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Markets as a Function of Language

Central bankers have for three or four decades been engaged in a deep, albeit implicit, anthropological exploration, a search for new means by which monetary affairs could be anchored conceptually—not to gold or to regimes of fixed exchange rates—but by means of an evolving relationship with the public in which our predicaments can serve as the fulcrum of policy. The public has been recruited to participate in the staging of this drama by means of persuasive analytical stories intended to shape expectations and, thus, economic behavior prospectively. This evolving communicative relationship is sustained and enlivened by research that, among other things, continually gleans the descriptive, explanatory and interpretive labor of economic actors incorporating their intelligence for policy.

Over the last ten years I have observed how the personnel of five central banks—The European Central Bank, the Deutsche Bundesbank, the Reserve Bank of New Zealand, the Swedish Riksbank, and the Bank of England—participated in the creation of a monetary regime impelled by a series of communicative experiments that predate the financial crisis and that have been refined and modified in the teeth of the unfolding turmoil. This compendium of experiments has been instrumental in the management of some of the most vexing circumstances that arose in the wake of the failure of financial markets after the collapse of Lehman Brothers. Known narrowly and rather prosaically as “inflation targeting,” these experiments established the intellectual architecture and the regulatory precursors of what I have termed, a “public currency.”

The aim of this experimentation is to influence future sensibilities—not merely sensibilities about the future but also sensibilities in the future—to shape the expectations that impel the most fundamental dynamic of market economies: the evolution of prices. The bridge to the ephemera of expectations, to sensibilities in the future, is constructed in part with language, through the technical modeling of what I refer to as an “economy of words.” The logic guiding these linguistic experiments goes like this: If the behavior of prices is “expectational”—as Irving Fisher, JM Keynes, and Knut Wicksell initially proposed in the 1920s—then an anticipatory policy that projects central bank action into the future becomes a means to influence these sentiments. As economic agents—that is, you and I—assimilate policy intentions as our own expectations, we do the work of the central bank. The instruments developed to manage expectation are expressed most concisely in official statements—typically running between 500 and a few thousand words—which the major central banks of the world publish periodically in support of their interest rate decisions.

These “econometric allegories,” as Alan Blinder and Ricardo Reis term them—evoking the persuasive labor these narratives are called upon to perform—draw on the full intellectual resources of these institutions, the research acumen, the judgment, and the experience of their personnel. They project a forecast of economic and financial conditions over a horizon of approximately one to two years, along with an explanation of how the respective banks’ interest rate policy will maintain consumer prices around or within an inflation target range. By the onset of the financial crisis, however, a monetary regime was emerging that was predicated on but not simply reducible to the protocols of inflation targeting.

During my fieldwork in late 2008 and early 2009, I observed how these allegories assumed far greater importance as central bank personnel grappled with some of the most vexing problems in macroeconomics. First in Wellington and then in Stockholm, I examined how personnel faced a double challenge at the outset of the financial crisis. They had to draw on state of the art ideas in academic economics for their technical insights, but in addition they had to craft their solutions in a manner that made them plausible to the public; their solutions had to be rendered coherent communicatively in order to yield effective policy. This reliance on explanation presumed very important shifts, by which economic actors have come to be conceived of as thinking and reflexive subjects—protagonists—who are capable of employing theory and parsing the ambiguities of data and the anomalies of information.

In 2012 the leadership of the European Central Bank was compelled to model a communicative relationship by which the public was persuaded to collaborate in the restoration of faith and credit in an irrevocable monetary union. Mario Draghi, President of the ECB, acknowledged the urgency of imparting a relational language to the monetary regime, asserting that enhancing “social cohesion” was the decisive feature of the EU’s approach to the financial and sovereign debt crises. The commitments to sustain social welfare and the promises to preserve human dignity were rarely acknowledged as overriding concerns in the midst of the crisis, but in the summer of 2012, Draghi saw fit to foreground them as such. Benoît Cœuré, member of the Executive Board of the European Central Bank, was emphatic on this issue. “Commitment to monetary stability is not only grounded in its economic merits but is also a cornerstone of the social contract.” In other words, the challenge of saving the euro required a redesign of the basic imperatives of the financial system aligning them explicitly with a public interest. The rancorous struggles that emerged in the midst of the European sovereign debt crisis, forced in 2012 a creative articulation by Draghi of what is broadly at stake in the management of a public currency: the totality of promises that bind us together.

In April Janet Yellen noted, that for the first time (in 2003) the Federal Open Market Committee [FOMC] began “using communication—mere words—as its primary monetary policy tool….The FOMC had journeyed from “never explain” to a point where sometimes the explanation the policy.” Yellen and her colleagues at the major central banks of the world have advanced a monetary regime in which words and explanation play a decisive role. As Chair of the Federal Reserve System, Janet Yellen will need to articulate issues of monetary policy and financial stability, not as mere technocratic matters, but as abiding human concerns. She will have to navigate and manage the shifting grounds upon which we, the public, are acknowledged as protagonists in monetary affairs, and our circumstances the imperatives of and for policy. She will confront markets, particularly financial markets, as a function of language.

Douglas R Holmes teaches anthropology at Binghamton University.

Contact SAE Contributing Editor Tracey Rosen at

As economic agents—that is, you and I—assimilate policy intentions as our own personal expectations, we do the work of the central bank.

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