and communicating in a much less structured fashion through sights and sounds transmitted simultaneously, and must cope with this using perceptive and intuitive powers that are more akin to those of tribesmen in a preliterate era. McLuhan theorized that there is a balance between our senses that evolved over hundreds of years, that this balance has been very abruptly disturbed, and that we human beings are not necessarily equipped to deal with our new environment very quickly or very well.

McLuhan argued that the new environment created by electronic media has pervaded man’s consciousness, in effect placing his thoughts and his nervous system out into cyberspace. Moreover, perceiving our own perceptions is a very difficult thing to do, hence we are largely unaware on a day-to-day or minute-to-minute basis of exactly how we are being affected. In fact, he argued, new technological tools make us “numb” to them shortly after we start using them (explaining some of the disbelief that McLuhan’s theories encountered), and in time these tools that we have shaped came to reshape us.

How does all this relate to today’s financial markets? Well, anyone stepping onto an investment dealer’s trading floor or turning on a television or internet connection is bombarded today with electronically conveyed sights and sounds, and accorded the means to communicate and conduct transactions in real time in a manner that did not exist 40 years ago (or even 20 years ago, in many cases). The financial markets of the 1960s, 1970s, and much of the 1980s were relatively quiet, slow-moving, and stable places frequented by comparatively few people, with their activities recorded in an orderly, structured way in daily newspapers. Stock market news rarely took up more than a few seconds of television or radio news broadcasts (general news was also largely relegated to newspapers and magazines), and the internet was used primarily for communication between scientists. Investing was viewed by the general public as a serious, often daunting activity, not as a source of fun and excitement, and frequent trading was viewed as a risky, speculative activity.

In place of the papers and books of bond yield tables of the past, trading desks today are cluttered with computer screens and televisions, the latter continuously bringing news from capital market programs in which the commentators are reporting on the activities of the traders themselves. In today’s financial markets environment, everybody sees and interacts with everybody else at the same time in real time, with little time to think and respond to anything before more information flows in. Traders, television viewers, internet surfers, Blackberry users, many of them using several or all such devices at the same time, react quickly, relying on their ability to scan and absorb an ever-changing visual and aural environment. They require completely different skills from those needed to simply focus on reading a book or on doing mathematical calculations. The ability to scan, simultaneously absorb many inputs, and react intuitively are what is called for — the skills of tribal man. The global financial village is now inhabited by a global tribe, and like all tribes, it is prone to emotional reactions (panics, and euphorias) and to making sharp, quick actions and reactions before new information must be assimilated. The tribal aspects of the new environment become palpable when such programs as CNBC’s Squawk Box begin the trading day with rapid-fire news, trading ideas, and rock music that blares across most professional trading desks, and after many hours of similar programming, Jim Cramer’s over-the-top show Mad Money ends the day for the same traders. “Risk on” and “risk off,” the language of professional day trading is now used to communicate with people who are supposed to be saving for their retirement or trying to supplement their pensions with investment returns.

What can we expect to occur in this new environment? McLuhan argued that our civilization has been based on the phonetic alphabet, and that as we turn away from literacy, we may be stripping away our civilization itself. He noted that before phonetic literacy there had been no clear sense of private identity; there had only been a tribal group (the world of the Greek poet Homer was one of acoustic epics, tribal memorized wisdom). In a kinetic, aural, tribal world, the principal means of asserting identity that has been suppressed is violence. So arguably, we can expect the future to have more violence — physical, political, economic, financial — the last of these being evident in more aggressive securities trading (characterized by high leverage, high frequency of trading, and predatory techniques and objectives). It may tend to be a more brutal world — a brute being a self-asserting, uncivilized (a.k.a. illiterate) person. However, we can only speculate on the full effects of this new environment, as our phonetic alphabet is 2,500 years old, and today we have little sense of what life was really like before that. McLuhan believed that striving to preserve the role of literacy may be the best protection against the undesirable consequences of the electronic age. Literacy tends to slow down actions, allows more time for thought, reflection, and reasoning, raises the level of intellectual activity, and suppresses rash reactions and behaviour.

…we may have created a vast casino for clever operators to outsmart less astute players while growing little or no wealth for anyone but themselves…

Media theorist and cultural critic Neil Postman, a former student and admirer of McLuhan’s, wrote an acclaimed book in 1985 on the adverse effects of television on serious, intelligent thought entitled Amusing Ourselves To Death. Is the time ripe today for another book entitled Trading Ourselves To Death? Given these conditions, it is not surprising that financial markets in recent years have been much more volatile, with more prolonged crashes, flash crashes, and vastly greater volumes of trading than ever experienced in the pre-electronic age.

McLuhan argued that we human beings are physiologically ill-prepared to handle the new electronic environment without seriously compromising our judgment and peace of mind and perhaps even our print-based civilization. Extrapolating his concerns into the financial markets leads one to ask if we are not ill-prepared for the electronic capital markets we have created, and if we may pay a price in the form of damaging the ability of the capital markets to invest responsible savers’ money into the most capital-worthy enterprises for the best interests our economy and society.

McLuhan liked to say that he had no new concepts or theories, only “percepts,” and that despite his discourses on the world of the future, he never predicted anything that had not already happened. He said that human beings know nothing of the future, are insensitive or “numb” to much of what is happening in the present, and are focused on the historical past, i.e., are steering through life with their eyes fixed on their rear-view mirrors. By focusing more clearly on what is happening in the present, human beings can gain a better indication of the future, or what history will become. In the last years of his life, McLuhan was working on a book entitled Laws of Media (completed by his son Eric McLuhan and published posthumously). In it, he suggests it is possible to understand the effects of any technology, new or old, by applying four questions to the situation:

1. What does the technology amplify, enhance, or enlarge?
2. What does it obsolesce?
3. What does it retrieve or bring back from the distant past?
4. What does it flip or reverse into when pushed to its limits?

For example, the automobile amplifies human beings’ legs, obsolesces the horse, retrieves the ability to roam freely without reliance on the cooperation of an animal, and flips into an environment of traffic jams, pollution, and increased risk of serious injury.

Today’s electronic financial markets and related media amplify our ability to engage in financial transactions; obsolesce trading floors, paper records, personal contact and discourse between market participants (a.k.a. human relationships); retrieve the speed of transactions that were done in primitive times in person by word of mouth; and flip into increased market and counter-party risks, extreme volatility that discourages long-term savers from investing, and greater possibility of financial collapse and economic decline.

…the global financial village is now inhabited by a global tribe that is prone to emotional reactions – panics, euphoria…

Applying McLuhan’s perspectives suggests that, in place of the financial markets of the past, today we may have created a vast casino for clever operators (including high-frequency traders, levered hedge funds, and others) to outsmart other less astute players, while growing little or no wealth for anyone but themselves.

Critics of McLuhan sometimes suggested that he was a technological determinist with a bit of a Luddite streak, but he was quick to point out that he was not against technological changes, he merely wanted to understand their effects better. He believed we should evaluate how technology was changing our environment and should control the extent and pace of our adoption of new technologies, rather than naively welcoming and thoughtlessly adopting every new innovation without taking the time to fully examine the consequences. At the same time, he recognized the difficulty of the task and likened it to performing brain surgery on oneself.

In today’s financial markets, one might ask who is asking the questions that McLuhan would be asking today if he were alive? Most thoughtful people would agree with McLuhan’s statement that all media invest our lives with artificial perceptions and values. What are the artificial perceptions and values in our lives today? The financial industry sees very little downside to the technologies and related changes in trading that they have brought about, while regulators appear to rely heavily on internal and external advisers who are themselves products of that same financial industry. McLuhan’s studies of media and their effects on man’s sensory balance fall within the field of neuroscience and cognitive psychology. In the investment industry, the field of behavioural finance — the study of the effects of human emotions and cognitive errors on financial decisions — has been burgeoning in recent years as analysts have identified behavioural biases such as anchoring, overconfidence, cognitive dissonance, illusion of control, ambiguity, optimism, framing, and hindsight biases. Arguably, a hundred years after Marshall McLuhan’s birth, this field of analysis is exactly where his body of work and understanding should be incorporated into our CFA Investment Body of Knowledge. It would be sure to stimulate some very profound thought and, hopefully, a better understanding of our financial markets (now undergoing much stress) that are at the very heart of our of our economic system.