Economist Perry Mehrling's New Book, "Fischer Black and the Revolutionary Idea of Finance" Receives Worldwide Attention
 When Perry Mehrling arrived at Barnard in 1987 to begin teaching economics, one of the first things he did was write a letter to Fischer Black, the man considered to be the "high priest" of modern finance. Black was working at Goldman Sachs in New York then and Mehrling wrote a one-page letter introducing himself and commenting on Black's ideas and theories. Then he dropped it in the mail and began his semester.
A few weeks later, the young professor heard back from Black, who'd returned the same letter Mehrling had written, scribbling across it and writing at the bottom, "I can see you are a very careful reader."
The professor could not have known how significant the letter would become, providing one of many glimpses into the character of a man whose 30-year career traversed the worlds of academia, finance and economics and included enormous contributions to each. But eighteen years after that small exchange, Mehrling's book, "Fischer Black and the Revolutionary Idea of Finance" (Wiley & Sons) was published to instant worldwide attention. Japanese, Chinese and Korean translation rights have already been sold. Publishers Weekly called it, "the best currently available general history of the revolution in finance." The New York Times considered it a "fascinating history of things we take for granted in our everyday financial lives."
Although Fischer Black is best known for the Black-Scholes option pricing formula that laid the foundations for so much of modern finance, a contribution recognized posthumously in the citation for the 1997 Nobel Prize in Economics awarded to Robert C. Merton and Myron Scholes, his ideas and theories in fact reached far beyond this single contribution. Having first encountered Black's work in graduate school, Mehrling spent seven years reviewing Black's personal files (where he found a copy of that early letter), and countless hours interviewing his associates and family members, in order to piece together the larger story. The result is not only the story of Black's intellectual journey but also that of the birth of quantitative finance and financial engineering.
 "Here was a man who seemed to come out of nowhere, who got a full professorship at the University of Chicago to teach finance without ever having taken a course in the field, and who gave up a tenured academic position at MIT to join the world of investment banking at Goldman Sachs." Mehrling said. "He was completely self taught but not very self reflective. Yet his work was so multidimensional and influential that I knew I couldn't just write a biography about him. So, the book is really about the ideas that emerged from finance, their influence on economics and on the practical world in the last quarter of this last century. The book is about the power of risk for us as individuals and as a society. We don't know the future and aren't content to live the safe conservative lives our parents did."
Mehrling says that all of Black's life--and his approach to each job he took--centered around risk. Whether it was in academia or practical business, in finance or in economics, Black believed the right thing to do was to keep taking risks. He felt that the capital asset pricing model (CAPM) taught a scientific approach to risk, telling when and how to avoid it, but also when and how to embrace it. As a result, he developed his ideas by using practical problems in business as the stimulus for his abstract theorizing, and tried to communicate deeper solutions in accessible ways.
"Black's work transcended each area he was involved in," Mehrling says. "The place he did his work might change but his mind always stayed focused on the same fundamental problems. He avoided the limelight for himself because he wanted his ideas to be accepted."
Consequently, Mehrling's book focuses also on the rise of modern finance through the biographical lens of one of the greatest minds behind it. It pieces together years of research about the man who made options formulas famous but contributed more to understanding finance, economics, banking and monetary theory than many in the past century.
"In many ways, Fischer Black--though I never met him--was a mentor to me," Mehrling says. "We're different in many ways but his approach to risk and macroeconomic thinking has taught me more than anyone else about finance. He's helped me see the importance of making scholarly ideas and projects accessible."
Because of his book and his expertise, Mehrling will be the first lecturer this month at Goldman Sachs' "Thought Leader Forum." The company will web-cast his talk and has already purchased 200 copies of "Fischer Black and the Revolutionary Idea of Finance."
--Jo Kadlecek |
