Ephahs, Hins, and Michael Lewis’ Flash Boys

“You must have accurate scales and accurate weights, an accurate ephah and an accurate hin (1 gallon)” (Leviticus 19:36).

If you read that verse carefully, you should have a couple of questions. Here are mine:

1) What’s an ephah and a hin? 

2) Why does God care so much about accuracy (4 times in 1 verse)?  

3) What do ephahs and hins have to do with the book Flash Boys?  

Great questions.  In order,

1) An ephah is about 20 quarts. A hin is about a gallon. That knowledge should help you sleep better tonight. You can probably forget those numbers. I can’t remember them and I teach the Old Testament.

2) God values accuracy in scales, weights, and measurements because he wants his people to trade fairly. God is concerned about justice.  Let’s say you’re doing the milk run, looking to buy a hin of milk for your family.  But if the person you buy from has an inaccurate measurement and only gives you 3/4 of a hin, then a member of your family may go without milk on their Honey-Nut Cheerios tomorrow.  The milk seller profits from an unfair market mechanism.

3) While the complexities of the US stock market and high frequency trading are a bit more complicated than a barter system involving hins and ephahs, the same principles apply.  God is concerned about justice. In Flash Boys (2014), bestselling author Michael Lewis tells the story of a group of Wall Street traders and technicians who are attempting to create a fair exchange (kind of like an accurate hin).  Their exchange (IEX) is designed to prevent predatory high frequency traders (HFT) from skimming profits from investors who are simply looking for a fair price on a commodity, whether selling or buying.

You are probably familiar with Michael Lewis, and have probably seen a film or two based on one of his books.  I’ve read and would highly recommend Liar’s PokerThe Blind Side, Moneyball (he’s written a bunch of other bestselling books, but I haven’t read them).

Lewis is a great writer and story-teller. Here is what Malcolm Gladwell (see my review of David and Goliath here) says, “I read Michael Lewis for the same reason I watch Tiger Woods.  I’ll never play like that.  But it’s good to be reminded every now and again what genius looks like.”

If you’re turned off by f-bombs, don’t read this book. I don’t think the title is particularly interesting, engaging or provocative, but I guess if you’re Michael Lewis you probably don’t need to worry too much about catching people’s attention with a title. The book gets a bit too technical at times, but I still found it hard to put down. If you are interested in fair markets, you’ve got to read this book.

If you like Goldman Sachs, be warned that they start out looking like the villains, but you’ll be relieved to know they repent by the end.

Hopefully, we will hear more about IEX Group, the “Flash Boys” who revolted on Wall Street, as more trades get directed to their exchange.  To watch the visually fascinating 3.5 minute animated video about the exchange they created, click here.  This book should be made into a movie.


  1. Hi Dave – as always, I appreciate and enjoy your work.

    I thought I’d respond briefly on your third point here about God’s requirement for fair weights and measures as a component of justice and how this maps to financial trading.

    I think that you are correct that God’s demands for fair weights and measures imply that, everything else equal, we should prefer a fair, clear, transparent and “efficient” price system.

    It turns out that trading of publicly listed financial securities (the kind you and Michael Lewis are talking about) is far more just, at least in this sense, than almost anything else in common economic life.

    Compare determining and evaluating the price, at any one time, for a listed financial security (say, an S&P 500 stock or something similar) to the process for determining the price for many/most other goods and services people use: the sales price or monthly rent of a house or apartment, the price for a car, computer, apple or article of clothing, the cost of medical or hospital treatment, the price of education, the price for babysitting services…you get the idea.

    In all these latter categories (and I could list a lot more), the visibility, transparency, comparability and efficiency of prices and costs are immensely less favorable than for listed financial securities. The reasons for this are many and depend on the goods/services being compared. But, in general, listed financial securities have far, far less concentrated ownership/distribution, inter-comparability costs, geographical/informational/scale asymmetry and fragmentation and other idiosyncratic distortions.

    This remains true even in the face of high frequency trading (HFT). This is a complex topic but, Michael Lewis’ opinions notwithstanding, let me make four brief points.

    First, early everyone agrees that, from the standpoint of price clarity/transparency/efficiency, markets get better as they have more participants and more fulfillment speed.

    Second, it is tricky to find solid conceptual reasons as to why HTF is actually unfair or harmful. It is also tricky to find solid and undisputed empirical evidence that HFT has actually been consistently harmful to non-HFT investors. (Especially, when you consider that many HFTers have an incentive to trade against one another, reducing bid-ask spreads etc. etc..) I’m not saying there are no potential problems with HFT but I’m saying this is an active debate in financial economics. It is not a settled question.

    Third, nearly everyone agrees that the prices for financial assets has becomes far more clear/transparent/efficient/democratic over the last 30+ years as financial markets have taken on the ability to sustain wide and rapid trading volumes.

    Fourth, if someone thinks HTF has pros and cons, they need to compare these to some fully formed alternative. Even if HTF has potential downsides, its not clear that removing it would leave investors better off. Prior to widely distributed electronic trading, I believe most agree that there many more obvious and widespread problems.

    So, when seeking Scriptural justice of the type you are identifying here, I think you/we should actually be earnestly advocating for many, many more things to be traded in markets with characteristics like those of listed financial securities.

    Thanks for the stimulating post!


  2. Kirk, Yes. You make several good points, expressed very graciously. Visibility and speed is good as you say, and financial markets. You might feel about me speaking about financial markets as I feel about non-specialists speaking about the Bible.

    I’m not against HFT, just glad that there are exchanges like IEX group who are trying to minimize the advantages that HFT-ers have. As Lewis describes it in Flash Boys, the HFT-ers are making a lot of money, kind of like a tiny tax on many transactions, and in many cases making it harder for regular sellers and buys to find a fair price at the mid-way point.

    Have you read Flash Boys? If so, what’d you think?

  3. Hi Dave,

    Thanks for your kind reply.

    No, I haven’t read Flash Boys. I enjoy Lewis’ work but haven’t read it. He’s a terrific writer and I’ve enjoyed a number of his books. However, I’ve stopped reading him on economics and finance because, in my opinion, The Big Short and Liar’s Poker were so riddled with inaccuracies. Like Malcom Gladwell, I’ve found that his books/essays appeal to me inversely to my understanding of the material.

    On HFT, just for fun, here is the conclusion from a survey of the empirical work by a professor at Columbia:

    “Based on the vast majority of the empirical work to date, HFT and automated, competing markets improve market liquidity, reduce trading costs, and make stock prices more efficient. Better liquidity lowers the cost of equity capital for firms, which is an important positive for the real economy. Minor regulatory tweaks may be in order, but those formulating policy should be especially careful not to reverse the liquidity improvements of the last twenty years.”

    Also, it is worth reading a NYT response published to Flash Boys in which they studied impact on different types of investors in Canada when HFT was limited. They found that it made the market less liquid, less efficient and more costly. Interestingly, they found that ” the less high-frequency trading, the worse the small investors did” http://www.nytimes.com/2014/04/04/opinion/flash-boys-for-the-people.html?hp&rref=opinion&_r=0

    I don’t consider myself an expert and I’m sure those studies aren’t the only and last word on the subject but my cursory read is that the evidence indicates HFT likely benefits smaller investors.

    FYI…I’m going to an InterVarsity dinner tonight in San Jose…Andy Crouch is speaking. I’ll give thanks for you when I’m there! Be well.

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