Towards Discursive Economics
(Methodology and history of economics reconsidered)
Good afternoon. Thank you very much for inviting me to your Centre and giving me this opportunity to speak about a discursive approach to economics. I will speak first of the discursive approach as an alternative to the present-day economics, equally mainstream and heterodox. This approach is based on the idea that conversations are the primary social reality which means that in order to understand this reality we need to study discourses. At the end of today’s intervention I will use the discursive approach for analysing the professional activity of economists in a historical prospective. As you know, the discursive approach for social sciences is developed in the works of Rom Harré. I will heavily rely in today’s presentation on his ideas, but I am the only one responsible for my interpretation of them.
Both mainstream and heterodox economists as a profession failed to foresee the current crisis which started with the burst of the housing bubble in the United States. They failed as a profession but nevertheless some economists succeeded in foreseeing it. Robert Shiller from Yale is among them. I think that I can state that he succeeded by using the discursive approach. Shiller is a very unusual economist. After obtaining his tenure as a quite typical mainstream economist, he decided to do his research by using survey methods, which was a radical deviation from the accepted way of doing research in the economic profession, and as Shiller said himself “made little sense from a career standpoint”. These methods gave him access to actors’ discourses from analysis of which he concluded that the most important single element to be considered with respect to the housing bubble or any other speculative boom in order to understand them is “the social contagion of boom thinking”, linked with stories, which he called new era stories, justifying the belief that the boom will continue. I can say that Shiller is an advocate of discursive psychology when he declares in his book The Subprime Solution – How Today’s Global Financial Crisis Happened, and What to Do about It that “a good part of what drives people’s thinking is purely social in nature”.
Another economist who foresaw the burst of the housing bubble is Dean Baker. He was may be the first to do it. In his paper “The run-up in Home Prices: Is it Real or Is It another Bubble?”, published in 2002 by his ^ located in Washington, D.C., he concluded that “a major factor driving housing sales is the expectation that housing prices will be higher in the future”. Before writing this article, Baker had a very rich experience in the analysis of discourses concerning consumer price index (in his book published in 1998) and social security (his book of 1999). We will not find in his paper of 2002 any discourse analysis; it is very technical and quantitative. As Dean Baker explained to me in our phone conversation, the way he came to his conclusions about the housing bubble and the way he presented them in this article are very different. His conclusions were made on the basis of the analysis of actors’ discourses and the form of his paper was adapted to the norms of discourses in the community of economists. He declared that it was impossible to understand the mechanism of this bubble only on the basis of quantitative data. He described this mechanism later in his book Plunder and Blunder – The Rise and Fall of the Bubble Economy. I guess that the other economists who foresaw the crisis did it also on the basis of the discursive approach but, as Baker did, they adapted their presentation to the norms of discourse acceptable in the community of economists. The recent book of Nouriel Roubini, Crisis Economics – A Crash Course in the Future of Finance, can serve as an example.
Paul Jorion, a person from outside the community of economists, who foresaw the crisis, had no need of following these norms. By reading his book “The crisis of American capitalism” (written in 2005 and published at the very beginning of 2007), we can understand in what way he came to his conclusions. Trained as an anthropologist, he was working in the American company, Countrywide, the largest company in the world specialised in consumer credits, and in this way he was fully immersed in the discourses shared by all participants of the housing market in the United States. These discourses contained and justified the rules and conventions that all these participants followed. Paul Jorion’s analysis was very simple. It was based on his knowledge of the rules for lending housing credits for low income families (subprimes) and on rules on mortgage-backed securities. It was also based on his knowledge of Americans’ belief that “the market is always right”, and on his careful analysis of the discourses of the Federal Reserve’s Director, Alan Greenspan. It enabled him not only to foresee the coming of the crisis but also to forecast its mechanism.
The discursive approach was developing in the framework of the social constructionism. The fundamental work in this domain is the book written by Peter Berger and Thomas Luckmann, The Social Construction of Reality published in 1966. The starting notion of social constructionism of these authors is the same as in the pragmatism of Charles Peirce: it is the notion of habit. Habitualization implies that the actions may be performed again in the future in the same manner and with the same economical effort. In terms of the meaning bestowed by man upon his activity, habitualization makes it unnecessary for each situation to be defined anew. Institution is defined in this book as typification of habitualized actions. “The typifications of habitualized actions that constitute institutions are always shared ones <...> Reciprocal typifications of actions are built up in the course of a shared history. They cannot be created instantaneously.” May be the most important notion formulated in this book is the notion of institutional knowledge which is defined as a knowledge that supplies the institutionally appropriate rules of conduct. This knowledge contains the rules and their justifications. “It is the sum total of ‘what everybody knows’ about a social world, an assemblage of maxims, morals, proverbial nuggets of wisdom, values and beliefs, myths and so forth <...> Such knowledge constitutes the motivating dynamics of institutionalized conduct. It defines the institutionalized areas of conduct and designates all situations falling within them.” Instead of the notion of institutional knowledge, Rom Harré uses the notion of social knowledge. According to him “a person’s ability to act and to account for what has been done depend upon his/her stock of social knowledge”. The communally shared institutional or social knowledge in a certain community is the source of social regularity that can be observed in this community. As Rom Harré wrote: “If one wants to explain some social phenomena one might say that it was the rule or the convention that made one do it, so that was where the source of causal efficacy in the social world is to be located”.
The discursive approach adds to social constructionism a hermeneutic dimension. At present the absolute majority of economists and many social scientists do not pay attention to the fact that “people alone among animals can speak [and] people can give accounts of what they are doing, disambiguating their actions and justifying them by reference to rules, conventions and customs”. Because language is a major instrument in many human activities, then studying the uses of this instrument would be a way of studying these activities. “Through the mediation of language there is an unbroken continuum between thought and action”. Following the discursive approach, the researcher “is concerned predominantly with language in use as the accomplishment of acts or as attempts of their accomplishments”. The economists still rely on the model of Economic Man. The Behavioural Economics, which claim to change fundamentally the way the economists conceptualise the world, just extends the standard economics framework making the model of Economic Man “more accurate”. The discursive approach is based on a totally different model, the Anthropomorphic Model of Man where the person is considered not only as agent but also as watcher, commentator and critic.
The discursive approach is based on ontology totally different from that inherited from the Newtonian mechanics.
^ (Rom Harré, 1994)
What we have to investigate in social sciences - economics is (or has to be) a social science - are not things and events but discourses consisting of speech acts. Because social relations are mediated by language, conversations can be considered as primary social reality which has to be studied. Instead to look for causal relations, social scientists (including economists) have to try to reveal rules and supporting story lines. In order to do it “the experimenter or the observer has to enter into a discourse with the people being studied and to try to appreciate the shape of the subject’s cognitive world”. The researcher has “to know what a situation means to a person and not just what the situation is (<…> as [it is] seen by an observer) if we are to understand what that person is doing”. For this kind of research, it does not matter where and even when something was said but what really matters, it is who said that. Institutional or social knowledge is not universal; it is local. That is why the people to be contacted have to have the institutional/social knowledge linked with phenomena under study. In this sense “array of people” means people from a certain appropriate community. For example, in order to study financial markets, it is necessary to contact financial professionals like traders and not graduate students of economics as it takes place in the so-called “experimental economics”. At the same time, “array of people” means a sample from a target community. The choice of the people in the sample and its size made in the framework of discursive approach are done in a totally different way in comparison with the mechanistic approach. The researcher contacts people who are willing to share their institutional/social knowledge. The size of the sample (number of people contacted) is determined by the so- called “theoretical saturation”, when the researcher learns nothing new by additional people contacted from the target community.
In the previous section of my presentation, I spoke of those who foresaw the crisis, but I did not touch upon the question as to why the economics profession as a whole failed to do it. Paul Krugmann in ^ of September 6, 2009, explained this failure in the following way: “As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth”. Partially it is true. He rightly noticed that the profession was divided in two main camps of believers: those who believed in absolute market efficiency and in the impossibility of any serious collapse, and those who “believed that economies may stray now and then but that any major deviations from the path of prosperity could and would be corrected by the all-powerful Fed. Neither side was prepared to cope with an economy that went off the rails despite the Fed’s best efforts.” Both could not foresee the crisis because of their beliefs and the fact that they were completely out of touch with socio-economic reality. Krugman apparently did not put himself in one of these camps. In fact, in 1999 he published a book called The return of Depression Economics. Anyway he did not foresee the crisis nor did he correctly explain its mechanism in the second edition of this book issued ten years later, because in his research he followed the misleading ontology similar to the Newtonian one, oriented to the search of causes of events in space and time.
Now, in a similar way as Rom Harré did for ontology, I would try to present discursive epistemology in comparison with the Newtonian one. Edwin Arthur Burtt in his book The Metaphysical Foundations of Modern Science first published in 1954 described Newton’s experimental-mathematical method in the following way:
“First, the simplification of phenomena by experiments, so that those characteristics of them that vary quantitatively, together with the mode of their variation, may be seized and precisely defined.
Second, the mathematical elaboration of such propositions, usually by the aid of the calculus, in such a way as will express mathematically the operation of these principles in whatever quantities or relations they might be found.
Third, further exact experiments must be made (1) to verify the applicability of these deductions in any new field and to reduce them to their most general form; (2) in the case of more complex phenomena, to detect the presence and determine the value of any additional causes (in mechanics, forces) which can then themselves be subjected to quantitative treatment; and (3) to suggest, in cases where the nature of such additional causes remains obscure, an expansion of our present mathematical apparatus so as to handle them more objectively.”
This method showed its efficiency in natural sciences, especially in physics. The world of Newton can totally be characterized by figures, quantitatively. Most of the present day economists believe that the economic world can be characterized in the same way. They don’t asked themselves the question “what is the source of socio-economic regularities?”. For Newton, the source of Nature’s regularities was the Creator. For Adam Smith, the source of socio-economic regularities was the same; his “invisible hand” was the Divine Hand. Antony Waterman, Professor of Economics at the University of Manitoba, in his book Political Economy and Christian Theology Since the Enlightenment published in 2004, on the basis of content analysis of the text of “Wealth of Nations”, came to the conclusion that the words ‘nature’ and ‘natural laws’ play in this text the same role as the words ‘God’ and ‘Divine Laws’ played in traditional theological texts. Social constructionism does not need the hypothesis of the creation of either natural or socio-economic worlds by God. Neither does it accept the belief of most of the economists and many social scientists that the social world happens. It is based on the assumption that the social world is socially constructed. I already spoke about the crucial role of language in this construction and about institutional/social knowledge as the source of socio-economic regularities. In the light of all this, I would formulate the analogue for socio-economic research of the first step in the Newtonian scheme as follows: Assimilation by researchers of institutional/social knowledge of actors connected with the phenomenon under study on the basis of analysis of discourses.
Most of the economists and many philosophers of science distort the first step in the Newtonian scheme; they transform his scheme into the hypothetico-deductive scheme in which the first step is not experimental at all. According to Nobel Prize in Chemistry, Ilya Prigogine, and Philosopher of Science, Isabelle Stengers, in their book subtitled Man’s New Dialogue with Nature initially published in 1984, natural scientists have some kind of experimental dialogue with Nature. This dialogue “corresponds to a highly specific procedure. Nature is cross-examined through experimentation, as if in a court of law, in the name of a priori principles, Nature’s answers are recorded with utmost accuracy, but the relevance of those answers is assessed in terms of the very idealizations that guided the experiments. All the rest does not count as information, but is idle chatter, negligible secondary effects”. It means that this dialogue is going on using the language of a theory which “guides the experiment”. However unlike Nature which can communicate with researchers probably only in the language of researchers’ theories, the actors, active objects of socio-politico-economic research, are also human beings, who can communicate with researchers not in language of researchers’ theories but in English, French or Russian which can be understood by both sides. It means that economists who transfer the practice of dialogue with Nature in natural sciences to practice of dialogue with Human beings commit a mistake. What Prigogine and Stengers are saying is that quite often investigators of nature are forced to design their experiments as testing of some theories. Some methodologists of economics understand potential dangers of this kind of testing: “The first step in testing a scientific theory was to deduce certain empirical predictions from the theory and its initial conditions. The second step was to check these predictions against the observational evidence; if the empirical predictions turned out to be true, the theory was confirmed, and if these predictions turned out to be false, the theory was disconfirmed. In either case, it was not induction, but rather the deductive consequences of a scientific theory, that were relevant to its empirical support <…> Hypothetico-deductive method allowed scientific theories to be ‘based on’ empirical observations (deductively) without actually being ‘built up from’ those observations (inductively).” (Davis, Hands and Maki, 1998 p. 376) In this way the realism of research depends on a priori guessing of realistic theory. In the case of simple systems, which were studied in classical physics, such guessing was possible. For more complex system such guessing becomes very improbable. Systems studied by economic science are never simple and that is why a priori theories do not have any chance to serve as a basis for understanding of economic phenomena. No testing of this kind of theories would help: “Cut off from observation as a source of truth, the Cartesian mind puts great emphasis on ‘testing’ to reaffirm its realism. But testing is not a guarantee of correct ideas because, having lost its mooring in reality, the economic mind has created so many conundrums, puzzles and purely mental constructs that testing proves everything and nothing.” (Mini, 1994, p. 41)
Let’s come back to the Newtonian research scheme. Economists are really champions among social scientists in applying literally the second Newtonian research step to economics: mainstream economics is heavily mathematical. It became possible on the basis of Newtonian space and time/things and events/causality ontology. The transition to the discursive ontology of arrays of people/speech, acts/rules and story lines radically transforms the letter of the second Newtonian step, but it strongly supports its spirit. It takes the form of the preparation of ‘thick description’ (a term proposed by the anthropologist Clifford Geertz), on the basis of actors’ discourse study exposing their meanings concerning the phenomenon under study. Preparation of a ‘thick description’ can include the elaboration of concepts (if necessary) rooted in qualitative and quantitative data. ‘Thick description’ contains an understanding of the phenomenon under study.
The analogy of the third Newtonian research step can be resumed as follows: further observation/experiment must be made by changing arrays of people in order to understand the phenomena under study in its most general form, and analysis of appropriate historical data in order to understand historical roots of the phenomenon under study and, in this way, to deepen its understanding.
As you know, the discursive turn already took place in psychology. Discursive Psychology has now become an established stream of this discipline. The discursive approach has been used recently by political scientists under the name of Discursive Institutionalism or Constructivist Institutionalism (the latter name is the title of a chapter in the Oxford Handbook of Political Institutions published in 2006). Political scientists analyse ideas and discourses in order to explain the dynamic of change or continuity. For example, the article of Colin Hay, from the University of Birmingham, which has been published in 2001 in the book The Rise of Neoliberalism and Institutional Analysis, investigates in the framework of discursive institutionalism the crisis of Keynesianism and the rise of neoliberalism in Britain. Vivien Schmidt from Boston University, who is a very active advocate of discursive institutionalism, published in 1996 a book, From State to Market – The Transformation of French Business and Government, with research based on interviews with several dozen top French business executives and government officials.
For the moment, the name “discursive economics” has not yet been used. Nevertheless, I can say that the discursive turn begins to take place in this discipline. Two influential economists - already-mentioned Robert Shiller and his co-author, Georges Akerlof (winner of the 2001 Nobel Prize in Economics) – already work using the discursive approach. In their book published in 2009 sub-titled How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism, in a special chapter they continue to develop the idea already expressed earlier by Shiller of the crucial influence of the circulation of stories on economic life. The following statement expresses this idea very vividly: “It is generally considered unprofessional for economists to base their analyses on stories. On the contrary, we are supposed to stick to the quantitative facts and theory – a theory that is based on optimisation, especially optimisation of economic variables <…> But what if stories themselves move markets? What if these stories of overexplanation have real effects? What if they themselves are a real part of how the economy functions? Then economists have gone overboard. The stories no longer merely explain the facts; they are the facts”. The first page of the chapter “Stories” of this book can be considered as a summary of such topics of the discursive psychology as ‘self’ and ‘memory’: “The human mind is built to think in terms of narratives <…> much of human motivation comes from living a story of our lives, a story that we tell to ourselves and that creates a framework of motivation <…> stories and storytelling are fundamental to human knowledge. People’s memories of essential facts are indexed in the brain around stories. Facts that are remembered are attached to stories. Conversation <…> not only serves to communicate information in a form that is readily absorbed, it also serves to reinforce memories related to stories. We tend to forget stories that we do not repeat to others”.
Akerlof and Shiller frequently declare their link with behavioural economics. In the introduction to their common book they declare that it “draws on an emerging field called behavioural economics”, but I think that readers who know the works of Daniel Kahneman, Amos Tversky and Richard Thaler will not recognise the ontology and epistemology on which these works are based in the book of Akerlof and Shiller. They are radically different. Akerlof implicitly acknowledges this radical difference: “Leading economists <…> have brought fairness into our purview. They argue that people care about being fair and being treated fairly. The utility function then should take account of such concerns. Fairness thus conceived can explain many results from experiments where subjects – usually students at a university laboratory – participate in scenarios that mimic economic transactions. Instead of maximizing their own monetary reward, subjects tend to choose outcomes that look ‘fair’. But in the real world, individuals’ conceptions of fairness depend on the social context. In many places it is seen as fair and perhaps natural to treat other people in ways that elsewhere are considered unfair and even cruel”. This is the quotation from the book of George Akerlof and Rachel Kranton Identity Economics – How our Identities shape our Work, Wages, and Well-being published this year. I consider this book as a very serious contribution to the promotion of the discursive approach to economics.
Akerlof and Kranton criticise in their book the basic presumption, that most economists maintain, that “preferences are individual characteristics independent of social context”. They declare that “this presumption ignores the fact that what people care about, and how much they care about it, depends in part on their identity”. The book of Akerlof and Kranton devotes a special chapter to economic methodology. The authors of the book are not satisfied with “a remarkable consensus [of economists] on how to conduct research <…>: we first choose a model, or a theory. We then test the model against observations and reject it if it does not fit”. They disagree with the “standard economic methodology with its emphasis on statistical analysis” which considers detailed qualitative studies as worthless and ‘anecdotal’. They suggest that economists undertake an ethnographic style of research: “From the many details they record, and the attention they give to the subtexts of what people say, they construct a consistent picture of the people’s behaviour. Indeed, the very best ethnographic studies do not just record what people say; they decode what people say and do”. The authors acknowledge that quantitative studies oriented to the identification of causality are useful, “but they may only hint at what we really want to know”. They think that detailed descriptions are much more useful for understanding a phenomenon under study than any statistical tests. They are sure that “identities and norms are easy to observe”. We observe them “in how people talk about their lives. Many people can readily describe how they think they should behave and how others should behave. Transgressions are the stuff of gossip. The outside observer – for example, the visiting anthropologist – need only learn the stories and listen to the gossip to infer the norms”.
I can mention at least three more economists (including myself), outside of those who were mentioned above, who apply the discursive approach in their research. Professor of Economics at Yale University, Truman Bewley, maybe under the influence of Robert Shiller, investigated the problem of his speciality, wage rigidity, by interviewing over three hundred business executives and labour leaders as well as professional recruiters and advisors to the unemployed. His book Why Wages don’t Fall during a Recession published in 1999 contains a lot of quotations from these interviews which accompanied his analysis. His findings contradicted many theories concerning wage rigidity.
John Dengbol-Martinussen was Professor of Development Economics and Political Science at Roskilde University, Denmark. In 2001 he published his book ^ . This is an extract from his book concerning his research method: “I have tried to combine macroeconomic and macro-political analyses with detailed studies of actors’ perceptions and responses. The latter have been based on a review of public statements, relevant documents as well as interviews with key decision-makers. The aims of the interviews have been to try to determine (a) how policies have been evolved and implemented in practice; (b) how the policies and the mode of implementation have been perceived by those involved in political and administrative decisions and formulation of corporate strategies; and (c) how the organisations and enterprises they represent have reacted in practice.” It is interesting to note that the questionnaires he prepared, played a rather secondary role in his interviews, which looked like only partially structured conversations.
I myself, in the late 1990’s early 2000s, the time of my affiliation to the University of Geneva,
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