Deirdre McCloskey writes that Ronald Coase's transaction cost economics is about "extending the wholly silent economics of [Alfred] Marshall… to the faculty of speech". Where neo-classical economics had previously consisted only of objects, desires, prices and choices, all being coordinated by the magic of market forces, Coase introduced negotiation, agreement and authority, all of which bring their own costs and efficiencies. This was then joined by the economics of social networks, norms, law, the family and much else.
But as McCloskey says, the key break occurs with Coase, when economics wakes up to the fact that human beings know what they're doing, say what they intend do, and are accountable for what they do. Homo economicus is also a Zoon politikon, not that Coase ever quite went as far as accepting that (and wage contracts are, by some accounts, at the outer limts of the civic right not to be dominated). My Reinventing the Firm was partly an attempt to push the Coasian analytic in a political direction.
I was thinking of McCloskey's remark as I read today's report, "Vince Cable 'not persuaded banks have got message on bonuses'". Cable is quoted as saying:
We do understand there are conversations taking place between the banks to exercise some self-restraint. We have a process in government where we are beginning to discuss these issues with the banks, so we look forward to what they have to say
'Message', 'conversations', 'discuss', 'say'... what a beautifully convivial and dialogical place the City of London must be! Cable seems to be pinning a lot of hope on the power of speech. My worry is that, in this instance, bankers are unlikely to care about the realm of language. Coase may indeed have brought neo-classical analysis to the discursive and the social domain, but the question is whether homo economicus ever really gave up the right to remain silent, should that right be needed in the future. And right now, homo financius needs it quite a lot.
These messages and conversations are all very well, but do they actually operate in the same political and ontological realm as prices, incentives, derivatives and - most importantly in this instance - rewards? Neo-classical economics may be unable to ignore the function of speech in the wage contract (it becomes impossible to otherwise explain why firms exist) but financial traders and 'innovators' may see discussion and negotiation as entirely superfluous to the world they inhabit. The social studies of finance may dispute this self-understanding, but that's another matter altogether. The question Cable should be asking himself is why he expects to change behaviour using 'discussion', in an economic sphere that has no account of the function of speech in the first place. Incentives, money and economics are real, while persuasion, recognition and politics are a second order reality, in the same ontological class as the cultural goods that a bonus is splurged on.
Yes, Cable may be able to persuade a banker to forgo some of his bonus, in the same way that the banker's wife may be able to persuade him to sit through an opera with her. But neither does anything to alter the notion of rationality, the concept of value and the extreme divide between economics and politics that led taxpayers and shareholders being robbed in the first place.