Markets are artifacts of languageso Douglas R. Holmes argues in this deeply researched look at central banks and the people who run them. Working at the intersection of anthropology, linguistics, and economics, he shows how central bankers have been engaging in communicative experiments that predate the financial crisis and continue to be refined amid its unfolding turmoilexperiments that do not merely describe the economy, but actually create its distinctive features.
Holmes examines the New York District Branch of the Federal Reserve, the European Central Bank, Deutsche Bundesbank, and the Bank of England, among others, and shows how officials there have created a new monetary regime that relies on collaboration with the public to achieve the ends of monetary policy. Central bankers, Holmes argues, have shifted the conceptual anchor of monetary affairs away from standards such as gold or fixed exchange rates and toward an evolving relationship with the public, one rooted in sentiments and expectations. Going behind closed doors to reveal the intellectual world of central banks,Economy of Words offers provocative new insights into the way our economic circumstances are conceptualized and ultimately managed.
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About the Author
Douglas R. Holmes is professor of anthropology at Binghamton University. He is the author of Cultural Disenchantments: Worker Peasantries in Northeast Italy and Integral Europe: Fast Capitalism, Multiculturalism, Neofascism. He lives in Binghamton, New York.
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Economy of Words
Communicative Imperatives in Central Banks
By DOUGLAS R. HOLMES
THE UNIVERSITY OF CHICAGO PRESSCopyright © 2014 The University of Chicago
All rights reserved.
Creating a Monetary Regime
I have said often enough that I am Mr. Euro. There is no doubt: we issue the currency and I sign the banknotes. My signature is on the notes. — Jean-Claude Trichet, President of the European Central Bank (2003–11)
This book is not about the financial crisis per se. Rather it is about the creation of a monetary regime—a regime impelled by a series of communicative experiments that predate the crisis and that have continued to be refined and modified in the teeth of the unfolding turmoil (Blinder 2004; Bernanke 2012). Indeed, this compendium of experiments—in which we are all participants, knowingly or not—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 in September 2008 and in the ensuing debacle (Roitman 2013; Tett 2009).
Known narrowly and rather prosaically as "inflation targeting," these communicative experiments established the intellectual architecture and the regulatory mechanisms of a monetary system that I have defined in relationship to the concept of a "public currency," a term used in passing by Mervyn King, governor of the Bank of England (2003–13). At the heart of this regime is a far-reaching premise: the public broadly must be recruited to collaborate with central banks in achieving the ends of monetary policy, namely, "stable prices and confidence in the currency."
I began this research with a focused examination of the protocols of inflation-targeting that have, as Alan Blinder (2004) asserts, revolutionized the practices of central banking. I followed the progressive unfolding of these innovative practices, which, I will argue, were recast as the moving parts of a new monetary regime, a regime predicated on distinctive analytical modalities that enlivened collaborative relationships between central bankers and diverse strata and segments of the public. The crucial piece of this puzzle was the reconceptualization of the audiences for these communicative experiments by which members of the public emerged as protagonists fully implicated in the management of monetary policy (Boyer 2012; Lucas 1997; Dewey 1927; Lippman  2002).
What Is a Central Bank?
One of the exercises that central banks have undertaken globally over recent years, under the sway of transparency, is to describe simply and explicitly their purposes and functions. This is how the Bank of England describes its roles:
Core Purpose 1—Monetary Stability
Monetary stability means stable prices and confidence in the currency. Stable prices are defined by the Government's inflation target, which the Bank seeks to meet through the decisions on interest rates taken by the Monetary Policy Committee, explaining those decisions transparently and implementing them effectively in the money markets.
Core Purpose 2—Financial Stability
Financial stability entails detecting and reducing threats to the financial system as a whole. Such threats are detected through the Bank's surveillance and market intelligence functions. They are reduced by strengthening infrastructure, and by financial and other operations, at home and abroad, including, in exceptional circumstances, by acting as the lender of last resort.
In pursuit of both purposes the Bank is open in communicating its views and analysis. (Bank of England, n.d., "Core Purposes")
I focus on the first of these core purposes, the arena of monetary policy—the means and methods by which money is supplied to the economy—because it has been at the center of the revolutionary innovations just alluded to among major central banks over the course of the last three decades.
Governor King summarizes concisely the central preoccupations of monetary policy—that is, the relationships among the quantity of money, interest rates, and prices, and how the public exercises a key role in these dynamic relationships:
Most people believe that economics is about money. Yet most economists hold conversations in which the word "money" appears hardly at all. Surprisingly, that appears true even of central bankers. The resolution of this apparent puzzle, is, I believe, the following. There has been no change in the underlying theory of inflation. Evidence of the differences in inflation across countries, and changes in inflation over time, reveal the intimate link between money and prices. Economists and central bankers understand this link, but conduct their conversations in terms of interest rates and not the quantity of money. In large part, this is because unpredictable shifts in the demand for money mean that central banks choose to set interest rates and allow the public to determine the quantity of money which is supplied elastically at the given interest rate. (Mervyn King 2002, 174)
The public, insofar as its members play the role alluded to by Governor King, participate with central bankers and financial markets in this relentless monetary drama.
The area of financial stability (Core Purpose 2) is vitally important—most notably in central banks' role as lender of last resort—but this book does not systematically examine these regulatory functions. That said, many of the insights that I have developed to explore the operation of monetary policy are also relevant for addressing the challenges of maintaining the operational integrity of financial markets and the banking system.
Central bankers are members of an elite group of government appointees numbering in the dozens globally. For the purposes of this book, members of the monetary policy committees (MPCs), the officials charged with determining monetary policy of their respective central banks, are the individuals identified as "central bankers." These figures do not, however, merely carry out the procedures of a technocratic officialdom. Rather, they are in many cases the designers of this new monetary regime; it is they who have crafted its distinctive linguistic and communicative features. Further, they see their institutions and the ideas that animate them as inevitably works in progress; the ultimate status of their labor is, from their perspective, uncertain, and open to continual refinement and revision (Bernanke et al. 1999; Bernanke and Woodford 2005; Woodford 2012; Goodhart 2010; Grimes 2001; Mervyn King 2004).
Senior officials among these institutions typically know each other personally, they are generally aware of their respective policy positions, and in extreme circumstances they are fully prepared to coordinate policy interventions to address what are seen to be threats to the global economy and financial system. These figures share a broad understanding of the historical, theoretical, and methodological issues at stake in monetary policy as well as the technical issues involved in managing money and credit. That said, they work within national traditions of research, analysis, and decision making specific to each central bank and, as a legal matter, they are accountable to different national constituencies and various forms of legislative oversight. Although there is a broad consensus on state-of-the-art practices of monetary policy, central bankers do not speak with a single voice. Far from it. As we will see, within each of these institutions there are diverse perspectives and positions on policy and practices and a willingness on the part of senior officials to articulate them forcefully (Blinder 2004).
Central bankers have also assumed a symbolic role, as betrayed by Jean-Claude Trichet's curious assertion that he was "Mr. Euro." But this is more than mere celebrity or vanity. Trichet is asserting that central bankers must continually "speak," as it were, for their respective currencies and for the monetary institutions that regulate them: their spoken and written communications are obliged to model linguistically credible relationships with the public. This, I argue, is a defining feature of contemporary monetary policy.
I have expanded the category of central banker modestly to include other senior officials who participate in policy deliberations but are not necessarily members of MPCs, including senior members of the research staff as well as the bank personnel charged with communicating policy. Central banking also depends on intermediary groups of academics as well as networks of observers in business, finance, and journalism that can influence and interpret the information brought to bear on the formulation and communication of monetary policy.
In 2001 I began examining the intellectual routines that inform contemporary practices of central banking. After a preliminary visit to the New York District branch of the Federal Reserve, the project shifted to Frankfurt, headquarters of the European Central Bank and the Deutsche Bundesbank. Over the last decade, the project expanded and I have pursued research at the Reserve Bank of New Zealand, the Swedish Riksbank, and the Bank of England. In the background of the study is an ongoing assessment of the policies and practices of the United States Federal Reserve.
Most importantly, this book is concerned with a particular communicative aspect of work within central banks, namely, the drafting of technical reports, writing speeches, crafting presentations, compiling briefing documents, and composing policy statements (Elyachar, 2013; Smart 2006). I have included as often as possible the documents or excerpts of documents that are the basis of my research for the readers to appraise and interpret for themselves. Far from being routine records of past institutional matters, these documents were crafted for the purpose of shaping economic and monetary conditions prospectively, as instruments of persuasion (Riles 2001, 2006; Sunder Rajan 2006). In this regard, I followed initially the method developed by Bruno Latour in his classic study, The Pasteurization of France (1988). Latour demonstrated how a revolution in the science of bacteriology unfolded as a communicative phenomenon serialized in three journals: Revue Scientifique, Annales de l'Institut Pasteur, and Concours Médical. These journals not only reported contemporaneously on the development of scientific innovations, but they endowed the revolution with intellectual form and content. The communicative dynamics operating within the field of monetary policy are far more consequential insofar as markets themselves, as I will argue, are a function of language.
For the purposes of this study I tracked the reports serialized in the Monetary Policy Statement of the Reserve Bank of New Zealand, the Monthly Bulletin of the European Central Bank, the Monthly Report of the Deutsche Bundesbank, the Minutes of the Monetary Policy Committee of the Bank of England, and the Minutes of the Executive Board of the Sveriges Riksbank's Monetary Policy Meeting. Using these and other documents, I show how the regular communication of central bank policy assessments plays a decisive role in the emergence and refinement of a monetary regime over and above the articulation of specific policy positions. My thesis here is that these statements are not merely expressing an interpretative account or commentary, they are making the economy itself as a communicative field and as an empirical fact.
I focus in the first instance on the research practices that inform these reports, and I further show how these documents seek to model relationships between these institutions and the public—relationships by which members of the public are interpellated as protagonists (Althusser 1971). Rather than the reception or efficacy of policy statements, which central banks believe they can measure quantitatively,4 it is the crafting and modeling of collaborative relationships with the public that is, I will argue, the most radical feature of this monetary system. Treating the audience as protagonists is thus fundamental for understanding the remarkable communicative issues at stake in this text and, deeper still, for grasping the significance of the intellectual practices that constitute research in these institutions.
Analytical models—the "machineries of knowing," as Karin Knorr-Cetina (1999, 2007) terms them—that orchestrate research practices in these institutions must be viewed also as machineries of relating, capable of articulating policy in relation to both the distinctive and the shared circumstances of individuals and firms who are continually modeling and transacting economic relationships. The emerging monetary regime is predicated on distinctive modes of research and analysis. One of these modalities was particularly important: broadly, it encompassed analysis and interpretation of economic and financial phenomena fully in context and in something that approximates real time.
Central banks cultivate networks of interlocutors that generate knowledge—what amounts to ethnographic knowledge—about the social and cultural character of the economy animated by precisely the contextual and situational information that is typically stripped out from conventional macroeconomic and financial analysis. Conversations with and among these contacts constitute the communicative interchanges by which central bankers simulate the economy "in the wild," or "in vivo," as Michel Callon and his colleagues have termed it, in order to enter the arena of contemporaneous decision making by businesspeople and by the public.
Hundreds, and in some case thousands, of interlocutors linked informally to secondary and tertiary networks of countless other contacts are the circuitry of a vast communicative field across which "economic intelligence" is continually created. Diverse groups of contacts perform descriptive, explanatory, and interpretative labor, refining the conceptual nature of economic phenomena in real time. The efficacy of monetary policy rests, in part, on the representational enterprise of these contacts with which central banks must orchestrate the contingencies of economic stability and growth.
The concept of a public currency, avant la lettre, unfolded gradually in the text more or less as it did for me, as a cumulative outcome of the research experience that coalesced in the shifting situations and predicaments I observed. Similarly, my insights on language and, specifically, the linguistic modeling of economic phenomena, also unfolded in a manner that was inextricable from the details of the research—that is, from my own practices and those of my subjects. The project thus took form as an ethnographic exploration of multiple genres of collaboration worked out with George Marcus. I observed, as suggested above, how engaged and sophisticated research practices, indeed ethnographic practices, were operating in the scene of fieldwork independent of my project. The challenge I faced was to align my project at every turn with what were the remarkable experiments pursued by the personnel of these institutions, experiments that exceeded the bounds of monetary economics, broaching what are, I believe, the most profound questions of and for contemporary anthropology. This book thus represents a test case of what Marcus and I have advocated, an exploration of the intellectual strategies and struggles that constitute ethnographic practice in and of our time (Marcus 2007, 2008, 2012).
Epistemic Anxieties In Extremis
There is one final and related point. I stated emphatically at the outset that this text is not about the financial crisis. There is, however, a very important qualification to this assertion. As I noted above, the senior cohort of central bankers are not merely managers of the contemporary monetary regime, but its architects. They are keenly aware that monetary policy in general, and inflation-targeting in particular—their innovations—are fully implicated in the prehistory of the financial crisis.
Faith in what Jordi Gali and Oliver Blanchard termed "divine coincidence"—the consensus view that "strict inflation targeting is good, both for inflation, and for output"—established the general policy conditions that fueled the catastrophic risk taking and the regulatory complacency that laid the groundwork for the crisis (Blanchard 2008, 10–11).
Claudio Borio, deputy head of the Monetary and Economic Department and director of research and statistics at the Bank of International Settlements (BIS), states concisely this tragic convergence:
The crisis has shaken the foundations of the deceptively comfortable central banking world. Pre-crisis, the quintessential task of central banks was seen as quite straightforward: keep inflation within a tight range through control of a short-term interest rate, and everything else will take care of itself. Everything was simple, tidy and cozy. Post-crisis, many certainties have gone. Price stability has proven no guarantee against major financial and macroeconomic instability. (Borio 2011, 1)
Excerpted from Economy of Words by DOUGLAS R. HOLMES. Copyright © 2014 The University of Chicago. Excerpted by permission of THE UNIVERSITY OF CHICAGO PRESS.
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Table of Contents
Chapter 1. Creating a Monetary Regime
Chapter 2. Communicative Imperatives
Chapter 3. Markets Are a Function of Language
Chapter 4. Apprehensions
Chapter 5. Kultur
Chapter 6. Temporality
Chapter 7. Simulations
Chapter 8. Inflationary Tempest
Chapter 9. Liquidity-Trap Economics
Chapter 10. The Overheard Conversation
Chapter 11. Intelligence
Chapter 12. Representational Labor
Chapter 13. Manifesto for a Public Currency
Chapter 14. Totality of Promises
What People are Saying About This
“Who would have thought that central banks could become champions of humanities disciplinesof language and communication? Douglas R. Holmes insightful new book is the first to examine in detail the global shift from an era when central banks never said anything, to their mystifying mumblings during the 1980s and ’90s, to their targeting audiences and making policies with the full employment of the power of language. J. L. Austin and John Searle could not have imagined a more far-reaching application of doing things with words. Easily the best book on what is happening in global monetary policy and financial stability.”
“This brilliant book tells us how and why central bankers have learned to ‘talk to markets.’ For only by convincing markets can they validate their economic forecasts and justify their policy prescriptions. In this eye-opening account markets are discursive formations and social conventions, not products of nature. Based on careful empirical research, analytical rigor, and intellectual imagination, Douglas R. Holmes challenges and enriches his reader on every page. Opening new avenues for research and understanding, this book will become required reading for all serious scholars and students of political economy.”
“Douglas R. Holmes has performed a uniquely important service by probing the professional intimacy of the banking world. He shows us that economists, despite their claims to scientific precision, often resemble anthropologists reporting from the field. But, as he demonstrates, they also deploy their narratives to draw their publics into the construction of self-fulfilling prophecies, thereby refashioning economic dynamics to meet each new contingency as it arises. No one who reads this book will come away still believing that language is immaterial; Holmes’s elegantly crafted, deeply informed, and wickedly critical analysis demonstrates how the economists’ rhetoric and narrative strategies shape, rather than follow, the realities of today’s wildly unpredictable global economy.”