found in growth models after 194511 (Solow 1956; 1957), the conceptualization of the economy was no longer a simple heuristic but became a deterministic assumption about economic development and gained thus a strong ideological component. It is no coincidence that those growth models, whether they were Keynesian or neoclassical, emerged in the context of Keynesianism, that is an era, in which the idea of a controllability of the economy spread and economic interventionism became generally accepted12 (Hall 1989; Schanetzky 2007, 87, 169; Schmelzer 2016). As growth models reduced long-term growth to the outcome of economic variables, they did not only perpetuate the conception of the economy as a separated sphere but became part of the Keynesian governmentality (Foucault und Lemke 2005, 1759:171–72).13

With the rise of Keynesiansim, the general understanding of the function of economic knowledge changed (Mitchell 2008).14 It was no longer

11 Whereas the Harrod-Domar model treated long-term growth as the outcome of investment and capital stock, the Solow-Swan growth model added technical change as explanatory variable to the Harrod-Domar model. But Solow treated technical change as a residual and did not further conceptualize it or investigate its origin. The model remained thus stuck in the general framework of a separated economic sphere.

12 Many Western countries applied Keynesian principles of anticyclical demand management to different degrees and at different points in time depending on their institutional setting, their political agenda and not last the status and influence of economic experts. However, as a significant number of countries adhered somehow to policies inspired by Keynesian theory and identified with the growth policy of the OECD that presupposed the possibility of growth planning, a general belief in the controllability of the economy can be assumed for the three decades after 1945.

13 The term governmentality refers here to the Foucauldian concept of an ensemble of institutions, procedures, analyses and ideas that secure and perpetuate an economic order and legitimize specific policies. Whereas Foucault spoke of a governmentality of neoliberalism to point in particular to the aspect of the individual internalization of neoliberal values, I argue that Keynesianism, too, can be considered as a governmentality in the Foucauldian sense, since the prevalence of Keynesian policies cannot be explained only by Keynes' theoretical concepts. However, it also has to be understood as the convergence of different ideas, values, and technologies of the nation state that gained momentum after World War II such as national accounting, unemployment assurance, economic planning etc.

14 According to Timothy Mitchell "the economy" was invented as an object only mid-20th century. Although this article doesn't follow Mitchell's claim of the

perceived solely as academic descriptions and explanations of markets, but became increasingly understood as a strategic means to improve the functioning of the economy at a national scale.15 This new understanding augmented the «performative» power of economic knowledge, that is its ability to influence the way the economy and more generally reality was perceived (Callon 2006, 7, 8, 21).16 In this new understanding and by the increased application in politics economic knowledge became popularized. However, beyond academia economic knowledge circulated in a reduced form. In particular, the methodological considerations and restrictions that a had led to a conditional acceptance of the conceptualization of the economy as a separated sphere were no longer explicit. Thus, the idea that the economy could be understood in itself without considering social forces and historical processes became increasingly taken for a fact rather than a contestable methodological position.

The spread of the concept of the economy as a separated sphere during Keynesianism affected not only how the economy was perceived, but also the general understanding of the future, changing its meaning from an uncertain horizon to a projection screen. As such it altered also the meaning of history. Since the future was no longer uncertain, history as an unpredictable event became associated with the idea of a planning error, that is an outcome that could have been avoided. In 1970, the Swiss philologist Karl Schmid argued along those lines when he stated: "Geschichte erscheint nun beinahe als eine illegitime Kategorie, die durch planendes Denken eliminiert werden sollte. Ausdrücke wie 'Macht des Schicksals', 'Gesetz der Geschichte' und ähnliche sind heute kaum mehr angängig.

late invention of "the economy," it shares its understanding of the increased meaning of economic knowledge in the context of Keynesinism when it became increasingly used in a strategic way and in the believe that the economy could be managed in the way of a company.

15 The idea that economic knowledge could be used a strategic means emerged with early concepts of scientific management already at the beginning of the 20th century. With Keynesianism the concept that economic knowledge could be used to regulate and plan the economy spread at a national level.

16 According to Michel Callon's concept of performativity economic concepts should be understood as programs altering the way how reality is perceived and thus changing the way actors behave.

# **2. Future Perspectives for an Economically Underexplored Country**

For Switzerland, the Motion Borel that requested long-term planning of Switzerland's future and led to the subsequent Perspektivstudien, was a novelty in many ways. Up to the end of the 1960s, neither economics nor future studies had played a major role in the guidance of Swiss economic policy. Switzerland had not developed explicitly interventionist economic policies up to this point. Due to its corporatist and federalist form of government applying the principle of subsidiarity, the Swiss Federal state developed political instruments for demand management only slowly, and with a considerable lag, in comparison to other European countries. Up to the end of the 1970s, the competences of the state regarding the organization of the economy remained limited to the prevention of economic downturns and the fight of already on-going recessions (Prader 1981).

The constitution of the Swiss federal state and its limited economic competences explain largely why Switzerland had not founded a federal institute for economic observation before the 1930s. The 1932 established commission for economic observation (*Kommission für Konjunkturbeobachtung KfK*) worked only part-time and was essentially trying to find an agreement amongst its very different members that ranged from officials from different departments to representatives from trade associations and unions. Economists from academia were underrepresented during in the first two decades, not at last because there was – due to the restricted interventionist competences of the government – only little use for economic expertise. Furthermore, the lack of economic statistics made it very difficult for the KfK to keep pace with the economic observation as it was practiced on an international level.

Especially the absence of production statistics, which were not introduced in Switzerland before the 1980s, made it almost impossible for economists to get a real-time sense of the "pulse" of the Swiss economy. And it prevented the implementation of national accounts according to the international standard System of National Accounts that provided an internationally standardized template for national accounts and the calculation of the Gross Domestic Product (GDP) for decades. The absence of production statistics was less due to a lack of demand, but the result of a political power struggle between representatives of the state administration (especially of the Bundesamt für Statistik) and members of trade associations that had fought it very successfully since the 1920s. Thanks to their traditionally strong position in politics that eventually granted them a voice in legislative affairs, trade associations repeatedly managed to prevent the introduction of productions statistics (Ronca 2020).

Finally, another factor contributed to the fact that economic observation and forecasting developed with a considerable lag in Switzerland. Because of its marginal position and the lack of relevant statistics, economic observation remained a small academic niche with very little competition among economists. For decades, a single name dominated Swiss economic observation: Eugen Böhler. The economist at the Federal Institute for technology in Zurich (ETH) was a distinguished expert for economic policy and in particular for economic observation. Böhler, who was member and later on president of the KfK, founded a center for economic observation at the ETH in 1938 that rapidly took over the economic observation that formerly had been supplied by the KfK. Being member of almost all federal commissions concerned with economic policy, Böhler had a strong influence on the Swiss government and on the perception of the business cycle from the 1940s up to the end of the 1950s (Prader 1981, 189). Böhler started his career with a strong disposition towards theory and scientific progress. Throughout the 1950s, he continued to expect an imminent economic downturn17 (Kommission für Konjunkturbeobachtung 1957; Prader 1981, 189–92). Due to his influence inside the state administration, Böhler's belief in the imminent return of the economic crisis of the 1930s

17 Böhler was among the first Swiss economists to embrace John Maynard Keynes' General Theory and to promote keynesianism within the KfK. Although Böhler made hardly no original contribution to economic theory he kept up with the development of economics, taking up new economic theories and methodologies. This became amongst others apparent in his text book he continuously revised.

contributed strongly to a political culture of crisis expectation. For a long time, this culture prevented the perception of the economic expansion of the post-war era18 ("Bericht des Schweizerischen Bundesrats über seine Geschäftsführung im Jahr 1965" 1965, 232, 239, 287).

The misinterpretation of economic expansion as a short-term boom that was supposed to last only for a couple of years became apparent only at the beginning of the 1960s. Estimations of the state department of public finances showed that state income and state expenditure had repeatedly and systematically been underestimated due to the expectation of an economic downturn or at least a "normalization"19 (Jöhr 1966, 11–12; Kleps 1967, 7, 31; Eisinger 1998, 72–73). Moreover, the existing infrastructure of the country proved to be less and less adapted to meet the needs of a growing population and the expanding business activity. This situation explains why no less than three parliamentary requests submitted in 1964 were concerned with the long-time consideration of the country's economic future. While the "Interpellation Schürmann" suggested a long-term finance policy, the "Motion Heil" requested a long-term economic policy. The "Motion Borel," finally, called for a study group to investigate the long-term problems of the country.20

The coincidence of the three parliamentary requests could be explained by a late and somehow brutal awakening of the country from its post-Great Depression trauma to face the challenges of growth. This interpretation, however, would not sufficiently take into account that the demand for "long-term" forecasting emerged internationally almost at the same point

18 This culture of crisis expectation appeared distinctly in the figure of the deputy of work provision. This role had been institutionalized during the great depression, but remained in place up to the mid-1960s when it finally became converted into a deputy for economic fluctuation since the lasting economic growth made the role of a deputy for work provision appear superfluous.

19 This misperception of the economic development became particularly apparent when the state department of public finances underestimated repeatedly state income as expenditure.

20 Interpellation Schürmann vom 23. September 1964, Nationalrat Herbstsession 1964, BAR E6100B-01#1980/#198\*, Nationalrat. Herbstsession. Motion Heil. Langfristige Konjunkturpolitik, in: Amtliches Bulletin der Bundesversammlung, 1964, 406, Motion Borel vom 18. Dezember 1964, BAR E1070#1974/32#1080\*.

of time.21 Because of the lack of forecasting and planning in Switzerland up to this point, the *Perspektivstudien*, which emanated from the "Motion Borel" could not rely on pre-existing practices. This permits to analyze the emergence of these long-term studies as a specific historical moment when the development of the economy was established internationally as a leading variable for the overall future of the country.

# **3. The Motion Borel: Between Planning and Forecasting**

While the "Interpellation Schürmann" and the "Motion Heil" had a clear economic focus, the "Motion Borel" as it was submitted to the Ständerat22 a couple of months later in 1964, was not restricted to economic questions. In his request to the Council of States, Alfred Borel rather emphasized the general difficulty of the country to meet the different political, economic and social challenges of the present and the future. He highlighted the need for important investments to improve the country's infrastructure, its educational system, water protection as well as the development of nuclear energy. To determine the order of priority, the motion asked for a study group that should investigate the broad lines of an optimal longterm development.

The request did not explicitly mention future or prospective studies, as they were called in France since the end of the 1950s to distinguish them from short-term and extrapolative forecasts (Steinmüller 2000, 41). The wording of the request, however, suggests that Borel had the academic work of the French futurologists Betrand de Jouvenel and Gaston Berger in mind, whose work he cited in a newspaper article from 1967 (Borel 1967). As the request brought up issues from different political fields, it was at first not clear which department of the federal administration had to answer it. It was eventually passed to the Finance and Customs department of the federal administration since it emphasized the importance of future investments.23

21 See introduction and footnote 8.

22 The Ständerat is the upper house of the Federal Assembly of Switzerland.

23 Stellungnahme des Finanz- und Zolldepartements zur Motion Borel betreffend die Schaffung einer Arbeitsgruppe zum Studium der langfristigen Landesprobleme, 23.01.1967, BAR E1070#1974/32#1080\*.

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When the request was discussed in the Ständerat, it became clear that Borel had an almost exclusively economic focus in mind, which he had missed to make clear in the text of the motion. In his introduction to the Ständerat debate, Borel not only enumerated many examples of countries already practicing economic planning, but also harshly criticized the Swiss government for its reluctance to pass laws to fight the overheated economy.24 Borel made clear that the overall goal of his request was to determine a long-term policy of growth. He asked for an improvement of economic statistics, a determination of measures for economic planning, and an appropriate economic policy.25 This was surprising, as it did not correspond with the original motion and overlapped with the Motion Heil that had asked for a long-term economic policy. Moreover, as Borel did not communicate the focus of his request to the head of the finance department, this led to an incongruity between his introductory remarks and the statement of the finance department which essentially focused on financial planning. Nevertheless, the Ständerat accepted the request and passed it to the Nationalrat,26 which also accepted it but did not take Borel's focus on economic development into account. The Nationalrat did, however, emphasize the necessity of studies considering the overall development of the country.27

After the Nationalrat had accepted the request, it was – despite its disputed focus – passed to the deputy for economic questions, Hugo Allemann.28 Allemann, an economist himself, argued that the mandate,

24 Ständerat Wintersession 1965. Auszug aus dem stenographischen Protokoll der Sitzung vom 30. November 1965. 9170 Motion Borel. Arbeitsgruppe zum Studium der langfristigen Landesprobleme. BAR E1070#1974/32#1080\*.

25 Ständerat. Wintersession. Auszug aus dem stenographischen Protokoll der Sitzung vom 30. November 1965, S. 5, BAR E1070#1974/32#1080#, p. 4.

26 The Nationalrat is the lower house of the Federal Assembly of Switzerland. Together with the Ständerat, they form the Swiss legislative.

27 Kommission des Nationalrates für die Behandlung der Motion Borel – Arbeitsgruppe zum Studium der langfristigen Landesprobleme, Protokoll der Sitzung vom 1. Februar 1967, S. 5, 7, BAR E1070#1974/32#1080\*.

28 Schreiben des Vorstehers des Finanz- und Zolldepartements Roger Bonvin an den Vorsteher des Volkswirtschaftsdepartements Hans Schaffner vom 19. April 1967 betreffend die Motion Borel; Arbeitsgruppe zum Studium der langfristigen Landesprobleme, BAR E6100B-01#1980/150#198\*.

should it lead to useful results within reasonable time, had to be limited to the economy. Allemann's request implied an implicit assumption of a separated economic sphere that could be studied independently. This assumption became explicit in Allemann's recommendation that the study group should consider non-economic factors such as technical progress or the structure of society only insofar as they had an actual influence on economic development.

Allemann did not make clear in which case non-economic factors had an influence on the economy and how this influence could be assessed. Instead, he merely argued that the general objective of the motion, the determination of the long-term development, could only be achieved by limiting the scope of the request.29 It is unclear whether Allemann made this suggestion for the sake of the feasibility of the request or because he was convinced that the Swiss future could be forecasted by only considering the economic development. The fact, however, that Allemann justified this decision by merely pointing to its feasibility suggests that the implicit conceptualization of the economy as a separated sphere was not controversial and that there was a consensus within the Federal Administration regarding the economic development as driving force of the society.

Focussing mainly on economic growth, Allemann proposed to mandate the professor for economics from the University of St. Gallen, Francesco Kneschaurek, who had distinguished himself as an expert for economic growth and forecasting as well as for future studies.30 In 1968, Kneschaurek had founded an institute for future studies at the university of St. Gallen and considered himself a futurologist and founded in 1968 the St. Galler Zentrum für Zukunftsforschung at the University of St. Gallen (Reyhl 1976). Kneschaurek remained true to his conviction that the future was overall projectable – even when future studies went out of fashion after the 1970s31 (*Neue Zürcher Zeitung* 1990). Already in the

29 Notiz für Herrn Dr. K. Huber, Generalsekretär des Eidg. Volkswirtschaftsdepartements vom 27.9.1967, BAR E7296A#1994/333#431\*.

30 Bericht und Antrag über das weitere Vorgehen i. S, Motion Borel von Hugo Allemann an den Bundesrat vom 29. Dezember 1967, S.5, BAR E4110B#1986/81#248\*.

31 In his valedictory lecture "Der Griff nach der Zukunft" of 1990, which Kneschaurek titled after the German futurologist Robert Jungk's writing, he

1950s, Kneschaurek was publicly known for advocating a perception of the economic boom as a growth process, that was quite different from Böhler's pessimistic outlooks (Kneschaurek 1956; 1962; Kneschaurek, Kaufmann, und Geiger 1964).

The Bundesrat32 as well as the different state departments accepted Allemann's proposition to study mainly the long-term development of the economy without major modifications. Only the department of finance requested that the study group should not include merely "theorists" but also welcome "realists," indicating thereby a certain reservation towards growth theorists.33 Francesco Kneschaurek became the director of the study group that was composed of economists from his chair. Collaboration with exponents from other disciplines only took place in smaller ad-hoc working groups.34

# **4. The Perspektivstudien and the Swiss Economy as a Separated Sphere**

The reports of Kneschaurek´s study group were called "*Perspektivstudien*." The first edition of the *Perspektivstudien* appeared in eight parts between 1969 and 1972, a revised version was published between 1972 and 1973. The final report and summary followed in 1974.35 A second edition of the

tried again to promote the importance of future studies and to defend it against wide spread objections.

*Perspektivstudien* appeared in 1978, but was much less publicized than the former edition (Kneschaurek 1980, 46). Originally, the studies were supposed to be published as a final report at the end of the investigation, in order to test the coherence of its different parts. Kneschaurek and the federal authorities agreed, however, that it was preferable to publish the results of the different parts right away as they thought that the studies could benefit from discussions and critical comments (Arbeitsgruppe Perspektivstudien 1970, 1).

The *Perspektivstudien* attracted much attention from the media, but were also harshly criticized (Kneschaurek 1980, 46). Because of the negative publicity of the *Perspektivstudien*, the Federal council abstained from holding a press conference to present the results of the second edition, as it had been done for the first edition in the early 1970s. Kneschaurek himself was ambivalent towards the critique. While he acknowledged the importance of a public feedback and a critical discussion of the results, he hardly took the critique into account. Notably, he at first ignored the harsh but well-grounded critique of his colleague, the economist Walter Wittmann, and attacked him personally, calling his critique dilettantish and contradictory, without addressing the different points in question in detail (Kneschaurek 1972).

The conception of the economy as a separate sphere appeared in the *Perspektivstudien* in different ways. In accordance with Allemann's request, the *Perspektivstudien* only considered economic factors: the development of the population and workforce, overall productivity, different economic sectors, the educational system and agriculture. Non-economic factors such as shifts in values or new demographic or educational trends were assumed to be constant. This became obvious in Kneschaurek's understanding of the so-called "Leitbilder" (overall concepts that are supposed to guide an entity). As he explained, he based his forecasts on the currently existing economic and socio-political "Leitbilder" of Switzerland. Kneschaurek's use of the expression "Leitbilder" was unfortunate, since Borel's request had asked precisely for developing new "Leitbilder" with the help of the studies. Moreover, no such official «Leitbilder» existed in Switzerland, or at least many of them were competing with another, as Walter Wittmann observed in his critique of the *Perspektivstudien* (Wittmann 1972, 1).

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By using the term "Leitbilder," Kneschaurek wanted to make clear that he relied on the ceteris paribus principle. He assumed the social sphere to be constant and had not the intention to investigate social change. This decision was at least questionable with regard to the Swiss immigration policy, since an intense discussion about the limitation of immigration took place at this very moment in Switzerland. A popular petition issued at the beginning of the 1970s asked to limit the quota of foreigners to maximum 10 percent. If the initiative would have been accepted in the referendum, it would have led to the expulsion of hundreds of thousands of non-Swiss residents and would have strongly influenced the demographic development. The close run of the referendum with 46 percent yes-votes against 54 no-votes demonstrated that there was no "Leitbild" regarding immigration in Switzerland that could be assumed to be constant at that time (Maiolino 2011).

Though Kneschaurek acknowledged that it was not possible to make forecasts of the development of the non-Swiss population by considering past development patterns, he did not abstain from forecasting the development of the foreign population in Switzerland, as other studies did. Instead, Kneschaurek simply assumed that the number of foreigners would stabilize in the long run (Arbeitsgruppe Perspektivstudien 1969, 41–42). For the development of the Swiss population, Kneschaurek relied on models of democratic transition which predicted a continuous decline of the birth rate for industrial nations. Doing so, Kneschaurek neither took the ongoing value change of 1968 into account nor possible variations of the birth rate in relation to the growing female workforce participation (Arbeitsgruppe Perspektivstudien 1969, 17). Overall, Kneschaurek expected the Swiss population to grow from 5.9 million in the year 1965 to 7.5 million by the year 2000 (Arbeitsgruppe Perspektivstudien 1969, 59).

Retrospectively, this forecast proved to be accurate since the overall population of Switzerland counted 7.164 million inhabitants in the year 2000. This accuracy was, however, less the result of a correct population model rather than of Kneschaureks conviction that the number of non-Swiss residents and the overall situation would stabilize in the long-run. Retrospectively, this is surprising given the context of the cold war as well as of the experience of major global conflicts in the first half of the 20th century.

That Kneschaurek based his forecasts on an implicit concept of economic development rather than on the assessment of individual economic and non-economic factors, became especially clear in his second report on the development Swiss economy. Kneschaurek had previously been criticized for not taking political factors into account36 (Arbeitsgruppe Perspektivstudien 1970, 13). So he decided to make explicit why he shared the conviction that the impact of non-economic factors could be ignored. In a first step, Kneschaurek acknowledged that non-economic factors such as political events had had an effect on the development of the economy during the last 25 years. In a second step, however, he argued that those events counterbalanced in the long-run so that it was not necessary to take them into account (Arbeitsgruppe Perspektivstudien 1970, 13). To illustrate his assertion, Kneschaurek added a graphic to the second volume of his study that showed the development of the Swiss GDP starting from 1946 to 1968 and amended what he called the most important events of global relevance. With an additional dotted-line, Kneschaurek traced the general trend of the Swiss economy, showing that the non-economic factors overall counterbalanced each other.

As Kneschaurek stated, it was remarkable that those numerous global events had in sum almost no influence on the Swiss economy (Arbeitsgruppe Perspektivstudien 1970, 22). It seems obvious that the graphic served primarily as a justification for his methodology. It started precisely in the year 1947, when the Swiss economy had recovered from World War II, and was moving on a remarkably steady growth path. This had not been the case in the first half of the century, as Kneschaurek knew from his doctoral thesis on the Swiss business cycle from 1929 to 1939 (Kneschaurek 1952). Kneschaurek did not explain by which criteria he had selected the "most important events" of global relevance and how he assessed and isolated their assumed effects on the economy.

Kneschaurek did not explain his methodology in detail, but he reacted strongly regarding the critique that he had merely extrapolated historical trends. As he objected, the forecasts of the Swiss economy were not based on statistical extrapolations but resulted from international

36 Kneschaurek was accused of assuming a standstill of the political discussions or a neutralization of all non-economic factors.

**Fig. 1:** "The Development of the Swiss Economy in the Light of the Most Important International Events since 1946." Source: Arbeitsgruppe Perspektivstudien (1970), 24.

comparisons37 (*Schaffhauser Nachrichten* 1972; Wittmann 1972, 1). Kneschaurek used many graphs to demonstrate historical trends in his reports, but it seems nevertheless probable that he used historical data and trend extrapolation to historicize the economy and to assess possible developments. To forecast the Swiss GDP up to the year 2000, Kneschaurek could, however, not use trend extrapolation since there were no data series for the national production available. Kneschaurek instead used a simple production function which derived economic growth from the increasing employment rate and increasing productivity (Arbeitsgruppe Perspektivstudien 1970, 31). To determine the future productivity of Switzerland, Kneschaurek took the past productivity

37 It was mainly the economist Walter Wittmann who accused Francesco Kneschaurek of using only extrapolation of time series and of not considering the accelerated change.

development of the USA, which he implicitly perceived as the highest developed country. He assumed, that Switzerland would follow the economic development path of the US with a time lag, disregarding the individual features of the Swiss economy.38 (Arbeitsgruppe Perspektivstudien 1970, 40)

Kneschaurek thus had – whether consciously or unconsciously – a "modern" conception of economic development, in which the United States were considered the highest developed country and a model for reaching modernity other countries such as Switzerland should follow (Wehler 1975, 12). Using past productivity records of the U.S., Kneschaurek expected the Swiss productivity to slow down as it had happened in the United States. Accordingly, he forecasted that Switzerland's annual growth rate would drop from 4.6 percent to 3 to 3.5 percent in average (Arbeitsgruppe Perspektivstudien 1970, 21, 37–38, 43).

# **5. A Switzerland of 10 Million Inhabitants**

Kneschaurek and the federal administration wanted to initiate a discussion about the future of Switzerland by publishing the results of the different reports right away. By doing so, they acknowledged that the forecasts of the *Perspektivstudien* could have an effect on the development of the country. They expected, however, that this effect would primarily materialize in political debates on future planning. The media coverage was accordingly of great relevance for the overall debate of the projects results (Arbeitsgruppe Perspektivstudien 1970, 3–4). The *Perspektivstudien* received a lot of media attention, as they were the first Swiss studies forecasting the future over a period of thirty years. Furthermore, the repeated publication of the reports from 1969 to 1974 and the set of press

38 With regard to the USA, Kneschaurek wrote: "Die USA werden doch im allgemeinen als das Land mit dem fortgeschrittensten Stand der Technik und der ausgeprägtesten Unternehmerdynamik bezeichnet, in welchem die Rationalisierung, Standardisierung und neuerdings Automatisierung besonders grossgeschrieben werden. Es kommt nicht von ungefähr, dass man selbst von einem 'technological gap' oder von einem 'managereal gap' zwischen den USA und den industriell am weitesten fortgeschrittenen Industrieländern Westeuropas spricht."

conferences that emphasized the importance of the results contributed to the fact that the *Perspektivstudien* remained a talking point for years (Weber 1970). When Francesco Kneschaurek became the new deputy for economic questions (Delegierter für Konjunkturfragen) in 1973, replacing Hugo Allemann, the *Perspektivstudien* got even more publicity. This was especially the case because Kneschaurek's double function as forecaster and top-ranking official for economic policy was controversial (*Basler Nachrichten* 1973).

As Kneschaurek noted in his second report about the development of the Swiss economy, most newspapers gave a correct account of the published reports. In some cases, however, some of the results were incorrectly reproduced or falsely interpreted. The decreasing growth rate of economic wealth, for instance, was taken as evidence of generally decreasing wealth. This reactivated the fear of an economic downturn (Arbeitsgruppe Perspektivstudien 1970, 3). Generally, the newspapers interpreted the results of the study as alarming, even those which reproduced Kneschaurek´s forecasts correctly. The *Neue Zürcher Zeitung* worried about the slowing growth rate of the Swiss wealth (*Neue Zürcher Zeitung* 1970). The *Basler Nachrichten* qualified Kneschaurek's forecast of the development of population and employment as indicating a "catastrophic labor shortage" (*Basler Nachrichten* 1970). The *Aargauer Tagblatt* started their article with Kneschaurek's own words of a "keineswegs ermutigende Prognose" (*Aargauer Tagblatt* 1970).

These reactions were not only expected by Kneschaurek and Allemann, but intended. They inaugurated the first press conference with the confession that they had intentionally tried to shock the audience by presenting forecasts in an alarming way and that they wanted to wake the Swiss people from their lethargy (*Berner Tagwacht* 1970). Kneschaurek and Allemann thus communicated their forecasts as worst-case scenarios to prevent undesirable developments. This, however, contradicted Kneschaurek's implicit development model, which promulgated an evolutionary process towards modernity supposedly valid for all countries. Moreover, in Kneschaurek's and Allemann's dystopic conceptions, the ambivalent character of the original mandate between planning and prediction became again apparent. The forecasts were presented both as a future to come and as a future that should be prevented by planning it.

In 1974, the public perception of the *Perspektivstudien* started to change. Firstly, newspapers did not comment on the expected slowdown of the economic growth rate anymore, although Kneschaurek expected an even smaller growth of rate of 2.6 to 3.2 percent for the Swiss economy by the year 2000 in his revised report of January 1974 (Arbeitsgruppe Perspektivstudien 1974, 77). This can possibly be explained by the fact that the revised report did not get the same attention as the first one. The final report that followed a couple of months later contained hardly any numerical forecasts anymore, but focused on the description of the expected structural problems of the Swiss economy. Accordingly, the newspapers summarized the main statements without taking up particular aspects. Only a few articles honored Kneschaurek's work that now came to an end (Böckli 1974; Keller 1974; Stauffer 1974). Others, however, questioned the general usefulness of the Perspektivstudien in the light of imminent problems such as inflation or the oil crisis (Meyer 1974). The public, it seems, had grown tired of the Perspektivstudien when the final report was released in August 1974.

At the end of the year 1974, however, when a severe economic recession hit Switzerland, Kneschaurek and his *Perspektivstudien* received again a lot of media attention. The rapidly worsening economic situation triggered a discussion about the "culprit" of the crisis. The building industry was hit particularly hard by the recession and experienced a dramatic downturn of demand that resulted in a fall in employment of 40 percent. Kneschaurek, who had been appointed Deputy for economic questions in 1973, attributed this overcapacity to a poor planning by industry. He explained that constructors had made the mistake to extrapolate the growth rate of demand of the last couple of years. As he argued, there was no possibility to get back to the pre-crisis equilibrium. The building industry had therefore no other option than to adjust their supply to a realistic amount (*Basler Nachrichten* 1975).

The problem was, however, that Kneschaurek had never – neither in his forecasts nor in his role as Deputy for economic questions – pointed to the possibility of an imminent recession that would force the building industry to reduce their supply dramatically. Therefore, exponents of the industry refused to be blamed for their situation and stroke back by accusing Kneschaurek for having forecasted a population of 10 million inhabitants in Switzerland by the year 2000. Among Kneschaurek's harshest critics was the building contractor and national councilor Karl Flubacher, who expressed his deep contempt towards the economists who advised the Bundesrat in a talk at the annual conference of the association of the master carpenters in 1975:

"Der Schaden, der durch wirtschaftsfremde Theoretiker angerichtet wurde, ist wesentlich grösser als der Erfolg (…). Allzulange hat sich der Bundesrat bei seinen Entscheidungen auf den Rat wirtschaftspolitischer Technokraten verlassen.  (...)  Die Warnungen unsererseits, dass der Wohnungsmangel – aus politischen Gründen – stark übertrieben wurde, verhallten ungehört. Erst als man in den städtischen Agglomerationen Tausende von Leerwohnungen feststellte, zog man die Alarmglocken und suchte prompt Sündenböcke, aber am falschen Ort.

Flubacher did not name the *Perspektivstudien* and Kneschaurek personally, but pointed to the general practice of economic advising and forecasting, which he made responsible for decisions that went against the market expertise of the building industry. Flubacher's critique shows that not the individual results of the *Perspektivstudien*, but the general practice of forecasting had contributed to the idea that the post-war prosperity would last forever. This became particularly clear in the case of the figure of 10 million inhabitants, which did not stem from the *Perspektivstudien*. The 10 million inhabitants represented precisely the idea that the population growth rate of the 1960s would persist and with it the high demand for apartments and consumption goods that that had boosted the Swiss economy. The figure of 10 million inhabitants was thus a metaphor for a stable growth path, in which the future became stabilized as a prolongation of the present state.

The practice of long-term forecasting relying only on the development of economic variables such as productivity and the workforce created thus a reality, in which institutions, political power relations as well as the conditions of world markets were assumed to be stable, thus discarding social change as a driving force. Since this projected reality inspired investment decisions, it became performative, changing the overall orientation of economic actors towards the future, and thus their decisions and actions. Their disappointment vis-à-vis the outburst of the crisis, in turn, cast doubt on the expertise of economists and the government and thus affected the political power relations in place.

Although the figure of 10 million inhabitants did not appear in the *Perspektivstudien*, the accusation that Kneschaurek had put it in circulation was taken over by newspapers and spread quickly (*Walliser Volksfreund* 1975, 13). The *Perspektivstudien* also came under attack politically by a parliamentary request that questioned their usefulness, alluding to the fact that the forecasts had to be readjusted repeatedly. Kneschaurek asked the Chancellor of the Confederation for an official clarification.39 In his cover letter that accompanied his request for clarification, Kneschaurek noted that neither he nor his team had ever forecasted a population of 10 million inhabitants.40 In a session of the parliament, the Federal Councillor and head of the economic department of the state, Ernst Brugger, declared accordingly that Kneschaurek never had forecasted a population of 10 million for Switzerland for the year 2000 (Brugger 1975, 656). Unfortunately, it turned out that Kneschaurek had once referred to the possibility of a Switzerland with 10 million inhabitants in a paper of 1962 (*Die Tat* 1975, 1).

The somehow odd recurrence of the figure of a Switzerland of 10 million inhabitants shows that economic long-term forecasts of the 1960s and 1970s cannot be conceptualized as mere descriptions or projections of an actual state of the economy that help political elites to anticipate unwanted developments. Instead, they have to be considered as performative, as they contributed to an overall idea that the future state of the economy could be projected and that its development was solely relevant to foresee the future of the overall society. Economic knowledge that relies on the conceptualization of the economy as a separated sphere to predict the long-term future of societies constructed a deterministic, a-historical

39 Einfache Anfrage Ganz vom 30. Januar 1975, Frühjahrssession des Nationalrates, Amtliches Bulletin der Bundesversammlung, Bd. II, 1975, p. 589.

40 Notiz von Francesco Kneschaurek an den Bundeskanzler vom 19.02.1975, BAR E1010C#2009/102#53\*.

reality that disconnected actors from short-run events and changes. The readiness to accept those studies and their methodical assumptions must be seen in the context of Keynesianism, in which after the experience of the Great Depression the idea that the economy could be controlled by demand management prevailed.

To understand the emergence of long-term studies and their temporary spread, Keynesianism has to be understood as a governmentality in which not only Keynes' macroeconomic concepts, but also practices and institutions of the post-1945 nation-states supported and idealized the undertaking of a macroeconomic management that led eventually to a belief in the controllability and therefore predictability of the economy. The focus on the economic development, however, cannot be explained only by the emergence of Keynesianism. The Cold War and in particular the growing competition between capitalist and socialist countries, too, contributed to a prioritization of economic development and led to an obsession with economic growth rates and a neglect of the role history. It has thus a certain irony that the a-historical conceptualization of the economy as a separated sphere that reached an ideological summit with the emergence of long-term economic forecasts turned them into history with the outbreak of the economic crisis of the 1970s.

# **References**

La Documentation française. 1964. *Réflexions pour 1985*. Bd. 5. Travaux pour le plan. Paris: La Documentation Française.

# Timo Walter (University of Edinburgh)

# **The Janus Face of Inflation Targeting: How Governing Market Expectations of the Future Imprisons Monetary Policy in a Normalized Present**

**Abstract:** Modern 'inflation targeting' is widely praised as having achieved a level of technical sophistication and efficacy unprecedented by previous modes of monetary policy. Building on the Rational Expectation Hypothesis, it is premised on the idea that it is possible to influence *future* outcomes (inflation) by shaping and conducting economic expectations in the *present*. Monetary authorities thus rely on the structure of market expectations as the *medium* that transmits their intended policy into the future, allowing them to focus on fine-tuning the 'communicability' (credibility and transparency) of their *signals*. However, even among practitioners the precise nature and functioning of this inter-temporal link remains contested, despite its seeming effectiveness and the lack of a practical alternative. In this chapter, I want to deploy some concepts and analytics from a recent literature in sociology and anthropology on the coordination of social futures to query the link between present and future on which inflation targeting is premised. My objective is to uncover the social and organizational preconditions of this form of economic temporality, in order to better understand what limitations they place on central banks' ability to 'govern the future'. To this end, I look at the so-called Volcker experiment in which the fundamental procedures for governing the future were developed – although their significance only became clear later. The gist of my argument is that the consensus view of 'modern' monetary policy insufficiently distinguishes between the *present future* (the future as it is imagined and projected from the present) and the *future present* (as it materializes at a later point in time). Inflation targeting rests on procedures which set up what, sociologically speaking, amounts to a tightly integrated and formalized 'interaction order' between central bank and financial markets. This interaction order enables a fine-tuning of expectational reactions by markets to policy signals – but at the price of decoupling monetary policy from the economic structures required for securing a congruence between present future and future present.

**Keywords:** Central banks, monetary policy, expectations, futurity, economic coordination, indicators, inflation targeting

# **1. Introduction: Monetary Policy and the Problems of 'Knowing the Future'**

Over the decade starting in the mid-1980s, central banking underwent a "Quiet Revolution" and "went modern" (Blinder 2004). By the mid-1990s, ongoing changes cohered enough to begin giving them a more formal codification and a name: *inflation targeting* had been born (Bernanke and Mishkin 1997; Bernanke and Woodford 2006; Cobham 2010). Where the 'old' view of monetary policy (implementation) attempted to shift the hydraulics of macroeconomic aggregates (commonly, by seeking to control various *monetary* aggregates), the 'new' view's "key proposition … is that the appropriate operational target of monetary policy implementation is the short-term interest rate, and that this is the case independently of the characteristics of financial markets and independently of the monetary policy strategy" (Bindseil 2004, 5). Inspired by the "Rational Expectations Revolution" (Muth 1961; Lucas 1972; Sargent and Wallace 1976; Phelbs and Taylor 1977; see also Miller 1994), central banks worldwide have stopped attempting to push policy signals heavy-handedly through the cumbrous hydraulic machinery of monetary quantities and macroeconomic variables of yore. Instead, they have shifted towards attempting to *directly* 'conduct the conduct' (Foucault et al. 1991, 48) of market actors "whose activities propel the transmission mechanism of monetary policy" (Braun 2015, 369).

Since then, it has become conventional wisdom that this new channel of policy transmission by *directly* influencing the structures of expectations of economic actors greatly improves monetary policy's efficacy in achieving its primary objective of controlling inflation. By disentangling the technical procedures of monetary policy *implementation* from the problem of the transmission or propagation of the signals thus generated, central banks are capable of signaling their policy stance far more clearly than in the 'old' system, when the causalities on which implementation relied were tightly entwined with macroeconomic aggregates and dynamics. Thanks to this improvement in the *communicability* (Stinchcombe 2001, chap. 2) of its intended purposes, monetary policy can now shape inflation expectations (more or less) *directly* through alterations in its key policy instrument, the short-term interest rate, in such a way that they materialize into the desired inflation rate (of course, with a lag).

Modern monetary policy thus is *performative* in the sense developed by a growing literature in the field of economic sociology and the so-called 'Social studies of finance' (Callon 2007; MacKenzie, Muniesa, and Siu 2007). As Mann (2018, 18) has put it, "if [monetary policy] is believable enough to shape (rational) expectations, it will work itself out like a self-fulfilling prophecy" –at least, that is, "to the extent that economic actors adjust their practices to fit the narrative" (Beckert 2016, 116) or state of the (economic) world that the policy intended. This also means that monetary policy has become inherently *forward-looking*, as it seeks to govern (through) the future, or more accurately: govern the future *in* the present *through expectations about* the future. To ensure that policy signals emitted in the present indeed produce their desired effects in the future, central banks have heavily invested in their forecasting apparatus. This has allowed them to focus their operating procedures on keeping track of the (shifting) *expectations about the future* held by the actors "whose activities propel the transmission mechanism of monetary policy" (Braun 2015, 369). Investments in central banks' economic modeling capacities have helped improve the sophistication of their forecasts, which have been integrated more tightly with the decision-making process (see, e.g. Smart 2006). Better forecasting then allows for more fine-tuned policy signals, as well as increasing the transparency of those signals to the observers whose behavior and calculations it is meant to influence, especially when the reasons for the policy stance are openly communicated (Guthrie and Wright 2000; Geraats 2002; Issing 2005; Demertzis and Hughes Hallett 2007).

By making such "investments in forms" (Thévenot 1984), which help in mapping (market) expectations, and tracking the effects of their policy interventions, central banks thus have been able to construct highly standardized and formalized shared "frames," creating "an expectations environment that can be managed" (Morgan 2013, 744 – cited in Braun 2015). Within such a joint(ly generated) *frame,* the signals sent through central banks' manipulation of the *short-term interest rate* are translated into *long-term interest rate(s) and asset prices*, providing monetary policy with control over shaping the trajectory of inflation over time (cf. the account given by Braun 2015).

Practitioners take immense pride in this technical arrangement, a view often shared not only by academic economists but also adopted by many observers in the social sciences who have studied this 'communicative turn' in monetary policy as an exemplar of a more general trend towards "future-oriented" or anticipatory modes of social coordination and governance (Holmes 2014; Braun 2015; on the sociology of the future, see Tavory and Eliasoph 2013; Beckert 2016). There is, however, astonishingly little sustained reflection within expert circles (both practitioners and their academic observers and interlocutors) about the forms of temporality that underpin this technical arrangement, or about the tricky epistemological and theoretical problems involved in, first, *knowing the future* and, second, of using it as an instrument for shaping expectations. Beckert has put the problem in a nutshell when he points out that (present) expectations are necessarily (only) "*pretended* representations of a future state of affairs" (Beckert 2013, 226). Whether these representations turn out to be true, and thus whether the expectations based on them turn out to have been "fictional" or "rational", will only be revealed in the future once it arrives.

The importance that contemporary accounts of monetary policy attach to the somewhat elusive concept of its *credibility* illustrates this problem. Credibility necessarily lies in the eye of the beholder: for monetary policy signals to be *credible* to (present) market actors, they need to align with these actors' *present* "pretended representations of a future state of affairs" (long) *before* it can be decided whether they were, in fact, true. Whether credibility in terms of a two-way alignment between intended signals and expectations *in the present* actually extends to a three-way alignment *with the future* is a question that has received (too) little systematic attention. In aligning its signals to the structure of those beliefs about a "fictive" (Beckert 2016) imagined future, can monetary policy also be assumed to be influencing *that* future which eventually becomes real, and in terms of which the initial expectations will have been proven "rational"1 ? Indeed, it seems that "there is no consensus on why the framework is successful,

1 A problem solved by modern microfoundations economics *by assumption*: namely, the assumption of an a-priori congruence of structures of expectations with economic structures with only the probabilities of different possible states of the world being 'unknown' (Beckert and Bronk 2018, 8).

why and how expectations become anchored by virtue of these targeting protocols" (Blinder 2004, 74 ff.; Holmes 2009, 403).

A number of well-placed and knowledgeable observers have raised serious issues with assuming a smooth transition of policy intentions through expectations that are isomorphic with (and based on perfect knowledge of) the true structure of the economy, to the economy's future state(s). For instance, Orphanides has shown in a series of publications (Orphanides 2001, 2002, 2003; Orphanides and Williams 2007) that considerable gaps (may) exist between the (imperfect) knowledge actors can form in real-time about the economy and its structures as revealed in ex-post data, leading to considerable misfires of (intended) policy signals. Alan Blinder (2004, 67 ff.) has pointed out how, in attempting to align their policy (implementation) to market expectations, central banks may actually end up simply "following the market" rather than shaping its expectations to the futures they hope to enact. More troubling still, serious doubts exist about the mechanisms by which policy signals (by varying the short-term interest rate) become translated over longer terms into real economic prices, thus eventually shaping inflation. The standard linkage or transmission channel is, of course, provided by the so-called expectations theory of the term structure, roughly suggesting that longer-term interest rates should be the average of short-term rates expected over the longer-term. Not only does this relationship fail to hold consistently, but more worryingly still, "the implied interest rate forecasts (expectations) that can be deduced from the yield curve bear little resemblance to what future interest rates actually turn out to be" (Blinder 2004, 77). Despite the fact that "the abject empirical failure of the expectations theory of the term structure of interest rates is a well-established fact" (ibid.), central banks continue to use the yield curve to "read the future" (Zaloom 2009; Christophers 2017) from the market expectations it (supposedly) captures– as well as assuming market actors to translate their (short-term) policy signals into longer-term price signals along its lines.

In this chapter, I want to draw on insights that have been developed in fields *outside* economics for understanding how future-oriented, forward-looking and expectations-based modes of coordination function – in particular a recent and growing literature in the fields of sociology (and anthropology) (Mische 2009; Esposito 2011; Mallard and Lakoff 2011; Tavory and Eliasoph 2013; Beckert 2016). The goal is not, as has become something of a fashion among social scientists, to provide an external critique of economic theories and methods as "undersocialized" (Barber 1995; Beckert 2003) – a critique that comes lightly to disciplines whose bread and butter *is* "the social." Rather, my objective is to investigate in what ways the insights gained in these literatures can help us understand better *how and why* it is possible for central banks to "govern the future" by managing expectations. This will then allow us to develop a finer understanding of the conditions on which this ability depends, and what limitations these conditions imply.

To this end, I will be looking at a historical episode that has been crucial to the development of some of the key technical procedures and infrastructure on which inflation targeting relies, as well as having been formative to many of the theoretical debates and practical reflections that still shape our understanding of this form of monetary policy today. I will be looking at the policy experiments of the (early) Volcker years (approximately 1979 to the mid-1980s). This "Monetarist Experiment" was aimed at breaking the so-called "Great Inflation" of the 1960s and 1970s by restoring effective control over the money supply. While the experiment failed to achieve the latter, it produced a number of technical innovations which subsequently became the technical basis for modern, independent monetary policy seeking to control inflation through the manipulation of market expectations. I will historically contextualize these innovations, which today form a naturalized platform for inflation targeting, by showing how they respond to historically specific *problems* and, as a consequence, how the *solutions* on which modern monetary policy is premised still contain the traces of this origin, and are in important ways limited by this path-dependency.

# **2. The Temporalities of Modern Central Banking: Using the Future to Escape the Fetters of the Present**

The sociologist Niklas Luhmann (1976), based on discussions with historian Reinhart Koselleck (2002), developed a fundamental distinction that provides much analytical leverage for our problem. He distinguished the *future present,* the future that will be an *actual* present at a future point in time, from the *present future*, that is the *possible* future(s) projected in the present on the basis of various "instruments of imagination" (Beckert 2016). While this is often used simply as a terminological distinction allowing us to designate two temporally differentiated meanings of the word "future," it opens up a much deeper theoretical problem: namely, *how* do expectations about *imagined* futures link (action in) the present to the *actually realized future(s)*? As we have seen, monetary policy theory assumes such a link to exist *if* only signals shape expectations appropriately *in the present*, and are credible.

However, a closer inspection of the *origins* of this mode of monetary policy might give us some pause. The later development of full-fledged interest rate targeting as the standard for monetary policy worldwide is commonly portrayed as something of an unintended consequence of the so-called Volcker experiment (or Monetarist Experiment). The experiment initially tried, and failed, to develop procedures that would allow a firmer and more effective control over the money supply. Attempting to avoid the disruptions resulting from a too rigid and mechanical pursuit of money supply targets, experimentation led the Fed towards a strategy of interest rate targeting. Initially, by attempting to manage non-borrowed reserves (through what today is called open-market operations) to achieve a particular interest rate, the Fed sought to indirectly control the path of borrowed (at the discount window) reserves, understood as a proxy for the overall money supply. In time, as market reactions to these interest rate signals remained stable despite the volatility of the money supply, this ability to shape market reactions through those signals became the linchpin of both practical monetary policy implementation and theoretical reflexion about it. Today, *forward-looking monetary policy that operates by manipulating expectations of future inflation in the present* has become naturalized as a trans-historical technical benchmark for good central banking (see Bindseil 2004 for an explicit argument to this effect).

In this paper, my goal is not to challenge the existing, well-founded scholarship and historical accounts of the Volcker experiment. Rather, I want to question the eagerness with which the set of procedures that emerged from it has since been naturalized as the irreducible technical basis for monetary policy. Instead of taking for granted that central banks actually exercise effective control over the future by shaping market expectations, I want to apply some sociological concepts that allow us to better describe the temporal and social relations involved in this form of governing. My goal is twofold. First, I want to show how its technical procedures remain bound to an original historical context of tools and institutions, problems and institutions. Second and based on this, I will suggest that the technical logic of 'modern' central banking is not as transcendental and timeless as it likes to pretend – and that looking at the traces left by its origins may well help explain some of the difficulties it has been experiencing over the last decade.

The *technical* problems that many central banks faced in controlling inflation in the 1960s and 1970s are commonly seen to be tightly related to the question of central bank independence. At the time, the Fed was in many ways entangled with diverse societal interests – not simply by being subject to scrutiny by political authorities, but more importantly because of the very mechanisms though which it pursued and implemented monetary policy. Krippner (2011) has provided a detailed account of how the Fed, over the course of the 1980s, struggled to extricate its fight against inflation and the operative procedures on which it relied from social struggles about the distribution of income and credit, and the inevitable contestations of each of its policy measures this entailed. Her account favours a political-economy perspective, emphasizing how loosening the control over international capital flows and inter-bank lending and endogenous credit-creation allowed the Fed to avoid making hard choices. Seen from this angle, the shift to forward-looking monetary policy quite logically appears as a de-politicizing strategy, intended to deflect responsibility for (macroeconomic) outcomes by "letting the market show through" in the determination of the interest rate, rather than depicting the longerterm interest rate as an instrument fully under control of the central bank (Krippner 2011, 120).

Where sociologists and political-economists are wont to emphasizing the social and political struggles that shaped the transformation of central banking during this time, economists and central bankers are more prone to looking at it as a process of technical evolution and improvement. Beyond the question of how political dependence reduced the Fed's overall *effectiveness*, they are also interested in how these problems manifested themselves at the level of *technical efficiency*. From this perspective, US monetary policy in the 1960s and 1970s was clearly deficient: it consistently failed to convey a transparent and credible policy stance, with each failure further undercutting its ability to achieve its policy objectives. As *hydraulic* monetary policy incurred considerable lags as it waited for its policy signals to work their way through the system of macroeconomic variables, both market observers and the Fed itself struggled to obtain timely feedback information about the effects and effectiveness of its policies (Orphanides 2002). In this context, ideas such as Friedman's "adaptive expectations," arguing that the ambiguity and lags in monetary policy encouraged a cumulative build-up of inflationary expectations (1968), became increasingly influential: as he pointed out, economic agents *adapted* their expectations *upwards* each time monetary policy failed to clearly and unambiguously achieve its declared inflation target – which it rarely did, given the difficulties just discussed.

Over almost two decades, the Fed struggled to find solutions to these problems, seeking in particular new ways of technically improving the credibility and reducing the ambiguity of its policy signals due to lags and interaction effects. However, improving the clarity of policy signals *within* the hydraulic monetary policy system proved challenging: it would mean avoiding, in particular, overly powerful policy interventions that would trigger sharper reactions than intended, which then required further (confounding) sterilizing actions on its part and further muddied the waters. The devious results are known under the twin terms of *interest rate smoothing* and a resultant *base drift*. Fear of political repercussions as well as technical considerations prevented the Fed from moving the interest rate sufficiently strongly and anti-cyclically to control inflation, with the resultant lags generally reinforcing subsequent cyclical countermovements and allowing the monetary base (thought to be directly correlated with inflation) to grow in an uncontrolled fashion (Axilrod and Lindsey 1981; Meltzer 1991, 39; 43).

Going through the *economics* literature on this period, one encounters a shared narrative that suggests political interference and entanglements prevented the Fed (and other central banks) from developing and adopting technically superior instruments and solutions for achieving its primary objective, price stability. In contrast to such "Whiggish" storylines built around histories of technical progress being held back (temporarily) by political and social entanglements, sociological and political-economy perspectives refuse to conceive of the field(s) of possible technical solutions as given (more or less) 'a priori.' Instead, they seek to "open the black boxes" (MacKenzie 2005) of technical arrangements to analyse how the ways in which they are assembled reflect competing social interests and the struggles through which they find (political, and eventually technical) expression. In particular the field of Science and Technology Studies (STS) has argued very forcefully (e.g. Pickering 1995) that technical problems and solutions are never given *a priori* – as much as it will look that way in retrospect, once a new "paradigm" has emerged from a scientific or technical revolution (Kuhn 1996). The technical solutions that prevail (and in retrospect always appear inevitable and rational) are thus contingent upon wider fields and contexts of social interests (Habermas 1969; Bloor 1991; Barnes 2015), path-dependent on a "seamless web" of available technical elements from which they are assembled (Hughes 1986) as well as on the scientific knowledge(s) providing the "instruction sheets" (Blyth 2003) for developing them.

As David Stark (2009; and others, e.g. Callon 1998) has shown, economic domains are indeed rarely, if ever, fully subsumable to the formaltechnical accounts deployed by economists and central banks alike. These accounts and models depict fields of interdependent economic actions which are given descriptions as coherent (collective) calculative problems, which in turn makes them amenable to being governed as unambiguous *technical* problems. As Stark points out, however, in reality economic domains are marked by what he calls competing "accounts of worth," that is, (collective or shared) projects of assigning economic value (and resources) to competing social purposes or activities. The technical coherence of economic policies and regulations is thus the result of what Kallinikos (2014, 9) calls a (working) *functional simplification*, that is, "the demarcation of an operational domain within which the complexity of the world is reconstructed as a simplified set of tight cause-and-effect couplings." A functional simplification establishes robust technical 'means-ends' control relations by demarcating and insulating procedures of intervention from interference by 'external' causal sequences or influences (Kallinikos 2006, 32 ff.).

Monetary policy *prior* to the transformations it underwent in the 1980s provides a perfect illustration of the *failure* to demarcate and insulate a technical domain in which coherent and stringent interventions can occur. The Fed, by the 1970s, had integrated various competing accounts of worth, and as a consequence heterogeneous conceptions of and operative strategies for controlling inflation, into rather ambiguous and heterogeneous policy procedures. Different theoretical conceptions of the causal mechanism(s) driving inflation co-existed uneasily within its operative paradigm. Most famously, the so-called notion of "cost-push inflation" led the Fed into various attempts to target the credit extended to particular economic sectors and considered to be driving general inflation, and into attempts to control wage dynamics. The real bills doctrine (see Glasner 1992) with its notion that productive credit could never be inflationary long persisted within the Fed, so that targeting *free reserves* (reserves not backing productive credit) was seen as a way to combat speculative pressures that could lead to asset and, through it, generalized inflation. Such partially incoherent *substantive* theories of inflation and the operative mechanisms they implied uneasily coexisted within the Fed's monetary policy. Its multifaceted conception of inflation also entailed a complex apparatus of technologies such as regulations of interest rates, relative (credit) prices and the allocation of money to different sectors of the economy (Konings 2011, 106 ff.). Through this, monetary policy became drawn into and contested over an entire spectrum of competing accounts of social worth – with a little artistic license, whether to fund schools or missiles, homeownership or poor relief. And, confronted with multiple, (partly) contradictory policy signals, market actors found it difficult to form clear-cut expectations about the Fed's policy stance and actions.

As the Fed pursued multiple (intermediate and ultimate) objectives simultaneously, implementing them through various (and frequently incompatible and interacting) channels of transmission, all conceived in terms of the interactions of a growing number of policy-variables, confusion crept in. Expert debates at the time revolved around the problems of demarcating an operational domain for monetary policy in such a way that (i) it achieved "tight cause-and-effect couplings," and would (ii) be able to send unambiguous, transparent and credible policy signals. These debates were cast in terms of the so-called *Instrument-Target Problem* (Poole 1970; Bindseil 2004, 29 ff.). While conducted in a highly technical jargon hard to decipher for posterity, the Instrument-Target Problem essentially revolved around the endogeneity problems facing monetary policy due to the lags observed between (a growing number of) operative and target variables (organized in multiple, mutually overlapping and interacting transmission sequences), and the resulting instabilities of the functional relations between variables.

This discussion is directly analogous to a widely debated issue in organizational sociology and organization studies, namely the problem of "tight" vs. "loose coupling" of an organization to its relevant environment (Orton and Weick 1990). A *tight coupling* in this context refers to a situation in which *too many* variables from the environment appear in the instrumental sequences and procedures by which the organization seeks to "represent and intervene" (Hacking 1983) in its environment. The tighter the coupling between an organization and its environment, the more difficult it becomes (ceteris paribus) for the organization to achieve a working functional simplification. A functional simplification isolates tight causeeffect couplings *between variables in the domain in which it means to intervene*, by shutting out other *lateral* couplings that dilute the intended control relation. A tight coupling can make achieving such a simplification more difficult, by inscribing the inherent contradictions present (to varying degrees) in all domains of social practices inside the organization's operative procedures. Rational organizations attempt to organize their procedures for intervention in a way that guarantees robust and iterable *means-ends-relations* (Stinchcombe 2001; Kallinikos 2004), and secures technical rationality for these interventions. If incompatible interests, institutional logics, or practical rationalities present *within* a domain manifest themselves as contradictory logics and imperatives within the policies and its instruments of an organization, both the effectiveness and legitimacy of the organization is threatened (see e.g. Meyer and Rowan 1977), as we have seen was the case for the Fed in the 1960s and 1970s.

In contrast, if an organization's ways of representing and intervening are more "loosely coupled" to its environment, it becomes easier for it to focus on specific functional relationships (effectively). A loose coupling thus means that an organization must deliberately bracket or black-box many of the causal and functional interdependencies between relevant variables (Orton and Weick 1990, 203). This bracketing allows it, however, to focus its attention and available instruments on means-ends-relations that align well with its (main, central) objective or mission, and can be seen as a reliable and robust technical foundation for pursuing substantive policy goals.

To central banks in the late 1970s and early 1980s, the vocabulary and theorems of (Rational) Expectations provided just such an idiom which promised a plausible "loose coupling" and functional simplification around which a more effective monetary policy could be constructed. In particular, it suggested a way of short-circuiting the complex morass of entangled instrument- and (direct, intermediate, and ultimate) targetvariables and cross-cutting transmission channels, by shaping economic agents' *expectations* about inflation directly. The outcome, of course, is well-known: by "decoupling" its manipulation of the *short-term interest rate* from the movements of other (lateral) variables, the Fed gained additional degrees of freedom allowing it to move this "policy rate" as required for signaling its (longer-term) policy stance. Due to the higher transparency and credibility this permitted, its signals would be transmitted through the expectations of economic actors to the price system of the economy, giving the Fed more effective control over the evolution of the general price level.

In this way, the Fed demarcated and insulated *policy implementation* from the problem of monetary policy strategy and transmission. By improving its ability to control a *particular* (tightly coupled) cause-effect coupling, monetary policy thus has vastly increased the "communicability" (Stinchcombe) of its policy intentions: reactivity between policy signals and (presently observable) market expectations have greatly improved under the inflation targeting operational paradigm. However, these improvements in communicability were achieved by black-boxing the wider domain of causal pathways and functional relationships which link the (imagined) *present futures* monetary policy shapes to the *future present* it seeks to influence. This raises the obvious question: (how) is the undeniably high reactivity between monetary policy signals and observed expectations *in the present* transmitted to macroeconomic outcomes *in the future*?

In the next section, we therefore will have a closer look at how the Fed tried to develop novel means for ensuring the adequacy of the *present futures* it generates and manages through is functional simplification and policy implementation, to the *future presents* as they unfold in time. If we do not simply assume that (all) agents' expectations are a priori commensurable (by virtue of partaking in the same 'true model' of the economy), what secures the commensurability of agents' expectations and their continuity through time? Can they serve as an unproblematic transmission mechanism if the techniques of implementing monetary policy are decoupled from the macroeconomic structures through which it is to be transmitted to the future? How does the Fed (try to) observe and ensure its signals elicit the intended outcomes in the 'moving target' of the *future present*?

# **3. What 'Futures' Does Future-Oriented Monetary Policy Govern – and How?**

Against the backdrop of today's almost common-sensical operative and conceptual separation of monetary policy *implementation* and *strategy/ transmission*, the notion that central banks would target inflation through (market) expectations appears like a straightforward technical implication and application of the Rational Expectations hypothesis. And yet, all insights gained by Science and Technology Studies since it emerged as a discipline in its own right in the 1970s caution against such "Whiggish" narratives. What in retrospect appears as logical and effective solution to a scientific or practical problem, on closer inspection usually involves significant experimentation and "heterogeneous engineering" (Law 2012). By "drawing things together" (Latour 1990) into novel configurations, old tools and instruments can be reconstructed and deployed as part of a new functional simplification for governing a particular social domain or field. The seemingly natural identity of a scientific idea or technological concept with its practical implementation thus is "socio-technical artefact" (Kallinikos 2014) obscuring the contingency of each such translation between theory and practice.

For the case at hand, this suggests that we need to have a closer look at the processes of *abstraction* (Stinchcombe 2001), of reconfiguring the ways of "representing and intervening" (Hacking 1983) on which central banking rests, from which inflation targeting emerged as a possibility. What we need to understand is how it became plausible to conceive of shaping and governing inflation expectations in abstraction from how monetary policy is transmitted (to the future) through concrete causal pathways (in terms of macroeconomic and monetary aggregate variables). How did it become possible and plausible for monetary policy to focus (almost) exclusively on the communicability of its policy signals? To explain this rather remarkable outcome, we need to track how the Fed "black-boxed" how the present futures generated by shaping expectations are transformed into the eventual future presents of which targeted future inflation rates are a part.

As we have seen, before the Volcker experiment, the Fed as an organizational actor2 faced a fundamental problem of how to improve the transparency and credibility of its policy signals, which was greatly impeded by the tight coupling of monetary policy's representations and mode of intervention *to* its target-domain. This tight coupling meant that interest rate signals were not unambiguously read by markets as a clue to the Fed's longer-term policy stance, but primarily considered as affecting shortrun refinancing costs, and as responses to the business cycle. This left the Fed with two options: amplify its signals, which however also amplified the business cycle rather than tighten the Fed's control over it – or try to "smoothen" and steady the interest rate signals, which entailed a persistent "base drift" and further undercut the Fed's anti-inflation credibility with financial markets.

2 While it is uncommon in disciplines such as anthropology or history to think of organizational forms as coherent actors in their own right, it is common practice in other disciplines. In the following, I adopt the (primarily sociological) conception of organizational agency as a function of the existence of institutionalized scripts (consisting of formal knowledges, technologies, and procedures) which govern its interaction with an equally rationalized environment (Meyer and Rowan 1977; Meyer and Bromley 2013). Within rationalized social environments, the existence of such scripts thus is the basis for assigning organizations 'actorhood' (accountability, goal-directedness) in social practice (ibid.), so that individual agents (both within and outside the organizations) stand in relation of "structural equivalence" (Lorrain and White 1971) to it. My research interest lies precisely in the historical evolution of such 'scripts' of interaction between two highly rationalized organizational forms, the Federal Reserve (and, through the global diffusion of this script, eventually shared by central banks worldwide) and financial markets. Therefore, for the sake of brevity, I adopt the sociological usage of treating organizations as actors in their own right for this limited purpose.

At first, the Fed did not attempt to decouple its interest rate signals from monetary aggregates at all – but instead sought to enhance the *reactivity* between its signals and financial market reactions, by *binding* them to a system of feedback mechanisms. These feedback mechanisms would then effectively chart a longer-term *nominal anchor in terms of monetary aggregates* for expectations about inflation, communicating the Fed's intended outcomes as well as its credibility in pursuing them. The first attempt at installing such a mechanism became known as *nonborrowed reserve targeting.* By observing the divergence of past volumes of borrowed reserves from the projection a desired overall money growth path, the Fed would target the short- and medium-term growth of nonborrowed reserves through open-market operations, to restore it to the desired growth path of the money supply. Making banks bid for this pre-set volume allowed market expectations of the appropriate interest rate to 'show through' (Krippner 2011, p. 121 ff.). The discount window provided a security value and upper bound, avoiding the problems the Fed had experienced when implementing too biting constraints. In this way, both the Fed and the markets could gauge whether the volumes realized matched the Fed's desired outcomes. Observing the movements of the interest rates and the eventual volume of discount borrowing allowed both to adjust their expectations on a convergent path (Walter and Wansleben 2019, 11).

In this way, the Fed hoped to avoid the lags between the *sending of its* policy signals and the *materialization* of their effects in the inflation rate (the "ultimate target variable") that previously had created considerable noise and information deficits in its attempts to combat inflation (cf. Orphanides 2003). Thanks to these feedback loops and the (more) direct reactivity relation they generated, financial institutions' plans (or 'expectations') were not only revealed to the Fed, but it allowed the Fed to signal whether it considered these plans well-aligned to its own. The (tight) coupling of this mechanism to (indicators of) monetary aggregates worked, at least in theory, as a common benchmark or frame securing the commensurability of expectations between the Fed and the markets. In binding expectations to a structural background (i.e. the intended trajectory of monetary growth), it established a congruence and a substantive linkage between *present future* and *future present*.

This system also entailed a number of problems, however. Most fundamentally, the stability of this frame (and thus of this entire mode of conducting monetary policy, and the link between present and future) depended on the stability of the functional relationship between the Fed's interest rate signals, monetary growth rates and inflation. As markets initially failed to read Fed policy effectively (Cukierman and Meltzer 1986, 69; Feinman and Poole 1989), the Fed's attempts to signal a tougher policy stance induced precisely the types of overshoots and credit crunches the Fed had sought to avoid by this mechanism (Rosenblum and Strongin 1983; Meltzer 1991, 40). Unfortunately for the Fed, as the financial system relied more and more on *market-based liquidity*, credit expansion became increasingly erratic. Overall growth of endogenous credit-money accelerated significantly while inflation rates decreased – as the Fed's tougher stance induced a series of recessions and pushed credit from the real economy into financial circulation.3

At the same time as this structural background of functional relationships which the Volcker reforms had relied on as a frame for governing (through) expectations dissolved, the Fed noticed something else: the reactivity between its policy signals (sent by manipulating the short-term interest rate) and market pricing of the assets through which the Fed conducted its money market operations (basically, US treasuries) persisted and even *improved*. Pragmatically, over the course of the 1980s, the Fed reacted to this novel situation by cutting out the middleman: it simply black-boxed the initial functional relationships that involved monetary aggregates, and focused on honing the direct reactivity relation it had observed between its policy signals and what, in time, came to be labeled 'market expectations'. However, this functional simplification *also* meant that the structural background which had made expectations legible, and which had provided a durable, structural link between the *present futures* manufactured by the Fed and the *future presents* in which inflation was to be shaped, had been suppressed.

3 On the positive side, though, the credit crunches and extremely high interest rates that resulted from this served the Fed as "credibility tests," which established its credentials as being tough on inflation (Goodfriend 2007, 51).

As a substitute, the Fed proceeded to construct an alternative frame in terms of which the impact of its policy interventions on their intended target (*future* inflation) could be made legible. To forge such a link, the Fed since this time has relied on what Beckert has called "instruments of imagination," and what Mallard and Lakoff (2011, 341) more tellingly call "techniques of prospection with a constitutive purpose." Specifically, the Fed has developed increasingly sophisticated models for *forecasting* inflation (Brayton et al. 1997), and learned to use the expectations theory of the term structure for making legible the structure of market expectations (Johnson 1988; Frankel and Lown 1994). Through these instruments, "expectations in the economy are... anchored in prevailing cognitive models, which function as instruments for the construction of imagined futures" (Beckert 2016, 89). More specifically, monetary policy makes 'constitutive use' of the future by constructing *present futures* in terms of which expectations can be coordinated *in the present.* Using imagined futures as constitutive frame for coordinating (actions or expectations) in the present is doubtlessly *future-oriented* – but whether this coordination ultimately produces *future presents* commensurate with these projections is an open question.

Through these (and other) "techniques of prospection with a constitutive purpose" (Mallard and Lakoff 2011, 341), the Fed thus is able to construct a frame (Braun 2015) or 'present future' in terms of which it can coordinate expectations. The idea, supported theoretically by the Rational Expectations Hypothesis, is of course that expectations themselves constitute a bridge between present and future. This means that through expectations, the effects that policy interventions will have in a *future present* to come would become *legible in the present*. Observing the effects of its policy signals in and through these present futures (and assuming policy credibility) a central bank would then be able to fine-tune its signals until the desired effects manifest themselves.

However, there is considerable play between present future and future present built constitutively into this new mode of monetary policy. Indeed, in order to avoid problems with information lags that had crippled previous modes of monetary policy, inflation *targeting* in practice becomes *inflation forecast targeting*. As Svensson has pointed out, "inflation targeting implies inflation forecast targeting: The central bank's inflation forecast becomes an intermediate target (Svensson 1997, 1113). Targeting *present* inflation forecasts rather than *future* inflation is expressly motivated by the desire to improve the legibility of policy effects, and thus the *communicability* of policy signals:

"The central bank's inflation forecast is indeed an ideal intermediate target: it is by definition the current variable that is most correlated with the goal, it is more controllable than the goal, and it can be made more observable than the goal. It can also be made very transparent, and may therefore facilitate the central bank's communication with the public, and the public's understanding of monetary policy" (Svensson 1997, 1114).

While this procedure has vastly increased the communicability of monetary policy signals, it effectively means that these signals are now tailored to *second-order expectations* about the effects of those signals (ibid., 1119). This is a sharp departure from previous practice, where they were aimed at the actual manifestation of effects in terms of the trajectory of monetary aggregates as concrete, first-order economic variables. The congruence of the present futures governed by the central bank with the future present that constitutes its ultimate target is condensed to a single, derivative indicator – but whether forecast and inflation turn out the same is only revealed in retrospect (and the reasons for correspondence, or lack thereof, remain external to this metric itself). Due to this time lag, the best operative procedure available is to try and achieve convergence of inflation target and forecast. Ex post divergence can be explained (and: explained away) by forecast and control error, often due to disturbances occurring within the control lag. The competence of a central bank then depends crucially on the quality of its forecasts. Assuming it uses the best forecasts available, its accountability does not extend to the actual correspondence of inflation target and outcome, *but only to* the convergence of target and forecast (Svensson 1997, 1120)!

As the goal of the exercise is to shape market expectations, the Fed (and other central banks) rely on a second instrument to achieve a "reflexive modeling" (Beunza and Stark 2012) of market expectations in relation to its policy signals. In order to achieve a (near-)real-time feedback on whether policy signals will have the desired effect, it is necessary to make legible its impact on (present) *expectations*, which are the moving forces supposed to transmit the policy signal through the economy. For this, the Fed relies on a device that we have already briefly touched upon above – namely, the so-called *term structure of the interest rate* (see Goodfriend 1998). By focusing on the yield curve of the asset categories through which money market operations for implementing monetary policy are conducted, central banks thus seek to make the effects of their policy signals on expectations visible *in the present* (Blinder 2004, 67; Mann 2018, 12). These observed (changes in) expectations then provide the parameters that can be fed into the forecasting models in order to project the effects of policy signals.

To see what might be problematic with this (at first sight, seemingly rather sensible) procedure, it is useful to have a closer look at the *previous* uses made of this same device for contrast. The term structure had been used as a prism for reading the market within the Fed since since the 1920s. Before its new use for the reflexive modeling of expectations was discovered, however, it was used in line with the free-reserves doctrine to detect whether idle reserves were producing speculative distortions in the structure of asset prices. This would then allow the Fed to sterilize these anomalies (by mopping up idle reserves) and restore normalcy to the structure of expectations (see Mehrling 2011, 47 ff.) – and, in doing so, remove local expectation dynamics that could interfere with the global, normal transition path from the present to the future.

The new use that has developed since the 1980s constitutes a complete reversal of this causality. The yield curve makes expectations legible by relating yields at different points in time into an overall curve, whose shape can then be "read" as a summary of market expectations relevant for monetary policy (Christophers 2017), but also investment decisions (Zaloom 2009):

"Central banks typically estimate both nominal and real yield curves for government debt instruments, and are able to extract from the combination and comparison of these what is referred to as the 'inflation term structure' or 'implied inflation curve' - in other words, the rates of inflation expected by the market at different points in time" (Christophers 2017, 66).

This constitutive use of the term structure of expectations creates a *present future* which can be taken to indicate substantive facts about the *future present*. One can "look first to the interest rate itself as a clue to underlying conditions… allowing the interest rate to speak not only about the contemporary financial order but also about the impact that current events may have on future economic conditions" (Zaloom 2009, 253). As the Fed always sets the short-end of the yield curve directly through its policy actions, the form of the curve can be read as an indicator of market expectations as to future policy measures (Christophers 2017, 65). It thus provides the Fed with a ready measure of the credibility and projected effects of its policy signals in a however *imagined* future constituted wholly in the present.

While this game of expectations is thus played out entirely within a *present future* constituted and disciplined by instruments of imagination, theoretically this current use entails that the term structure represents substantive facts about the *future present –* so that in shaping expectations as read through the term structure, one is also substantively (re-) shaping decisions in the *future present,* re-constituting causal pathways into the future. Christopher summarizes this shared belief when he writes that "monetary policy fashions the economy through the yield curve; the economy reacts back on monetary policy through the yield curve" (Christophers 2017, 68). However, this expectations game does not actually involve "the economy," strictly speaking. What happens is that markets and the central bank are calibrating their respective *present futures* wholly endogenously within a jointly produced frame and "interaction order" (cf. MacKenzie 2019). As expectations are coordinated around a single metric (expectations of future interest rates as summarized in the yield curve), this game can proceed largely decoupled from the specific, substantive content of the *future presents* projected. As Zaloom (2009, 253) points out, "the interest rate as a number disconnected from a specific time and place provided a powerful argument… to look first to the interest rate itself as a clue to underlying conditions. The number could be interpreted without initial reference to the specifics of time and place." And indeed, as markets have come in turn to use the yield curve for predicting central banks' presumed policy stance (Christophers 2017, 66), there has been a marked tendency for them to simply converge on central banks' published (and intended) projections of inflation, without much attention being paid to the specific reasons underlying these projections (Braun 2015, 379).

# **4. Conclusion: Why Standardizing the Future Increases Uncertainties**

Is there reason to worry about the disconnect between the *present futures* of policy implementation, and the *future presents* that central banks seek to influence? From the perspective of most practitioners and academic economists, the answer is quite certainly a resounding 'no:' not only for them, there can be few if any doubts about the downsides of the old "tightly coupled" mode of conducting monetary policy. On top of this, the record of inflation targeting up until the 2007–2008 financial crisis seems rather impressive, although somewhat qualified by its heavy emphasis on price stability at the expense of considerable blind spots regarding financial stability (e.g. Fligstein, Stuart Brundage, and Schultz 2017). Additionally, as in fact every social action and practice is future-oriented (Tavory and Eliasoph 2013), it would appear only natural that central banks attempt to exploit this fact to direct present actions in a way to bring about desired outcomes in the future.

In contrast, the argument advanced here, while suggestive rather than conclusive, entails that we should think again, and more carefully, about the conditions under which monetary policy as it is still currently practiced4 is actually in a position to "govern the future" (Braun 2015). As we have seen, looser forms of coupling an organization's operations to their target-domain often are a precondition for governing effectively – but they also transform what is being governed, and how. The specific arrangement of procedures and instruments on which modern inflation targeting rests not only *decouples* its implementation from the lagged structural background movements of monetary aggregates – but it *quite tightly re-couples it* to endogenously shifting market expectations within a joint and significantly "functionally simplified" frame.

With a little 'sociological imagination' (Mills 2000), the concerns raised by practitioners and observers about (i) whether policy signals are effectively translated to the *future present* (or remain contained in the *present*

4 The recent period of "unconventional monetary policy" (Bowdler and Radia 2012; Braun 2018) indeed attempts to restore the conditions for inflation targeting rather than constituting (conceptually) a departure from it.

*future*), as well as (ii) about the possibility that monetary policy might be forced into "following the market" as it seeks to govern through the market's expectations, reveal themselves as quite natural results of such a tightly coupled interaction order. As we have seen, inflation targeting is centered, above all, upon the strong reactivity relation between *numeric* policy signals and *numeric* inflation expectations.

In sociological terms, this interaction order thus functions analogously to how *standards* organize social interaction(s) (cf. Brunsson, Rasche, and Seidl 2012). It provides a common (numeric) benchmark around which the present futures of the central banks and market actors can be coordinated. Just like a standard, it "simplifies in two ways: by making irrelevant vast amounts of information, and by imposing on what remains the same form—a shared metric" (Espeland and Sauder 2007, 17). Additional information matters to coordination through standards only insofar as it facilitates convergence *within* the interaction order. Very much like in the case of *rankings* (a special case of a social standard), performance becomes measured exclusively in terms of the common metric: what matters is whether the measures taken in the multiple dimensions this metric summarizes achieve the desired outcomes in terms of the ranking – not whether these measures achieve any substantively rational (in terms of the dimensions) objectives5 (Espeland and Sauder 2007). As Espeland and Sauder (2007, 17) point out, "commensuration as a mechanism of sense making is notable for how rigorously it simplifies information and for how thoroughly it decontextualizes knowledge." Successful coordination in terms of the standard or disentangled frame thus can become radically decoupled from actual, successful interventions in the wider context which the standard allegedly "measures" if and when the standard becomes the main or only criterion of success (Espeland and Sauder 2007; Tavory and Eliasoph 2013, 925). Translated to monetary policy, this suggests that improving the ability to fine-tune policy signals *within the interaction order* comes at a steep price. Increasing the credibility of policy action and thus its efficiency in influencing market expectations,

5 What matters is one's place *in relation to the others being ranked –* not whether there is any substantive improvement in performance in any of the dimensions summarized by the ranking.

reduces the *effective* control over the substantive shape and content of the *future present*. Indeed, as Stinchcombe (2001) demonstrates, a high(ly efficient) *communicability* of such signals does not entail their substantive effectiveness – which depends on the *adequacy and alignment* of the functional simplification with the wider context(s) in terms of which substantive effectiveness is defined. Proceduralization thus essentially entails that *efficiency* in terms of the procedure does not (automatically) entail *effectiveness* in terms of achieving the broader, more substantive set of (societal) objectives which the procedure was meant to realize: "as long as the procedure is followed, the result obtained belongs to a sphere that is neither that which is true or just, but the unfalsifiable" (Salais 2016, 121 ff.). Proceduralization, in this as in other cases, entails that the immediate reactivity and appropriateness to the other's (re-)action overrides the longer-term, "projective" significance of what is being done (see Tavory and Eliasoph 2013, 924).

The "intensive discursive exchanges within the epistemic community and 'the economy'" (Beckert 2016, 260; see also Holmes 2009, 392) typical of modern central banking are considered key to its newfound effectiveness not only by central bankers and academic economist, but also by many external observers from the social sciences (see Holmes 2014). However, as a number of observers and practitioners have pointed out, the pragmatic problem of converging on a number ends up consistently trumping the question of what this number "means" in terms of wider economic structures: in particular during the "Great Moderation," market actors have taken to simply adopting without question the projections of future inflation rates, even irrespective of their own private forecasts (Braun 2015, 379). Substantive questions about whether this mechanism actually covered all relevant dimensions of its 'target problem' of inflation, such as in particular the problem of asset inflation that helped push the global financial system into utter chaos in 2007–2009, could thus all the more easily be rationalized away (see, e.g. Bernanke and Gertler 2001; Raines, McLeod, and Leathers 2007), as they were 'black-boxed' from the technical and operative core of monetary policy.

Discursive interactions thus have become subordinate to the "interactive nature of the 'signaling process' between the central bank and those economic actors whose activities propel the transmission" (Braun 2015, 369), locking central banks into a shadow play with financial markets.

The de-contextualization involved in functional abstraction and proceduralization thus loosens the coupling of monetary policy to its target-domain, providing it with additional degrees of freedom with regard to the 'accounts of worth' and social interests inscribed in the structures of this domain. At the same time, it constrains central banks' abilities for organizational learning, which requires "an abstraction system … to have a *trajectory of improvement* so that it can track changes in the world, increase its scope, and correct its errors" (Stinchcombe 2001, 10).

This line of argument suggests that the blind spots and failures to "see" problematic developments within the economic system are, at least in part, endemic to modern monetary policy. In contrast to much of recent scholarship (both among economists and observers from other disciplines), which has put the problem down to faulty models and groupthink (see Fligstein, Stuart Brundage, and Schultz 2017), it suggests that these problems were not accidents befalling an otherwise sound and technically flawless mode of conducting monetary policy. Rather, the very functional simplification and proceduralization on which inflation targeting is built might be in for a rethink.

# **References**

# Werner Reichmann (Universität Konstanz)

# **Social Interaction, Emotion, and Economic Forecasting**

**Abstract:** From the perspective of traditional philosophies of science, economic forecasts may be perceived as the results of purely rational reasoning, applying scientific theories, and econometric modeling. Yet, a sociological view on economic forecasting shows that economic forecasts mobilize more than these conventional epistemic resources. First, economic forecasters are embedded in a huge interaction network including different kinds of economists, policy makers, and representatives of the economy. In the epistemic process of economic forecasting, this network actively helps improve the forecasts in (at least) three ways: it helps forecasters to produce new imaginaries of the economic future and to discover emerging developments, it increases the forecasts' social legitimacy, and it produces a common view on the economic future that helps to decrease uncertainty in markets. Second, economic forecasters mobilize emotions that help them to overcome the shortcomings of quantitative data, statistics, and econometric modeling: they develop a feeling for numbers – and numbers support them in developing a feeling for the economy – they have to control their emotions to keep cool when the economy or politics confronts them with increasing dynamics, and they are impassioned about their work. Drawing on data gathered in numerous economic forecasting institutes in Germany, Austria, and Switzerland, I argue that the main resources in producing credible and accurate economic forecasts consist of various forms of social interaction and the mobilization of emotion.

**Keywords:** Economic forecasting, economics, emotion, interaction, social network

# **1. Introduction**

Modern capitalistic economies are future-oriented. To be successful in such an economy, economic actors manufacture knowledge about possible futures of the economy, and they aim at bringing their plans, strategies, and actions in line with this knowledge. The main challenge in this endeavor lies in the future in general (including the economic future) being open. Thus, producing scientific knowledge about the future is a radically uncertain process. This chapter asks how one specific kind of actor – the scientific economic forecaster – resolves this challenge and forms legitimate knowledge about the economic future, how this actor builds expectations and produces economic forecasts.

This chapter argues that there are two epistemic resources helping economic forecasters bridge the gap between present and future. First, drawing on the notion of "epistemic participation" (Reichmann 2013), I argue that interaction between economic actors, economists, and policymakers compensates for the radical uncertainty of the future. And second, I introduce emotion as another epistemic resource. Both notions, interaction and emotion, underline how the formation of economic expectations – even scientific ones – unfolds in a social environment.

Using interaction and emotion when producing economic forecasts has some main advantages. First, embedding the production of economic forecasts in social networks sharpens economic forecasts in three ways: it brings to light *novel imaginaries* about the economic future, it ensures the forecasts' social *legitimacy*, and it *stabilizes the view of the future*. Emotion is also being used as an epistemic resource. As data, models, and econometrics are not as unequivocal as some may hope, forecasters have to "add" something; they supplement them with different kinds of feelings, coolness, and passion.

The paper's arguments are illustrated by using empirical data from a case study involving economic forecasters in German-speaking countries. Their forecasts are a special case of expectations about the economic future: the forecasts are made under the constraints of (and in alignment with the rules and methods of) scientific work; they are expectations based on theoretical approaches and methods from economics.

Two assumptions underlie this chapter. First, we cannot predict the economic future. Whereas some elements of the economy count as ergodic and are governed by causal mechanisms and stable regularities, other parts of the economy are non-ergodic, transmutable, and undetermined (Davidson 1996). To date, no scientific discipline has developed a method, an apparatus, or an experimental arrangement to access these non-ergodic, and hence unknowable, elements of the future. The second assumption is that – irrespective of assumption one – economic agents (have to) predict the future. This chapter asks how economic forecasters handle the gap between these two assumptions and what they do to compensate and supplement for the implications of the economy's non-ergodic side. I argue that this gap is bridged by interaction and emotion.

# **1.1. The Field: Economic Forecasters in German-Speaking Countries**

Before I present my results, I have to clarify which empirical field I am talking about. Nowadays, numerous organizations publish economic forecasts: banks, financial institutes, rating agencies, academic research units, etc. The institutes examined in my research share at least four common characteristics. First, they earn their money exclusively by producing economic expertise (for example, forecasts) and do not use forecasts to sell something else. Thus, as an example, banks are excluded because they use their forecasts to sell other services or use them as part of their customer relationship management. Second, the institutes are called "semi-official": their work is partly financed by the government, and it is institutionalized within the policy-making process (Reichmann 2009). Third, they are "independent" in a specific way: they do not belong to any political movement, to a company, an interest group, or a political party and have neither commercial nor political aims. And fourth, the forecasting institutes' members consider themselves to be part of academia: they have an identity as academic scholars and do things only scholars do (for example, giving courses at universities, earning their *Habilitation*, and so on) and their practices stick to the rules of economics' methodology (Evans 1997, 408). However, despite their academic identity, the vast majority of the forecasting institutes analyzed in this paper are organized outside universities.

Another important clarification is that, in German-speaking countries, the growth rate of the Gross Domestic Product (GDP) stands at the center of every economic forecast, and, especially in public discussions, it is what economic forecasts are often reduced to. The forecasts under research are very different. Most of them contain about one hundred pages. Others are part of reports of about 700 pages. Forecasts are summarized in short press releases showing the main economic indicators and a few points outlining the main messages. The institutes publish economic forecasts two to four times a year, and most of them present their forecasts to the public at press conferences.1

The article is divided into two parts. The first one shows how different kinds of social interaction enable forecasters to produce knowledge about the economic future. In the second one, I analyze how they mobilize emotion as an epistemic resource. It starts by presenting two theoretical concepts that help in understanding how actors use interaction to produce expectations and assumptions about the future. Then I describe and analyze the social conditions of the epistemic process in the field of economic forecasting and examine the two dimensions of "epistemic participation" in detail. In a final section, I take a closer look at the role emotion plays in producing economic forecasts.

# **2. Interaction and the Future**

In his classic definition, Erving Goffman states that "[s]ocial interaction can be identified narrowly as that which uniquely transpires in social situations, that is, environments in which two or more individuals are physically in one another's response presence" (Goffman 1983, 2). In the 21st century, Goffman's "body to body starting point" (Goffman 1983, 2) of interaction must be reformulated because new technologies enable humans to interact and form social situations without being bodily co-present. Nevertheless, Goffman's main point remains useful: interaction is a reciprocal social action of two or more individuals. Each interaction partner orients his or her actions towards the past, present, or future actions of the other partner(s). In Goffman's understanding, interaction does not have to be reduced to oral speech; although speaking is a common element

1 The data used in this paper were collected starting in 2004 and (at the time of writing this paper) consist of 42 qualitative interviews (30–100 minutes) with economists directly engaged in producing the forecasts, which are used by national, regional, and local governments, special interest groups, and labor unions. In addition, I spent some time at different forecasting institutes taking notes and have collected a large volume of documents from all forecasting institutes in the German-speaking countries. The interviews were conducted in German and translated by the author. Quotes from the interviews are marked "Interview," followed by the number of the interview and a time stamp.

of interaction, it is not a prerequisite. However, human interaction does include a consensus on a common immediate goal of action, a common definition and understanding of the situation, and it is embedded in a complex interaction order. It also plays a significant role in the process of producing expectations about possible futures.

In the following sections, this paper briefly introduces two theoretical concepts – "mental time traveling" and "foretalk" – that stem from different scientific fields but come to a common result. These concepts help us to understand how actors produce assumptions about the future by emphasizing the underlying interactional element of forecasting.

# **2.1. Mental Time Traveling and Foretalk**

Thomas Suddendorf's work on the development of mental capacities in young children and animals provides an interesting view on how humans interact to imagine the future. Initially, his approach may seem to be slightly a-sociological, but, on closer inspection, it acquires an interactional element.

Suddendorf focuses on the question "What makes humans unique?". In his book *The Gap* (Suddendorf 2013), he identifies eight main differences between humans and animals: one of them is that humans are able to do what he calls "mental time traveling," that is, mentally form expectations and stories about the future. It is one of the fundamental human capabilities to imagine the future; and no other being in the world is able to "recall past episodes and imagine future events, including entirely fictional scenarios (such as the invention of an actual time machine)" (Suddendorf 2013, 89).2

Suddendorf argues that "mental time travel into the past and mental time travel into the future are two aspects of the same faculty" (Suddendorf 2013, 90). He refers to brain imaging studies that "have found that when participants are asked to recall past events and imagine future situations, the same areas of the brain […] are involved" (Suddendorf 2013, 94). In a second step, he argues that the human imaginative capacity, no matter

2 The claim that only humans have the preconditions for "mental time traveling" is challenged by biologists and animal researchers such as Clayton et al. (2008).

whether about past or future events, is divided into three systems: a memory for how to do things (procedural memory), a memory for facts (semantic memory), and a memory for events (episodic memory).

Episodic memory is not just responsible for us remembering past experiences, it also produces and imagines futures (Suddendorf 2013, 91). Humans use episodic memory in several ways to produce imaginaries. Of course, they use experiences from the past to construct futures. However, they are also able to imagine situations they have never experienced before. There is almost no limit to possible situations humans can imagine and, interestingly enough, humans can even evaluate these fictional situations (Suddendorf 2013, 95).

The problem is that episodic memory is well-known to be error-prone, no matter whether we use it oriented towards the past or the future (Suddendorf 2013, 98 ff.). But – and this is the more sociological aspect of Suddendorf's argument – humans have developed a unique technique to increase the quality of their episodic memory and their "mental time travels," namely interaction. As Suddendorf states, "we have radically improved our chances of getting it right through a wonderfully effective trick: we share our plans and predictions with others [and] we have an extraordinarily effective way of exchanging our mind travels through language [...]." Suddendorf argues that, by "exchanging our experiences, plans, and advice, we have vastly increased our capacity for accurate prediction" (Suddendorf 2013, 99).

Suddendorf is an evolutionary psychologist. As such, he argues that both the ability to mind-travel and the ability to share real and fictitious stories about the past and the future with others interactionally increase the chance of survival. For him, it is an advantage in evolutionary competition to be able to create mental images for possible futures and thereby control the future better (Suddendorf 2013, 101–3).

David Gibson (2011b, 2012) also emphasizes the interactional element of imagining the future, and, by asking how this interaction is shaped in microsociological and conversational detail, he comes to two conclusions that enrich Suddendorf's argumentation. He refers to interaction about possible futures using the term "foretalk" – a combination of forecasting and talk (Gibson 2012). He focuses on conversation and decision-making under extreme circumstances; in other words, on "talk at the brink." As an example, he analyses the process of decision-making during the Cuban Missile Crisis in 1962, when President Kennedy and his top advisers had to decide within a couple of hours how to react to the Soviet Union's installation of nuclear missiles on the island of Cuba (Gibson 2011a). In such extreme situations, people create possible future scenarios together by "foretalking" (Gibson 2011a). This group "foretalk" shapes decisions through two mechanisms. First, "foretalk" brings to light possible futures that might not otherwise have been imagined. Thus, "foretalk" is an epistemic resource that enables us to produce new imaginaries of the future. Second, decision-makers anticipate the need to legitimate their decisions afterwards. The "foretalk" helps to justify decisions and improves their legitimacy.

Both Suddendorf and Gibson emphasize the interactional basis of producing knowledge about the future. They show that the production of possible futures, for example, about economic development, does not take place in a social vacuum – it is not a purely mind-centered skill. It follows that concepts such as fantasy, creativity, mathematics, or cognition alone are not enough to provide an understanding of how fictional expectations are constructed. There are social and interactional aspects of producing economic futures that go beyond the "reserve stock of knowledge" (Schutz 1967, 77) that individual people have accumulated and can access. Economic forecasts are based on an interactional process.

# **3. Interaction and Economic Forecasting**

The ways in which economic forecasters generate a common view by constantly negotiating their views with each other and with external groups – how they "foretalk" and how they exchange ideas from their "mental time travels" – can be elucidated empirically. Economic forecasters produce their forecasts using several channels of interaction as part of their epistemic process. To avoid misunderstandings, it is important to emphasize that this paper focuses on forecasting institutes in German-speaking countries, which operate quite differently from, for example, forecasting institutes in the United States or in the UK. There are national differences between forecasting systems and the political uses of the forecasts, especially between the United States and Europe (Campbell and Pedersen 2014). In general, one could say that American forecasters are more commercially oriented whereas European forecasters operate closer to the state (Friedman 2009, 2014).

# **3.1. Interaction and Econometrics**

Textbooks show different ways of producing economic forecasts (e.g., Döhrn 2014; Tichy 1994). They differ mainly in terms of whether forecasters have more trust in numbers, quantitative data, mathematics, and econometric models or whether they rely more on qualitative data gathered from representatives of the economy (Evans 1997; McNees 1990).

In practice, forecasters never rely solely on calculation. Econometric models are used merely as a starting point. And these models are increasingly taking a back seat in the process of manufacturing a forecast. In fact, econometric models play a fairly minor role in producing economic forecasts, and the interviewees for this study agreed with Evans's claim that "macroeconomic models support forecasting activity, but do not actually produce forecasts" (Evans 1997, 426).

Instead of econometrics, the more important parts of the forecasting process consist of various forms of interaction with various interaction partners. Interaction can be either informal or more institutionalized (see also Reichmann 2013, 861–67), and the interaction includes both internal partners (such as colleagues from the same institute) and external ones (such as academic economists and representatives of "the economy"). Forecasters have developed numerous formal and informal interaction channels and a permanent communication flow enabling them to contact those who represent, in one way or another, "the economy." They build formal and informal platforms where they meet these representatives to gather data and information and thus jointly produce an image of the economic future. Economic forecasters supplement the human capacity for "mental time traveling" to imagine possible futures using the "trick" (Suddendorf 2013) of sharing their predictions with others to obtain information about their respective views of and alternative perspectives on the future. Furthermore, forecasters "foretalk" (Gibson 2011b) with selected interaction partners in several ways, thereby ensuring that economic forecasting does not take place in a social vacuum.

This paper emphasizes three reasons why forecasters engage in foretalking with various representatives of economics and the economy: novelty, legitimacy, and stability. First, foretalking enables forecasters to entertain possible futures and spot emerging developments they would have missed without the foretalk. They use interaction as a resource for novel imaginaries. Second, foretalk increases the social legitimacy of the forecasts in the sense that they are more likely to be believed. As Holmes (2013) shows, central bankers also develop strategies to increase their legitimacy by intensive communication with the public and the economy. Holmes' argument is parallel to the way in which forecasters increase the legitimacy of their forecasts by involving those who use forecasts in the process of producing them. Users become co-producers of forecasts and thereby have less reason to reject them. Third, foretalk improves the stability of the view of the future. Foretalk helps to bridge the gap between the knowable and unknowable elements of economic futures by providing (highly) unstandardized data, including judgments that econometric models could not process. This comprehensive interaction process may not make economic forecasts more accurate in a numerical sense. Nevertheless, it increases the range of knowledge about the intentions and assumptions of economic and political actors and therefore builds a more reliable basis for creating forecasts.

# **3.2. Patterns of External Interaction**

The forecasters are embedded in a network that includes several groups of interaction partners, such as other economists from universities, entrepreneurs, policymakers, and members of the government and the state administrations. This interaction network is a constitutive part of the epistemic process of economic forecasting. The members of this network are transformed from ordinary interaction partners into co-producers of the economic forecasts. This network is called here an "epistemic network" because it is an active part of the forecasters' epistemic processes. The forecasters do not just interview, survey, or observe the others in the network; they want them to actively co-produce the forecasts. In this sense, forecasters give them the opportunity to participate in the epistemic process of forecasting – this is why I call it "epistemic participation" (Reichmann 2013).