Current Trends of the Epistemology of Finance
Introduction
Since its origins at the beginning of the 20th century, the development of financial knowledge has been characterized by radical changes in its object of study from its appearance to the present day, evolving from a descriptive sphere that focused on the legal aspects of mergers, consolidations, formation of new companies and issuance of values, as well as in purely operational and routine aspects, commonly exercised by the treasurer of the organization;through the traditional approach, where the center of attention was bankruptcy and business reorganization, corporate liquidity, capital budgeting, financing and regulation of stock markets in a context characterized by failure in business and marketsto the great depression of 1930 and the First World War. Subsequently, one of the most flourishing times came in financial knowledge from the 1950s and until 1973, during which the greatest theoretical advances in this area occurred, supported by theories and tools of other sciences such as mathematicsand the economy, which allowed the empirical verification of the behavior of both corporate and market key variables, through sophisticated analysis and prediction models.
At present, the scientific character of finance is given by its concern about risk and uncertainty in a globalized context. Its scientific method focuses on the neutral risk assessment, from which new advances in both corporate and market in the recent past have been generated in the recent past.
The objective of this study is to present a chronological compilation of the evolution of finance during the last century, with special emphasis on the theoretical tendencies that are glimpsed for the first decades of the present century. It should be noted that it would be too pretentious. The document is organized in four sections including this introduction.
In the second section the evolution of finance is exposed from three very differentiated stages such as descriptive, traditional and modern. In the third section the latest advances of financial knowledge in the most relevant areas are presented and in the last one it is concluded.
Epistemological trends
Epistemology.- Its objective is to obtain valid knowledge, which enjoy scientific solidity through a rational, systematic and rigorous process in disciplines. However, recent epistemological tendencies have emerged, which have caused new problems in the philosophical, social, cultural, etc., But at the same time they have generated that old problems be rethink, new solution proposals and new exploration routes.
In obtaining new knowledge, it is inevitable that filters such as the pretersorics and preocognitive intervene, that many cases cloud the results for not having a purely investigative character. In the case of pre cognitive perspectives from which you can speak or theorize about knowledge (bone, from which you can “make epistemology), it has its root in the well -known thesis of the three worlds of Popper (1982), thesisof the Odgens triangle where he speaks of 3 essential elements in the acquisition ignorance, which are: the first element refers to the plane of the object, the second to the plane of the subject and the third to the plane of the relationships between subjects. The crossing of these variables tentatively leads to four epistemological approaches: the empirical-realistic approach measurements, experiments, controlled induction, the empiricist-idealist approach ethnography, coexistence designs, reflexive induction, the rationalist-realistic approach (abstractions, logical systems-mathematicians, controlled deduction and the rationalist-idealist approach free interpretations, broad languages, reflexive argumentation. Each of these epistemological tendencies in scientific research generate theories and these in turn generate others, so that the growth of scientific knowledge is a matter of successions, connections and family links among individual research, even in long generational terms.
Scientific research is, then, a programmatic and transindividal issue. However, scientific research has excluded socio -contextual factors for many years, because it considers that its inclusion makes research not exact, truthful and reliable. This has been one of the reasons why new epistemologies have emerged to include and attach the subject and actors in the research process, that is, the subject – object interaction. Among those found:
- The epistemology of perception focused especially on the problem of social sciences and their relationship with natural sciences.
- Evolutionary epistemology
- Subjectivist epistemologies (idealist rationalism and empiricism)
- Contextualist epistemology
- Feminist epistemology
- Social epistemology
- Other subjectivist epistemologies: “Ethnoepystemology
- Realistic empiricist epistemologies: testimonial epistemology
- Probabilistic or Bayesian epistemology
- Rationalist-realistic epistemologies.
Epistemological evolution
- Empirical or descriptive approach.- It arises with the very birth of business finances and covers a period that goes from the end of the 1920s to 1920, focuses on the study of aspects related to the formation of new companies, the determination of production costs to calculate a level ofprofits that allow the entity to continue operating in the markets and achieve an expansion to the future, the collection of information on titles and institutions participating in the financial market, operational functions such as: income, disbursements, protection and custody of funds and values,Preparation of payrolls, supervision of operations, administration of real estate and taxes, negotiation and hiring of insurance, booking of books;generally exercised by the company’s treasurer. Faced with this diversity of organizational practices, the marrow of the financial functions surrounding the treasurer responds to the characteristic of routine responsibilities rather than as financial administration itself.
- Traditional approach.- The traditional approach to business finances that goes from 1920 to 1950to obtain the required funds, of the combination of existing sources.
This is how a new orientation of finance arises, using the trends of economic theory, and looking as a central one, the problem of achieving funds, investment and expenses decisions, liquidity and business solvency, due among other factorsTo the remarkable growth of private property of shares, the public’s interest in corporations after World War I and the intricate network of institutions through which the required funds could be obtained. From this time, when academic work in business administration and finance grew on a large scale, some effort was dedicated to the budgeting of short and long term activities, especially in relation to the capital budget, the establishmentof the cost of capital, reaching the study of the market value of the company and an attempt to unify financial decisions around this last concept.
Pioneers of Financial Theory At this time, there is the Irving Fisher Investment Theory (1930), who had already profile the basic functions of credit markets for economic activity, expressly as a way of assigning resources over time.
In the development of his money theories, John Maynard Keynes (1930, 1936), John Hicks (1934, 1935, 1939), Nicholas Kaldor (1939) and Jacob Marschak (1938) had already conceived the portfolio selection theory in thewhich uncertainty played an important role. As soon as it refers to the speculative activity (the temporary purchase/sale of goods or assets for rear resale), with their pioneering work on futures markets, John Maynard Keynes (1923, 1930) and John Hicks 151cos de Economics not. 27 Medellín, October 2008 (1939) argued that the price of a future contract for the delivery of a raw material will generally be below the expected spot price of that matter (what Keynes called normal deportation). Nicholas Kaldor (1939) analyzed whether speculation influenced price stabilization and thus considerably expanded the Keynes liquidity preference theory considerably.John Burr Williams (1938) was one of the first interested economists, in the issue of financial markets and how to determine the price of assets with their theory about the value of investment. He argued that the prices of financial assets reflect ‘the intrinsic value’ of an asset, which can be measured by the discounted current of future expected dividends of the asset.
In its upper stage (1945), the emphasis focuses on working the risk problem in investment decisions that leads to the use of mathematics and statistics-as well as on the performance for shareholders, the operational and financial leverage and financialThe administration of working capital. From this time is the work of Professor Erich Schneider investment and interest, cited by García Suárez (2005/01/07) in which the methodology for investment analysis is established and the financial decision criteria that lead to themaximization of the value of the company in the market.
Modern or modern financial economy.- In the following decades (1950 to 1976), the interest in the systematic development of finance, was stimulated by factors related to rapid economic and technological development, competitive pressures, and market changes, which required careful rationing of fundsAvailable between alternative uses, which gave rise to a substantial advance in related fields such as: the administration of working capital and fund flows, the optimal allocation of resources, the expected yields, the measurement and projection of the operating costs,Capital budgeting, the formulation of the company’s financial strategy and capital market theory. At this time, a deepening and growth of the studies of the previous approach is generated, producing a spectacular scientific development of finance, with multiple empirical research and studies, imposing mathematical and statistical technique as appropriate instruments for the development of this disciplinary field.
This is how modern financial theory is based from two very differentiated branches such as market finances and corporate finances, which in the words of Merton H. Miller (quoted by Azofra P, 2005,125) are called a normative macro approach (of the economy departments) and micro regulatory approach (of business schools) respectively.
Conclusions
In its origins, the role of finance was fundamentally limited to the exercise of operational functions of an administrative area of the organization. Subsequently, a new orientation arises, using the trends of economic theory, and looking as a central one, the problem of achieving funds and its cost, investment decisions and expenses, liquidity and business solvency, which caused growthOn a large scale in academic work in business and finance administration. In recent years, due to uncertainty in business and economy, new theoretical developments arose that allowed to measure and predict the behavior of key variables in the future, with the intervention of other disciplines such as economy, mathematics, statistics, Econometry that have facilitated the advance towards the border of financial knowledge.
It is pertinent to affirm that the new approaches in financial matters are permeated by three trends of a macro nature within which they develop and apply: globalization, computerization and telecommunications and corporate reorganization and markets. These elements converge in the imperative need to adopt instruments and procedures for the control of uncertainty that enters a higher risk, which requires not only adequate formulas and models, but also of ideal and trained personnel in financial skills and techniquesand managerial.
Finally, I would like to leave reflection, an interesting comment, expressed by the teacher and researcher Ignacio Vélez Pareja (2005/03/11) the panorama is interesting and raises huge challenges to the academic community of finance. Forces to forget a lot about what has been learned and demolish the barriers of change resistance. This inventory leads us to review in depth what we have been doing during the last decades and look inquisitively and critically our teaching task. We finance teachers are obliged to know the advances that exist in the subject. But it is so wide, that it requires us to specialize (dangerous but necessary activity) because it is not possible to cover the entire range of knowledge that has been developed, only in these last 25 years.
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