Abstract
Material Markets: How Economic Agents Are Constructed
by Donald MacKenzie
Oxford: Oxford University Press, 2009
Reviewed by Nicholas Gane
This book ends where one might expect it to begin: with the global financial crisis that unfolded from the summer of 2007 onwards. This crisis produced a situation of economic precarity that few had predicted or even imagined was possible. MacKenzie recalls: ‘Friday, 14 September 2007: Britain’s high streets. It was a scene from a different time or a different place: from Depression-era America, perhaps, or modern Argentina. The United Kingdom’s first large-scale bank run since Victorian times had begun, after the previous night’s leak to the BBC that Northern Rock had had to turn to the lender of the last resort, the Bank of England, for emergency funding’ (p. 177). Surprisingly, the events, causes and consequences of this crisis, which in many respects is ongoing, are hardly addressed in this book, the majority of which seems to have been written prior to 2007. MacKenzie focuses instead on the technical details and practices that underpin the operation of contemporary financial markets, or what might be called their ‘technicality’. The focus is on the material details of markets that cannot be ‘safely set aside by social scientists looking for the ‘“big picture”’ (p. 179). These details are seemingly ‘little things’ that have tended to be neglected by economic sociologists but which have turned out to be hugely significant, especially in the wake of the financial crisis: the London Interbank Offered Rate (LIBOR) (addressed in Chapter 1); the emergence of financial-derivatives exchanges (Chapter 4); and the practices and instruments that enable traders to exploit discrepancies between the prices of assets, or what might be called arbitrage (Chapter 5). MacKenzie’s interest, following the lead of ‘social studies of science’, lies in the materiality of markets and, more specifically, their ‘physicality, corporeality, technicality’ (p. 2). This interest, in turn, frames chapters on the problems of measurement and classification in accountancy (Chapter 6), and the construction of emissions markets (Chapter 7).
The theoretical framework of the book is established in the first two chapters, where MacKenzie declares that he is working in the spirit of ‘social studies of finance’. A core aspect of this approach is to take the materiality of markets seriously, hence the title of this book. He explains:
An emphasis on materiality points … to more than the importance of objects and technologies. The human actors who make up markets are not disembodied agents or abstract information processors, however convenient it may be for economics to model them as such. They are embodied human beings, and bodies are material entities. The capacities and limitations of these material entities (including those of human brains) are hugely important to how markets are constructed. (p. 3)
This focus on the materiality of markets is expanded in Chapter 2, through the course of which MacKenzie advances ten precepts that frame the argument of the book. The first of these precepts is that ‘facts’, and the processes through which they are constructed, matter for markets, and the final precept is that ‘scales aren’t stable’, or rather that ‘micro phenomena’ (such as arbitrage or accounting practices) are often more important than they first appear. This latter precept is, for MacKenzie, particularly important. He writes: ‘In science and technology it is frequently the “details” and the “technicalities” that matter, separating a successful experiment or machine from a failure’ (pp. 33–4). Indeed, it is such details that are of primary interest in this book rather than the ‘big, “macro” phenomena’ – ‘globalization, neoliberalism, capitalism, the international system of states’ (p. 33) – that are commonly the focus of economic sociology and political economy. MacKenzie’s other precepts address how analysis of the material details of markets is to proceed. These include: viewing corporeality as critical to the functioning of markets (p. 11); focusing on ‘equipment’ and its capacity to change ‘the nature of the economic agent, of economic action, and of markets’ (p. 13); and, perhaps most importantly, treating actors as ‘agencements’. This notion of agencement, which is a key analytical device of the book, is drawn from actor-network theory, and more specifically the work of Michel Callon. An agencement is, in the words of MacKenzie, a ‘sociotechnical combination’ (p. 21), or simply put a hybrid of ‘material and technical devices, texts’ and human beings. The virtue of using this notion, he argues, is that it refuses to view actors ‘as having fixed natures or fixed characteristics’ and instead addresses the ‘equipment that makes an actor what it is’ (p. 22). MacKenzie’s point is that a simple notion of action or of agency will not do, for rather the question is of how ‘the nature of actors is shaped by the agencements that constitute them’ (p. 23).
This reworking of actor-network theory frames much of the material addressed throughout the rest of the book. Chapter 3 is noteworthy as it draws upon fieldwork from 2005 where MacKenzie and Iain Hardie observed the day-to-day activities of a hedge fund. This is important research, for while hedge funds are key players in contemporary financial markets, they are notoriously hard to access and so little is known about their everyday practices and operations. One thing we do know is that the recent growth of such funds is remarkable: ‘In 1990, there were fewer than 1,000 hedge funds, managing $25 billion in assets; by 2004, there were more than 8,000 funds, managing almost $1,000 billion’, a figure that had again doubled by 2007 (p. 39). Moreover: ‘In 2005, hedge funds were believed responsible for between a quarter and a third of trading on the New York and London Stock Exchanges, and for around half of total trading in … emerging-market government bonds’ (p. 40). The fund observed by MacKenzie and Hardie is ‘roughly of average size’, and yet is managed by only five people: two partners (of which one is the primary trader), a strategist, an operating officer and a trader’s assistant. Their fieldwork centres on the activities of each of these figures, along with the communications that take place between them, and the agencements that are central to the fund’s trading.
MacKenzie and Hardie are interested, for example, in the physical layout of the trading room, along with little known technical tools such as the bond yield calculator. Their account addresses the ‘ignored infrastructure’ of trading, and, beyond this, the ways in which agencements ‘constitute markets’. The hedge fund under observation is effectively one such agencement: ‘a combination of only five people, some familiar technologies (the server, the keyboard, the screens, the network connections), and some specialized algorithms, procedures, and forms of knowledge’ (p. 38). This approach is not intended to prioritize technical over social aspects of markets, for it is argued that social networks ‘plainly still matter’ (p. 56). Rather, the idea is to use the notion of agencement to broaden ‘economic sociology’s intellectual resources, in particular in its emphasis on “technical” linkages as well as on “social” ones’ (pp. 56–7).
This position informs the analysis of derivatives in Chapter 4. MacKenzie’s argument is that while derivatives are often viewed as abstract or virtual forms, they are brought into being and are made tradable through a range of different material practices and technologies. He writes: ‘The bulk of today’s financial derivatives trading is in products that did not exist in 1970. These products, especially those traded on organized exchanges, did not simply “evolve”. They were invented’ (p. 68). MacKenzie proceeds to document the history of derivatives trading, including the legal differences between such trading and gambling, as well as the difference between financial and technological forms of innovation. This account is at times quite dry, but is enlivened by a section on the cultural dimensions of trading, where a contrast is drawn between the ‘rough and tumble’ of Chicago’s financial derivatives markets and the ‘gentlemanly capitalism’ characteristic of London markets until the early 1980s.
MacKenzie observes that ‘LIFFE [the London International Financial Futures Exchange which was established in 1982] plumped unequivocally for Chicago culture over gentlemanly capitalism, opting symbolically for Chicago’s brightly coloured trading jackets rather than the dark suits and black shoes traditional in the City. ... LIFFE’s traders were often defiantly East End or “Essex Boys” rather than gentlemen’ (p. 74). There are interesting class and status dynamics that could be explored here, but MacKenzie is more concerned with the materialities of derivatives, including the ‘facticity’ of their underlying assets, rates or prices. This attention to materiality again frames the study of arbitrage – ‘trading that aims to make low-risk profits by exploiting discrepancies in the price of the same asset or in the relative prices of similar assets’ (p. 85) – in the following chapter. MacKenzie’s argument is that the price of such assets is not virtual but is instead a ‘thing’: something that is always embodied and which consequently ‘must take a physical form’ (p. 92). The key to understanding arbitrage is, again, to grasp it in ‘its full materiality and sociality’ (pp. 106–7), and to do so by paying attention to its technical details or to those ‘little things’ that are in turn ‘connected to big issues’ (p. 108).
This book has many merits. It offers a detailed exposition of the underlying materialities of contemporary financial markets, and analyses instruments of trading that have rarely been considered in mainstream economic sociology. For anyone interested in the technical details of derivatives and arbitrage, this is essential reading. For those concerned with the political and social dynamics of markets, however, the book has its limits. One of MacKenzie’s ten precepts stated in Chapter 2 is that ‘market design is a political matter’. This may be so, but the politics of markets – including the relation of the market to the state, the question of market regulation, the banning of practices such as naked short-selling – is not addressed in any detail. The focus is rather in the ‘little things’: the instruments that are part of the market’s underlying materiality. While these ‘little things’ are said, in the case of arbitrage, to be ‘connected to big issues’, these connections are largely absent from this book. Such connections, however, matter, not least because they lie at the heart of the current financial crisis. One might ask, for example, of the role that arbitrage and highly-leveraged derivatives trading played in the collapse of the global banking sector in 2007. What difference did the underlying technicalities of such trading make in these events, and what types of market and market devices have emerged out of this crisis?
In their study of hedge funds, MacKenzie and Hardie state that: ‘A key bond-market divide is between governments that are reckoned reasonably likely to default and those whose default is regarded as effectively inconceivable’. They add: ‘Ecuador is in the first camp. The UK and USA are in the second camp’ (p. 56). Today, the question is what happens when such divisions start to break down, and when the unthinkable (default) becomes thinkable? And what happens to the performativity of markets and their instruments when they have to be rescued by state interventions and bailouts? Such questions can only be answered by connecting the ‘little things’, the small agencements or sociotechnical combinations, to the ‘big issues’ of market capitalism and neoliberalism. I would argue that making such connections, and thereby exploring the wider political and social significance of markets and their technicalities, is a pressing task for economic sociology today.