Andre Orlean an Economic Fact is a Social Fact Like Any Other

7/29/2019 Andre Orlean an Economic Fact is a Social Fact Like Any Other

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An Economic Fact Is a Social Fact Like Any Other

Andr Orlan

Paper Delivered at the Joint Conference AHE, IIPPE, FAPE:Political economy and the outlook for capitalism

July 57, 2012, Paris, France

My talk today is concerned with the following questions: What is the purpose ofeconomic theory? Why should a sociological perspective be insufficient to account foreconomic facts? Are economic facts different from social facts?

The answers to these questions are to be found, I believe, by examining the very

distinctive way in which economic theory understands the notion of value. There is acrucial difference, as I will show, between economic reasoning and sociologicalreasoning. The difficulties to which this situation leads can be removed only ifeconomists modify their conception of value and follow social sciences in regardingvalue as a collective representation and a shared belief.

The argument that I sketch here is taken from my new book Lempire de la valeur (Seuil,2011), which will, I hope, soon be available in English. The book is divided into threeparts. The first part deals with the analysis of value, the second with the theory ofmoney, and the third with the theory of finance. My talk today deals with the Parts oneand two.

My thesis can be summarized as follows:Economic value can be understood as a substance, utility or scarcity or labor, or it can beunderstood as a power, the kind of social power that Durkheim analyses, what he callsmoral authority. This is the alternative I will present.

Part One : Value as a substancePart Two : Money as a social power.


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Substance Value

The social sciences all deal with values: religious, moral, aesthetic, social, as the casemay be. In this sense economics may be said to be a social science like any other,because it tries to explain how a market society comes into existence through the sharingof a particular set of values. Economics makes the same basic assumption, in otherwords, that the other social sciences do: agents are able to coordinate their behaviorbecause they share certain values. One should think, then, that the social sciences wouldexhibit a fundamental unity, since each of them, in its own way, studies social values inrelation to the production of social life. But this turns out not to be true. Why? Thereason is that economic theory analyzes value in a completely different way than theother social sciences. It has traditionally regarded value as a substancelabor in the

case of classical theory, utility in the case of neoclassical theory. Whereas economistsconsider value to be an objective fact, their fellow social scientists regard value as a set ofsocial representations, which is to say as the expression of a set of collective beliefs. Thisdifference in perspective is crucial.

For example, as we all know, neoclassical economics deals with scarcity, which it takesto be an objective constraint that affects all agents, regardless of their beliefs, whereashistory and sociology study opinions, whose meanings vary from one group or society toanother. It would not be an exaggeration to say that economists construct the coreidentity of their disciplineagainstthe others by means of this paradigmatic contrast,between the flexibility of opinions and the objectivity of values. In a paper delivered atthe meeting of the French Association of Political Economy in 1908, on the positionoccupied by political economy among the other social sciences, mile Durkheim (1975[1908]) pointed out the limits of this contrast.

What makes this question difficult is that, at first sight, political economyappears to deal with facts of a very different nature from the other socialsciences. Morality and law are essentially matters of opinion. Wealth, which isthe subject of political economy, seems on the contrary to be essentiallyobjective and independent of opinion.

He then hastened to suggest that the distinction is incomplete, if not actually misleading:

However, the present speaker believes that economic facts can beapproached from another viewpoint; they are also, to a degree that I will notattempt to define, a matter of opinion. For the value of things depends, not onlyon their objective properties, but also on the opinions held about them. Ifreligious opinion should forbid a certain drinkwine, for exampleor a certainmeatpork, saythen wine or pork would lose some or all of their exchangevalue. Likewise, it is changes in opinion, in taste, which give their value to onefabric or precious stone rather than another. The level of wages depends on afundamental standard that corresponds to the minimum of resources necessary fora man to live. But this standard is determined, in every era, by opinion. What


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yesterday was considered to be a sufficient minimum no longer satisfies therequirements of moral conscience today.

Taking this into account,

the relations between economic science and the other social sciences appear in adifferent light. They all deal with phenomena which, considered at least from acertain angle, are homogeneous, because they are all, in certain respects, mattersof opinion. Political economy thus loses the preeminence it has claimed foritself, and becomes a social science alongside the others, closely related to them,with no valid claim to rule over them. (219-220; translation slightly revised)

Durkheim was therefore recommending that economists treat the hypothesis ofobjectivity with circumspection. To his great surprise, this view aroused shock and

dismay among the economists in attendance.

Opinion, Edmond Villey declared, does not determine value, which isdetermined by rigorous natural laws. [I]it is always the law of supply anddemand, completely independently of opinion, which determines prices, as itdetermines all values. (ibid., 223) Paul Leroy-Beaulieu went further: [P]oliticaleconomy stands above the other social sciences: it is the only one to have anindestructible and positive foundation, and its laws are immutable, howeveropinions may vary. (225)

One can scarcely imagine a better example of the resistance displayed by economists

even today when the assumption of objectivity is called into question, or when it issuggested that subjective opinion matters. The situation has not noticeably changed sincethen.

A fine illustration of the way economists continue to study value in our own time wasgiven by Lon Walras himself in theElements of Pure Economics (1954 [1874-77]).Walras held that economic value is composed of a substance known as scarcity (raretin French), and that it is determined prior to any particular transaction. It is preciselybecause goods are scarce that they are valuable, and therefore that exchange can takeplace.

By social wealth, Walras says, I mean all things, material or immaterial, thatarescarce, that is to say, on the one hand, useful to us and, on the other hand, onlyavailable to us in limited quantity. (65)

Trade therefore arises from scarcity:

[U]seful things limited in quantity are valuable and exchangeable. Once allthings that can be appropriated (that is, all scarce things and nothing else) havebeen appropriated, they stand in a certain relationship to each other, a relationshipthat stems from the fact that each scarce thing, in addition to its own specific


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utility, acquires a special property, namely, that of being exchangeable againstany other scarce thing in such and such determinate ratio. (67).

Values in exchange, Walras concludes, are proportional to the rarets (175), whererarets is to be understood as meaning marginal utility.

Here we see clearly that neoclassical theory takes the notion of utility to be a given,operating on individual preferences in such a way that, in combination with somespecified quantity of available resources, it fully accounts for the movement of prices andthe level of trade.

On the assumption that exchangeability is a quantitative fact measured by the scarcity ofgoods, four properties can be derived:

1) the dominant role of barter;2) the exclusion of money;3) the neglect of social relations shaping exchange;4) the conception of value in relation to the economy as a whole.

I do not have time today to discuss each of these points in detail. Let us consider simplythe first one, having to do with barter. We are all aware that economists, when they thinkof exchange, have long been accustomed to think of goods being traded for other goods.The obsession with barter seems all the more paradoxical in view of the fact that, on theone hand, barter is typically practiced in non-market economies, and, on the other, itsappearance in developed market economies is the sign of their dysfunction. How is it

possible that barter should be held up by neoclassical theory as the paradigmatic case ofmarket exchange? The reason is very simple. Because value is considered to be asubstance that inheres in goods themselves, it follows that the exchange of one good foranother is the simplest way of observing how value functions. Money appears then as adistorting complication, a sort of detour that serves only to make the actual working of aneconomy more opaque. As Schumpeter (1954) put it:

Not only can [money] be discarded whenever we are analyzing the fundamentalfeatures of the economic process, but it mustbe discarded just as a veil must bedrawn aside if we are to see the face behind it. Accordingly, money prices mustgive way to the exchange ratios between the commodities that are the really

important thing behind money prices. . . . (277)

The prestige attached to direct exchange by economic theory, inordinate by comparisonwith its infinitely marginal role in actual economies, is therefore the consequence of abaseless assumption, namely, that value is a substance.

I maintain, by contrast, that economic value is a value like any other social value. If thisis so, then economic theory must follow the example of the other social sciences andcome to see economic value as a form of mediation,in short, as a social institution.This way of looking at the matter is far from common, as I am the first to admit.


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Nevertheless it was eloquently expressed by Simmel (1990 [1900]) more than a centuryago:

It follows from all this that exchange is a sociological phenomenon suigeneris, an original form and function of social life. It is in no way alogical consequence of those qualitative and quantitative aspects of thingsthat are called utility or scarcity which acquire their significance for theprocess of valuation only when exchange is presupposed. If exchange,that is the willingness to sacrifice one thing in order to acquire another,is precluded, then no degree of scarcity of the desired object can produceeconomic value. (100)

It follows that we have to take a new way to understand what is value.

Money as a social power

In a market economy, each person depends on every other person to obtain the goods heneeds in order to survive. He can obtain these goods only by persuading others to tradewith him. This is the mystery of a market economy: how can I be sure that others willprovide me with the goods that are indispensable to my livelihood? Why should theywant to do such a thing?

Adam Smith (1976 [1776]) gives the clearest description of the problem faced by allmarket actors:

every prudent man, after the first establishment of the division of labour, mustnaturally have endeavored to manage his affairs in such a manner, as to have at alltimes by him, besides the particular produce of his own industry, a certainquantity of some one commodity or other, such as he imagined few people wouldbe likely to refuse in exchange for the produce of their industry. (1:37-38)

This calculation demands foresight and imagination: each individual must try todetermine in advance which goods will hold appeal for others. The first question that aproducer asks himself in a market economy, then, is this: how can I be assured of havingaccess to goods possessed by others? The answer lies in the fact that certain goodspossess a particular power that I propose to call liquidity. Liquid goods have theproperty of being accepted by a large number of producers. They have a specific power, apurchasing power. Liquidity is crucial. Liquidity is the direct expression of value.Therefore economic value is no different from other social values: it is the result of theemotional significance that has been invested in liquid goods by certain members of thegroup.


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It is clear that this power cannot help but give rise to conflict: each agent will seek toimpose a certain definition of liquidity, which is to say the one that conforms mostclosely to his own interests. A market economy, in other words, is a deeply dividedworld. And yet it is also a world in which the more widely a liquid good is accepted, themore widely it will be desired, for its suitability as an instrument of exchange is greaterthan that of other goods: each agent will seek to determine which liquid good is the mostwidely used in the economy as a whole, and use that one while abandoning the rest. Weare therefore dealing with a phenomenon of increasing returns to adoption in which thedynamic of positive feedbacks leads an increasingly large number of actors to choose themost favored commodity, so that the number of such commodities ultimately convergesto one. If no external obstacle interferes, this process of mimetic polarization producesunanimity: all the members of the group now agree on what counts as a liquid asset, andso the former state of fragmentation disappears. This ultimate liquid asset, whose valueeveryone recognizes, is known as a currency, or money.

Money is a power over people and commodities. This power is traditionally known aspurchasing power. What I claim, however, is that purchasing power enjoys anautonomous existence in relation to the desire for commodities. Money causes the desirefor commodities to assume an abstract form, independent of the commodities themselves.Insofar as this is so, money is the condition of exchange. The desire for money is thefundamental energy that animates market economies. In no way can it be conceived of asa substance; it bears all the marks instead of what Durkheim (1995 [1912]), speaking ofthe elementary forms of religious life, called collective feelings or beliefs, and what I callcommon emotion, or power of the multitude after Spinoza. The idea that social groupssupport an altogether distinctive form of mental activity, one that possesses a dynamism

and an authority not found in isolated individuals, is a constant theme in all ofDurkheims writings. This concept of moral authority occupies a crucial place insociological analysis, he says (1953 [1911]), because it is the foundation of social valuesand the source of their power:

When individual minds are not isolated but enter into close relation withand work upon each other, from their synthesis arises a new kind of psychiclife. It is clearly distinguished by its peculiar intensity from that led by thesolitary individual. Sentiments born and developed in the group have agreater energy than purely individual sentiments....

This is a remarkable passage. Everything that is thought and felt in common, Durkheimsays, comes to exert a transformative influence over individual minds. What he callseffervescencethe ferment of ideas and emotions that occurs when individual minds areplaced in close interactions with one anotherbrings about the emergence of moral lifeand collective ideals.

Value is therefore not a substance. It is a power. Where does this power come from?What sort of power is it? It comes from the social group itself, which invests its beliefsin an object and, in so doing, confers authority upon it. In economic life, this powerful


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object is money. Value arises from the force of attraction that money exerts overindividual minds. It is for this reason that money cannot be considered a neutralinstrument: the power of the multitude having been concentrated in it, money is liable toundergo abrupt changes in value (as, for example, when all actors suddenly turn toward itbecause they no longer have confidence in the real economy). The usual categories usedby economists to model individual choice are therefore manifestly inadequate.

What we are dealing with is a set of collective dynamics. This means, among otherthings, that money belongs as much to sociology as to economics; and also that barriersbetween the two disciplines are an obstacle to thinking clearly about fundamentalconcepts. For what money shows us is that an economic fact is a social fact like anyother.

Thank you.


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Bibliography

Durkheim, mile. 1975 [1908]. Dbat sur lconomie politique et les sciencessociales inTextes. 1. lments dune thorie sociale, Paris, Les ditions de Minuit,coll. Le sens commun , 218-225.

______. 1953 [1911]. Value Judgments and Judgments of Reality. In Sociology andPhilosophy, trans. D. F. Pocock, 80-97. Glencoe, Ill.: Free Press.

______. 1995 [1912]. The Elementary Forms of Religious Life. Trans. Karen E. Fields.New York: Free Press.

Menger, Carl. 1892. On the Origin of Money. Trans. Caroline A. Foley. EconomicJournal 2:239-255.

Schumpeter, Joseph A. 1954. History of Economic Analysis. New York: OxfordUniversity Press.

Simmel, Georg. 1990 [1900].The Philosophy of Money. Ed. David Frisby, trans. TomBottomore and David Frisby. 2nd aug. ed. London and New York: Routledge.

Smith, Adam. 1976 [1776]. An Inquiry into the Nature and Causes of the Wealth ofNations. Ed. R. H. Campbell and A. S. Skinner. 2 vols. Oxford: Clarendon Press.

Walras, Lon. 1954 [1874-77]. Elements of Pure Economics, or the Theory of SocialWealth. Trans. William Jaff from 4th ed., rev. and aug. (1926). Homewood,Ill.: Irwin.

Translated by M. B. DeBevoise

Andre Orlean an Economic Fact is a Social Fact Like Any Other

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