"Give me an economist and I will raise the market!"
Are financial markets really embedded in economics rather than society?
This DIIS Working Paper reveals a number of biases among influential scholars in economic and financial sociology. It reviews an expanding literature which controversially contends that economic theories are self-fulfilling prophecies: economists build markets to fit their models. The key role of economists is thus redefined from analysts to social engineers and a focus is put on their social power within the economic and financial world, rather than on their ability to deliver neutral and exact descriptions and predictions of these worlds.
To much surprise for traditional scholars of economic and financial sociology, the literature generally concludes that the ‘laws of the market’ and a purely rational ‘economic man’ can actually come into being in real existing markets. In this sense, they agree with most economists. However, economic man is neither analyzed as a ‘natural being’ nor a ‘social being’. Instead s/he is depicted as an assemblage produced by the very economists who claim to describe him/her: an ephemeral ‘cyborg’ equipped with tools and prostheses that make him/her capable of doing the calculations necessary for the economic theories to become true.
|Although the paper finds this approach very original and useful in some contexts, especially when studying expanding Western financial markets, it also points out a number of general flaws. For instance, the literature has a strong and unsubstantiated propensity towards telling the ‘success stories’ of markets and towards studying the enhanced capacity of economists to build the perfect markets talked about in theories. In light of the current economic and financial crisis the paper calls, instead, for research that looks further into the failures of mainstream economic theories and the vastly consequential breakdown of markets.