The Institutionalization of New Finance

The anticipated increase in the demand of faculty was met mostly by hiring economists in the business schools. The Text of meeting the faculty requirement through part-time employees consisting of business executives, as argued earlier, within the Space of business schools was now replaced with the Text of hiring economists and other disciplinary trained faculty (Khurana, 2007). In other words, the Practice of hiring within the Space of business schools was now guided by Text that outlined an emphasis on economists and disciplinary trained (such as Doctor of Business Administration) full-time faculty positions.

This, coupled with inclusions of the Space of economics departments’ faculty as part of the business school’s own faculty required by AACSB (Gordon & Howell, 1959), substantially increased the influence of the subject position promulgated by the institution of economics on all of the different subject positions promulgated through the business school disciplines.

In their survey, Gordon and Howell (1959) reported the following findings regarding a doctoral degree-holding pattern in business schools:

Table 5.5: Distribution of doctorates held by full-time regular business faculty

Field of doctorate AACSB member schools AACSB non-member schools

Business administration 35 35

Economics 56 48

Psychology 1 3

Education 2 4

Other 6 10

Source: Adopted from Gordon and Howell (1959, p. 342)

The above table shows an overwhelming concentration of economists in the Space of business schools. This concentration resulted in widespread diffusion of the subject position promulgated by economics ideology in most, if not all, of the courses offered in business schools (Khurana, 2007; see also the discussion by MacKenzie, 2006; Skalen et al., 2008; Townley, 1993; Whitley, 1986b). In addition to the concentration of economists, the in- breeding of faculty through employing their own PhD students resulted in creating a chain of research that was dominated by the new subject position promulgated by the institution of new finance. Many of the originators of modern finance theories had supervisor/student relations, for example, Michael Jensen and Eugene Fama; Myron Scholes and Merton Miller; William Sharpe and Harry Markowitz. This, according to MacKenzie (2006), provided the opportunity for the new subject position to institutionalize. This new subject position drew on quantitative and empirical techniques and did away with the subject matter of old finance as irrelevant.

The most important and direct influence in mobilizing the identity of the new subject position of academic finance came from the Graduate School of Industrial Administration (GSIA, onwards) at the Carnegie Institute of Technology. GSIA, which was the “poster- child” for the Ford Foundation and one of their centres of excellence (Augier & March, 2011; Khurana, 2007), would in the coming years provide the new Text of business education dominated by statistical evaluations (Khurana, 2007; MacKenzie, 2006) that had Friedmanite ideology embedded into it (Frankfurter & McGoun, 1996). Established in 1949, the Space, Text and Practice of GSIA had the explicit objective from its inception to get rid of the vocationalism from the Practice of teaching in the Space of business schools (Khurana, 2007; MacKenzie, 2006). GSIA was built around what was later called “The Chicago Model”, introduced by Robert M. Hutchins who was president of University of Chicago from 1929 until 1951 (Augier & March, 2011).

The Chicago Model emphasised inter-disciplinary research and teaching and had strong reservations about vocationalism in universities. The model was not very successful at the University of Chicago, perhaps because of dealing with the politics of established

disciplines, and Hutchins himself was not interested in the institution of business education (Augier & March, 2011). Institutional theorists argue that it is generally difficult to challenge the boundaries and legitimacy of an established discipline unless the order actualized through discourse changes, as argued earlier in Chapter Four. Gordon and Howell (1959) also strongly proposed a change in the subject position of these institutions by calling the established ways a pride that needed to be done away with. While the University of Chicago after Hutchins started moving away from the inter-disciplinary emphasis that Hutchins argued for (Augier & March, 2011), GSIA on the other hand was established primarily to get rid of the Text of vocationalism in favour of the Text that outlined inter-disciplinary Practice of research under the leadership of Lee Bach. Bach, an economist, was the founder and the 129

first selected dean of the institute. He had novel ideas about increasing the quality of business education. According to Fourcade and Khurana (2008), Bach:

“… wanted a block of faculty members to provide the disciplinary foundations for the applied fields to business. For this group, we preferred people from disciplines i.e. economics, political science, the behavioural sciences, operational research and the quantitative methods i.e. mathematics, computer, statistics, accounting” (Fourcade & Khurana, 2008, p. 20).

In a retrospective interview Bach himself identified his purpose behind the establishment of school in this quote:

“What we wanted was a faculty, including a substantial group of discipline-based but applied teachers and researchers, who were interested in developing the disciplines as a foundation for the applied courses in business school curriculum. We were also especially interested in people who were willing to be interdisciplinary where necessary – to solve real, complex problems rather than making each problem fit an existing discipline – to work at the boundaries of the discipline. And we wanted people who were interested in the real world. Theory has a powerful role to play in education for management, but the real work of MBA program is using that theory to help solve business problems. We didn’t want people who just wanted to sit and spin off theory” (Bach's interview, quoted in Khurana, 2007, p. 253).

The Space of GSIA was the model institute, the “poster-child”, according to Augier and March (2011), the centre of excellence that had ambitions to overcome the deficiencies in the institution of business education.

GSIA was the ideal answer to emerging and established order of the institution of business education. It gained specific importance because it was neither an AACSB member and nor did it have the institutionalized Practice of teaching (referred to as pride by Gordon and Howell, 1959). Augier and March (2011) describe how GSIA was not recognized as an established business school such as Harvard, Wharton or Chicago, but its dean was advisor to the Ford Foundation and was well known to it. GSIA received grants from the foundation even before it had formally launched the Economic Development and Administration programme.

Bach, with his objectives in mind, recruited two prominent researchers, William Cooper, an economist from the University of Chicago and Herbert Simon, a political scientist also from this university. The three shared concerns over the quality of the institution of business education (Khurana, 2007; MacKenzie, 2006). According to James Howell, the co- author of 1959 Ford Foundation report:

“Under the guidance of Bach and Simon [Carnegie] was going to mobilize the methodologies, attitudes and recent advances of social sciences to investigate the phenomenon of organizational administration. The ultimate goal was the construction of a science of administration using economics and the behavioural and quantitative sciences as the starting points. If even partially successful, the Carnegie group would provide the intellectual basis for the hoped-for revolution in business education. Here was the advanced projects laboratory, the R&D group that EDA had to find or create; fortunately it already existed” (Howell, 1966 as quoted by Augier & March, 2011, p. 124).

GSIA had everything right from the onset and was very much in accordance with the requirements of discourses defining the order surrounding the institution of business education. According to Augier and March (2011), at GSIA:

“The economics that was taught was not ‘business economics’ but the advanced micro- and macro-theory courses of an economics department. Accounting was combined with statistics into a course on quantitative control. Management and organizational behaviour were transformed into an interdisciplinary course on ‘organizational theory’. Marketing emphasized analytical models for assessing demand and developing marketing strategy. Production management morphed into operations research, much of it using linear and dynamic programming methods. Almost as soon as computers were available, a computer management game was developed and used” (Augier & March, 2011, pp. 128-129).

It experimented with the many developed fields of the time and produced some of the most dominant present day theories in economics, management and finance.

It is through this interdisciplinary approach adopted at GSIA that modern

methodologies of the subject position of the institution of academic finance were developed (MacKenzie, 2006). Many of the early day theories were developed in the Space of GSIA,

guided by the Text of multi-disciplinary Practice of research as outlined by the Chicago Model through adopting the subject position of the institution of economics. The most famous among these were the Dividend Irrelevance and Capital Structure Irrelevance theory by Miller and Modigliani (1961) and Modigliani and Miller (1958), respectively.

To summarize the discussion in this section, the Practice of funding by foundations, importantly the Ford Foundation, resulted in creating the Space of business schools that

followed and were attempting to be in accordance with the Text set by Foundations. This, along with the dissatisfactions expressed by the academics over the quality of education, provided the opportunity for alternative theories to gain legitimacy. These theories, as it happened to be, were analytical and statistical in nature. As described earlier in Chapter One, the role of scienticism in the period was profound (Smiddy & Naum, 1954; Whitley, 1986b), thus in the context of vocabulary adopted for this thesis, one can argue that the order for the institution of business education had changed from vocationalism to scienticism.

Subsequently, we can see the proliferation of the theories that are found in any standard version of history. One of such theory, the Efficient Market Hypothesis, which was developed at the University of Chicago, will be analysed in detail in the next chapter.