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Inventing Value: Taking a realist perspective

This is the last of four extracts from the introductory chapter of my recent book Inventing Value (Cambridge UP, 2022).

“The argument builds on work from a range of disciplines, most notably economic sociology, heterodox economics and political economy, and in particular on excellent recent work in the study of finance and valuation. In recent years academics have engaged with the microsociological basis of financial markets, the performativity of economic theory, financialisation, asssetisation and indeed the global financial crisis, all of which are relevant to this project. Nevertheless, work on financial valuation has been seen as one of the most pressing absences in contemporary economic sociology (Carruthers and Kim 2011, 253). Although work on financial valuation has started to flourish since Carruthers and Kim’s survey, it has typically been limited by its orientation to micro level action and interaction and relative neglect of social structural forces. That focus is often a result of the pragmatist perspective of its authors: a perspective that has been seen as shaping the field (Barman 2015, 12). On the other hand, work in the political economy of finance has tended to focus on macroeconomic questions without connecting them to microsociological understandings of the human actions that contribute to them.

Some of this work is also limited by its disciplinary orientations. I reject the division of labour, often attributed to Talcott Parsons, in which sociology deals with ‘the social’ and economics with ‘the economic’ as if these were two different realms of reality. They are not. The economy is not merely embedded in the social, as some economic sociologists have argued: it is inherently social itself. Economic events are social events. More recent economic sociology has pushed the boundaries of the economic questions to which sociological methods can be applied but it still seems to fall short of offering alternative approaches to issues like the causal explanation of price determination that are considered core to economics. While sociologists are increasingly offering partial explanations of price determination, they generally avoid offering comprehensive explanations that take account of both the kinds of causal factors discussed by economists and those introduced by sociologists. Too many of them continue to concede economic matters to the economists. By contrast, I take the view that economic events should be explained in just the same way as other social events and therefore that sociologically-inflected approaches must be taken to even the core questions of economics. That does not mean that I am pursuing a sociological imperialism, in which economics is to be taken over by sociology; on the contrary, it means that I regard disciplinary boundaries in the social sciences as obstacles to proper explanation. Rather than expanding one discipline at the expense of another, we need to break down the boundaries between them. That perspective is also reflected in what is perhaps an unconventional approach to sociology itself, seeing it as concerned with providing causal explanations, and not just interpretations, of social events.

These perspectives arise in part from my broader philosophical commitment to a critical realist approach to the social sciences. For critical realists, all events are understood as multiply determined by the interacting causal powers of many different entities at varying levels of structure. More specifically, both individual action and social structures are seen as causally significant for social events and outcomes, and this book’s argument goes beyond the existing literature primarily through its attention to the structures involved in valuation in general and financial valuation in particular. There is already work in the field that sees familiar structures such as financial institutions and indeed their discursive influence as causally significant. I go further, though, by also seeking to analyse the distinctive structures that are involved in the very nature of value and financial value, and how they are in turn influenced by those more familiar structures. The relevant aspects of critical realist theory are introduced where they are essential to understanding the substantive argument, notably a discussion of causality in open systems in chapter three that leads in to an explanation of the influence of value on the determination of prices, and an explanation of the realist approach to structures, mechanisms and emergent causal powers in chapter five, where the deeper structures behind financial valuation are examined.

Some readers may be surprised to find a book that claims value is socially constructed also invoking a realist philosophy of causation, as realism and constructionism have often been seen as conflicting with each other. However, as I and several other critical realists have argued at length, realism and a moderate version of constructionism are not merely compatible but complementary (Elder-Vass 2012; Sayer 2000, 81–102; Smith 2010, 119–206). For realists, social construction is a real causal process, driven in part by specific intentional actors, under the influence of a range of social structures, mediated through the production of discursive structures and producing causal consequences for potentially identifiable affected audiences. Once we recognise that social construction is thoroughly compatible with a realist social ontology, we need to explain the mechanisms behind social construction and the role played by both active agency and social power in those mechanisms. These questions are obscured by vaguer and sometimes superficially more radical constructionisms that ascribe construction simply to discourse or language in general rather than to active agents along with their interests and the power at their disposal (Elder-Vass 2012, 3–14). Social construction operates through language and discourse, but language and discourse are not its driving forces (Elder-Vass 2011).

This causal approach is anathema to more extreme versions of constructionism. There are several parts to it. First, we must pay attention to the processes in which constructions are developed but also to the actors who often play active causal roles in them. Second, we must attend to the interrelationship between these discourses and the wider institutional context. And third, these discourses do not function by hanging vaguely in the air and generally affecting the symbolic atmosphere, but rather by having specific effects on specific audiences. For example, a credit rating is a symbolic category assigned to an asset – it is a social construction, in that it depends on how we think about it, and there is a set of discourses that tend to stabilise belief in these ratings as reliable guides to investment quality. Nevertheless, the actual assignation is done by a specific actor, the rating agency, and as we will see in chapter eight is subject to manipulation and influence, for example from the bank commissioning the rating. Finally, it has its effect by persuading a specific audience, in this case institutional investors who use credit ratings as inputs to their investment decisions. This attention to audiences is perhaps the most distinctive element of the book’s argument, and applying it to the case of financial assets leads to the concept of asset circles, which is its most distinctive conceptual contribution. Beyond this ontological and explanatory innovation, the crucial benefit of a realist constructionism is that it allows us to see, from the realist perspective, that the construction of financial value is to a large extent a product of power, exercised by social actors who shape what is constructed in their own interests, and from the constructionist perspective, that it could be constructed differently.

One implication of the critical realist approach is that we need to approach the task of explaining social phenomena by combining two complementary methods: retroduction and retrodiction. Retroduction means picking out one key causal mechanism and examining how it operates across a range of circumstances. Retrodiction, on the other hand, is oriented to giving a fuller explanation of a narrower set of events by identifying the significant causal mechanisms involved in their causation and examining how they interact to produce the event(s) concerned (Elder-Vass 2010, 48, 72–73; Lawson 1997, 24, 221). Among other things, the early chapters of the book retroduce specific mechanisms and structures of general relevance to the explanation of value and financial value. To identify a mechanism, we generally need to look across multiple cases and recognise something that they have in common, understanding the complexity of each case while also looking for elements of repeatability (Rutzou and Elder-Vass 2019). Likewise, to test a retroductive explanation we need to transplant it to other potentially parallel cases and examine whether something adequately similar can be seen there. Each explanation of a particular mechanism or structure then becomes a building block that can be combined, tentatively, with others to build retrodictive explanations of actual events. The later chapters illustrate the operation of the mechanisms identified in the early chapters, in interaction with others, by giving retrodictive accounts of the cases concerned: by looking at how a range of different powers and mechanisms interact in them.

This book, then, applies the realist methods of retroduction and retrodiction to develop constructionist explanations of value and financial value that recognise the active roles played by interested actors including powerful social institutions. It introduces novel concepts that help us to understand the structural forces at work in the realm of value and thus reconstructs the theory of value in a form that helps us to understand that the value of financial assets, far from being the natural and desirable outcome of neutral market processes, is actively manipulated by powerful financial institutions in pursuit of ever-expanding profit and power.”


Barman, Emily. 2015. ‘Of Principle and Principal: Value Plurality in the Market of Impact Investing’. Valuation Studies 3 (1): 9–44. doi:10.3384/VS.2001-5592.15319.

Carruthers, Bruce G., and Jeong-Chul Kim. 2011. ‘The Sociology of Finance’. Annual Review of Sociology 37 (1): 239–259. doi:10.1146/annurev-soc-081309-150129.

Elder-Vass, Dave. 2010. The Causal Power of Social Structures. Cambridge: Cambridge University Press.

Elder-Vass, Dave. 2011. ‘The Causal Power of Discourse’. Journal for the Theory of Social Behaviour 41 (2): 143–160.

Elder-Vass, Dave. 2012. The Reality of Social Construction. Cambridge: Cambridge University Press.

Lawson, Tony. 1997. Economics and Reality. London: Routledge.

Rutzou, Timothy, and Dave Elder-Vass. 2019. ‘On Assemblages and Things: Fluidity, Stability, Causation Stories, and Formation Stories’. Sociological Theory 37 (4). SAGE Publications Inc: 401–424. doi:10.1177/0735275119888250.

Sayer, Andrew. 2000. Realism and Social Science. London: Sage.

Smith, C. 2010. What Is a Person? Chicago: University of Chicago Press.

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