Studies in American Fiction

In a dramatic scene of stock market panic from Theodore Dreiser's 1912 novel The Financier, protagonist Frank Cowperwood struggles to rescue his crumbling brokerage business not by retrenching or selling stocks but by aggressively taking on more risk. Using borrowed funds, Cowperwood purchases securities worth $60,000 on the Philadelphia stock exchange and "immediately hypothecated them," or put them up as collateral, "to cover another loan." As the narrator laconically appraises Cowperwood's frenzied move, "It was a risky thing to have done, considering that he was in danger of failing."¹ Cowperwood's ploy is risky because he uses stocks—an inherently volatile financial instrument—in an effort to raise cash during a moment of financial panic when stock prices were tumbling precipitously. While on the one hand the scene is a measure of Cowperwood's desperation, on the other hand it's an object lesson in modern finance and the manipulation of risk.

Although finance and commerce have always involved uncertainties and contingent outcomes that those in business seek to guard against, risk itself only became broadly associated with finance in the nineteenth century. At the beginning of the century, risk was still very closely tied to maritime insurance that was sold to offset the dangers of transporting cargo by sea, but over the course of the century, it went from being an individualist commercial notion succinctly captured in Edwin Freedley's claim in A Practical Treatise on Business (1853) that "a man has the right to risk his own capital, but … no right to risk the property of others" to an idea that was applied to a much more expansive set of financial transactions.² Insurance to protect against hazards to life and property, corporate securities issued to raise funds and diffuse financial liability, commodity future [End Page 175] and option contracts purchased to hedge against price volatility, and railroad bonds used to bankroll infrastructure developments turned risk into a much more financially disparate and mediated proposition than the relatively straightforward cargo insurance denoted by the selling of "risk" at the turn of the nineteenth century.³

Many of the financial instruments developed over the nineteenth century represented innovations in risk management. But risk has an upside, or a productive component, as well. This aspect became strikingly visible during the growth phase of industrial capitalism in the nineteenth century with the development of the stock market, and especially when finance capitalism emerged from industrial capitalism at the dawn of the twentieth century.⁴ Indeed, by the latter part of the twentieth century, as anthropologist Arjun Appadurai explains, "the machinery for measuring, modeling, managing, predicting, commoditizing, and exploiting risk [had] become the central diacritic of modern capitalism."⁵ The phenomenon Appadurai identifies reached its apotheosis in the decade leading up to the 2008 financial meltdown. Investment bankers in the early twenty-first century developed such abstract forms of finance that risk underwent a 180 degree shift; trading in the derivatives market for securities, in Richard Godden's words, "effectively translate[d] risk from that against which one insures to that in which one invests."⁶ I cite this description of today's derivatives market here because it represents perhaps the outer point of risk as a financial category in its own right. A great deal of innovative humanistic research in what is sometimes referred to as "critical finance studies" that was spurred in part by the 2008 crash has mapped the relations between risk, credit, and debt, especially in fiction and U.S. culture of the last few decades.⁷ In this essay, though, I focus on Theodore Dreiser's 1912 novel, The Financier. Dreiser's book both participates in and subtly analyzes the shift in the conceptualization of risk from something to be guarded against to a source of profit that emerged in the decades surrounding 1900.

This shift in thinking about risk was part of a wide and often heated cultural argument at the time regarding the proper role of risk in the U.S. economy and especially who should be in charge of manipulating that financial risk. In the decade or so prior...