Performativity and Politics: The Making of Commodity Futures Markets

Introduction

John Maynard Keynes once remarked that “the ideas of economists […] are more powerful than commonly understood. Indeed, the world is ruled by little else” ([1936] 2008:350). This view is reflected in the media, where interviews with economists frequently accompany the news (Weinstein 1992:73-4). However, the role of economic theory in real-world contexts is subject to substantive academic debate, even with regard to its central object of study: the market. By analyzing the relationship between economic theory and commodity futures markets (CFMs), I aim to contribute to the existing debate. I offer an explanation in how far aspects of economics are realized in practice, which role economic theory plays in their production and what distributive impacts result.

I start by introducing today’s dominant neoclassical theory of economics and its nineteenth century origins. Neoclassical theory assigns itself the role of an objective description of markets, which evolve naturally and tend towards a general equilibrium. In order to satisfy intricate mathematical models, it assumes omniscient, rational and optimizing agents. Yet this abstraction removes all social factors (Watson 2005:151) and deprives economics of the dimension which Fligstein calls ‘markets as politics’, where agency and power are employed by market actors to influence distribution (1996:657). The resulting discrepancy between economic assumptions and real-world contexts casts doubts on the explanatory power of neoclassical theory, leading some scholars to dismiss its findings completely (Hosseini 1990). In contrast, a look at CFMs shows that these closely reflect a number of neoclassical aspects. This seeming contradiction can be resolved using the theory of performativity, which is introduced in the second section. Accordingly, the fit of markets to economics is not the result of natural evolution but of conscious making. The corresponding role of economic theory is that of a ‘blueprint’, which serves to incorporate economic aspects during market formation without its assumptions having been met initially (Callon 1998b:23). Different approaches were developed within the performativity literature, enabling its use in comprehensive analyses. However, by focussing on the context rather than the action of successful performances, these approaches again downplay the ‘political’ factors of agency, power and distribution. I particularly emphasize these factors, because their marginal treatment obscures performativity’s potential as a theoretical alternative to neoclassical economics.

The insights from the first two sections are applied to CFMs in the third. These are an excellent example for this purpose, as they were created at a time when the foundations of neoclassical economics were already developed, yet no similar markets to emulate existed. Both circumstances support the idea of neoclassical theory as a ‘blueprint’, and I consequently illustrate historical steps that were designed to incorporate aspects of economics. At the same time, discourses were constructed to publicly legitimize the new markets and their agents. Throughout these performative processes, the political aspects of agency and power played a significant role in shaping outcomes and leading to a distribution that approximated neoclassical market equilibrium. However, the recent period of ‘financialization’ transformed CFMs, especially through their use for investment portfolio diversification. This provoked a loss of fit with neoclassical assumptions that can be classified as ‘counterperformativity’, and the ensuing formation of commodity price bubbles produced severe distributional consequences.

Based on the findings of this dissertation I conclude that aspects of economics were successfully realized on CFMs, yet neoclassical theory fails to explain how. Using performativity theory to substantiate this middle ground position, it can be shown that it was conscious market making that led to stable equilibrium. Subsequent dynamics disrupted this state, however, causing disequilibrating effects and negative distributional impacts. Despite political initiatives to reverse the current situation, whether CFMs will return to reflect economic theory in the near future remains to be seen.