The Empire of Value

The Empire of Value: A New Foundation for Economics

André Orléan
translated by M. B. DeBevoise
Copyright Date: 2014
Published by: MIT Press
Pages: 360
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  • Book Info
    The Empire of Value
    Book Description:

    With the advent of the 2007--2008 financial crisis, the economics profession itself entered into a crisis of legitimacy from which it has yet to emerge. Despite the obviousness of their failures, however, economists continue to rely on the same methods and to proceed from the same underlying assumptions. André Orléan challenges the neoclassical paradigm in this book, with a new way of thinking about perhaps its most fundamental concept, economic value. Orléan argues that value is not bound up with labor, or utility, or any other property that preexists market exchange. Economic value, he contends, is a social force whose vast sphere of influence, amounting to a kind of empire, extends to every aspect of economic life. Markets are based on the identification of value with money, and exchange value can only be regarded as a social institution. Financial markets, for example, instead of defining an extrinsic, objective value for securities, act as a mechanism for arriving at a reference price that will be accepted by all investors. What economists must therefore study, Orléan urges, is the hold that value has over individuals and how it shapes their perceptions and behavior. Awarded the prestigious Prix Paul Ricoeur on its original publication in France in 2011,The Empire of Valuehas been substantially revised and enlarged for this edition, with an entirely new section discussing the financial crisis of 2007--2008.

    eISBN: 978-0-262-32390-1
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. A Note on the Translation
    (pp. vii-viii)
  4. Tables and Figures
    (pp. ix-x)
  5. Introduction
    (pp. 1-6)

    The economics profession is presently experiencing a grave crisis of legitimacy. There was a time when it sought to provide sound guidance for democratic societies by improving the effectiveness of reasoned public policy. But now, through its own negligence, it has shown itself to be a source of confusion and error. It allowed a suicidal scheme of financial deregulation to be put into effect, without any prior attempt having been made to assess the scope of the risks involved or to devise appropriate precautions against them. Instead of awakening minds, economics has put them to sleep; instead of enlightening them,...

  6. Part I Critique of Political Economy
    • 1 Substance Value
      (pp. 9-36)

      A market economy is one in which the production of goods is distributed over a multitude of sovereign producers. These producers determine, on the basis of their personal interest alone, the quality and quantity of the goods they produce and offer for exchange. Owing to the private nature of these decisions, there is no prior assurance that the goods produced under such a regime will respond to the needs of society. It is only later, once these goods have been produced, that their makers come into contact with one another through the functioning of the market. In a pure market...

    • 2 Market Objectivity
      (pp. 37-84)

      The neoclassical theory of value, like Marx inDas Kapital, begins by asking what makes goods commensurable—and therefore things that can be exchanged. Like Marx, too, it locates the ultimate source of market behavior in a social substance. This essential property is no longer labor, but the utility of goods: commodities are exchanged because they are useful. And yet the utility theory of value, though it starts from exchange, rather than from profit, conceives of the individual in terms of his relationship to things. For thehomo œconomicusof Walrasian tradition, this relationship comes before his relationship to other...

    • 3 Scarcity and Status
      (pp. 85-104)

      A world in which commodities are sought for their utility alone is one that is free of conflict because there is really nothing at stake in it. Scarcity does, of course, persist under Walrasian assumptions, but owing to the convexity postulate it is now significantly diminished, to the point of innocuousness: agreement about a form of wealth distribution acceptable to all naturally follows so long as everyone is prepared to engage in exchange at any moment. No exclusive preference, no exaggerated demand, stands in the way. Utility in the neoclassical conception acts as a balm, a soothing agent that brings...

  7. Part II The Institution of Value
    • 4 Money
      (pp. 107-140)

      How does a market regime come into existence? This is the central question confronting economic theory. I have already emphasized its enormous complexity. Two other closely related questions now arise as well. In an economy based on market isolation, which is to say on the independence from one another of personal decisions concerning production and exchange, how can the behaviors of all the members of the community be made mutually consistent? What does consistency imply in this context?

      Neoclassical economic theory owes a large part of its reputation to the answers it has given to these three questions. It supposes...

    • 5 A New Approach to Value
      (pp. 141-172)

      Like any other kind of value, whether religious, aesthetic, moral, or social, economic value has a judgmental aspect involving the power exerted by individuals and commodities. Thus, for example, aesthetic value is a recognition of the degree of influence enjoyed by certain artists or works of art. The main question that values pose to the social sciences is both fundamental and puzzling, for it has to do with their objectivity, without which there could not be no values in the strict sense of the term, only a scattered mass of subjective opinions. Durkheim, referring to value judgments of the type...

  8. Part III Market Finance
    • 6 Financial Valuation
      (pp. 175-196)

      It is above all in relation to the question of money that the mimetic hypothesis shows its true promise. We have seen that the rivalry of all against all in seeking to establish a single standard of liquidity has the effect of creating a community that is unified in its reverence for the same elected object. It is this basic fact that makes it possible for production to develop in a market economy. Nowhere is the explanatory power of the mimetic model clearer, however, than in the case of financial markets. In keeping with the method of exposition that I...

    • 7 Liquidity and Speculation
      (pp. 197-238)

      In the first two parts of this book I examined two models of market behavior with contrasting properties. The first model, characterized by negative feedbacks, describes a situation in which the individual agent’s relationship to the commodities being exchanged is determined independently of the market, prior to its opening. The market’s sole function, in other words, is to distribute a limited quantity of goods with a view to satisfying the supposedly exogenous desires of the transacting parties. The archetype of this model is the Walrasian market, whose central assumption is that transactions do not affect the formation of individual preferences...

  9. Part IV Self-referential Finance and the Subprime Crisis
    • 8 Euphoria: 2003 to 2007
      (pp. 241-284)

      The revised theory of finance I have proposed in the third part of this book breaks with both neoclassical finance and the newer tradition of behavioral finance in rejecting the idea that securities can be objectively valued, which is to say defined independently of market transactions. In a world of radical, non-probabilizable uncertainty, the assessment of future returns is essentially a matter of personal judgment. What is more, there is no mechanical procedure for determining in advance which one out of a great many different personal judgments is correct. The ability of financial markets to establish a single price that...

    • 9 The Crisis: 2007 to 2008
      (pp. 285-310)

      We have seen that the perilous accumulation of risk during the euphoric phase, between 2003 and 2007, was a consequence mainly of the procyclical effects of largely deregulated competitive forces. A prodigious quantity of securities was issued, leading to a high degree of leverage in the financial system as a whole by the end of this period. The ratio of total assets to equity grew at a staggering rate during these years, rising in the case of the largest banks in the United Kingdom from less than 20 to more than 40 (figure 8.3). And yet this ratio greatly underestimates...

  10. Conclusion
    (pp. 311-324)

    Charles Malamoud, a scholar of Vedic India, has argued that religious rites serve as models for economic relationships.¹ Labor wages, for example, are thought of by analogy with the payment of the sacrificial priest(dakshinā).² “The ritual act,” Malamoud says, “is the blueprint, the pattern for more elaborate and generalized forms of behavior.”³ The structure of sacred performance, in other words, furnishes an interpretive schema and a part of the terminology used to make sense of the secular world.⁴ The models proposed by neoclassical economic theory are of the same kind. Like Vedicrites, they are at once norms, explanation, and...

  11. References
    (pp. 325-342)
  12. Index
    (pp. 343-350)