On the Language of Economics on NPR's Marketplace

Last December, I spoke with Sean McHenry for a segment on NPR’s Marketplace about the meanings behind the words economists use. While only a short excerpt aired today, the full exchange dove into the philosophical, historical, and political layers that underlie economic language, especially through the lens of Adam Smith and the evolution of economic thought.

We began with Smith, not the pop-icon version who supposedly preached markets above all else, but the Smith who drew from Newtonian mechanics to describe economic processes. Smith’s idea that market prices gravitate toward natural prices wasn’t just a metaphor, it was grounded in his belief that economic laws were as natural and immutable as the laws of physics. This analogy wasn't poetic fluff; it was the intellectual architecture of 18th century economics.

This matters because metaphors shape how we understand the world. Terms like natural rate of unemployment or neutral interest rate don’t just describe, they legitimize. They imply inevitability, naturalness, and neutrality, even when real-world consequences (job loss, mortgage spikes) are anything but neutral.

Smith's project was a materialist science concerned with the accumulation of wealth. For him the natural functioning of the economy did not lead to optimal outcomes. Still, the intervention of the mercantilist and feudal institutions impaired the natural process of wealth accumulation. After the marginalist revolution of the late 19th century, interventions affected the natural tendencies of the market to produce optimal outcomes. That is the world in which we still live, when it comes to economists metaphors. Meaning a world in which markets do produce optimal outcomes, unless there imperfections.

We also discussed the ideological undertones of terms like churn in labor market language. While economists may use it as a tidy description of movement in and out of jobs, for someone who's lost work, the term can feel like a euphemism that sanitizes real economic pain. It's this kind of language, precise, clinical, but emotionally distant, that can obscure the lived experience behind the data. The notion is that there might be pain, but in the long run that will not be a problem (Keynes was reacting to this notion with his famous quote about all being dead in the long run).

In my history of thought course at Bucknell, I walk students through how economic terminology evolved, from classical theories of value to modern utility and preference-based models. We interrogate the shift from political economy to economics, and what gets lost when we strip politics (class conflict) from the analysis. Even terms that seem neutral, like neutral interest rate or natural rate of unemployment, are packed with assumptions about how markets work, very often skewing issues of power, and distributional conflict.

Economics has long striven to present itself as a hard science, borrowing the language and posture of physics. But unlike physics, economics deals with entrenched political structures and it is harder to separate the ideological and analytical elements in a particular theory. The profession’s reliance on technical jargon and tidy models sometimes masks the messy, contested, and deeply political nature of the economy itself.

As one of the editors of the upcoming fourth edition of The New Palgrave Dictionary of Economics, I’m part of a team trying to decolonize the dictionary, bringing in voices from underrepresented regions, grappling with the absence of concepts like power, and reassessing the dominance of certain Western-centric assumptions. I also it requires a return to some of the forgotten ideas of the classical political economy authors that made the political or socially conflictive element of the reproduction of society central to their analytical inquires (see my Palgrave lecture here).

Language is never just descriptive. It is to some extent normative. It tells us what to value, what to question, and what to accept as given. Political economy, at its best, can be a powerful tool for understanding and improving social conditions. But that requires constant reflection, not just on models and data, but on the words economists use, the histories economists tell, and the blind spots economists perpetuate.

You can catch the edited interview on NPR’s Marketplace with Sean McHenry here.

Central Bank Independence and the Role of the Dollar

The attack on the Fed's chairman, Jerome Powell, has correctly led to a rebuke of Donald Trump's behavior. That does not mean that the notion of central bank independence cannot be questioned, or that is necessary for either price stability or the international position of the dollar. These are just a few things that seem exaggerations that have been discussed recently. As I noted before, the return of central bank independence (rule based monetary policy), and the return of austerity, together with the critiques of tariffs (and the resurgence of free trade) have brought back the Victorian Consensus to the center of policy discussions. A terrible mistake.

But on the issue at hand, for example, Justin Wolfers suggested that inflation will accelerate as a result of the attack on Powell (and Lisa Cook, one might add). I discussed inflation here several times. There is no risk of anything even close to this kind of inflation, simply because what caused the increase in prices was, for the most part, the depreciation of the Turkish lira, and the pass-through in the US is very limited.

 

The graph below shows that there is a clear correlation between the two variables. Inflation in the US remains subdued (see today's BLS report, with inflation at about 2.7%, which is not that much above the target of 2%; also I still have to find someone that shows that 2% is much better than say 3% for any particular reason.)

 

Today, Barry Eichengreen suggested in his Financial Times column that:

 

Besides the issue that it is highly controversial that reducing interest rates would be highly inflationary, or that 2.7% is some sort of a problem, there is the issue of why would investors run from the dollar and cause a crash. In his view, ultimately a question of confidence. The conventional view is that a reserve currency must be backed by trust. Trust in the legal system, in the persistence of political stability, and the protection of property rights, and sound macroeconomic management. According to this perspective, actions like U.S. actions regarding Venezuela, tax cuts that increase the burden of public debt, threats to the independence of the Federal Reserve, or the rise of authoritarian politics under the Trump administration might undermine confidence in the dollar.

 

However, there's another view, one that I explore in a this paper, arguing that power, rather than trust, underpins reserve currency status. John Maynard Keynes famously compared money to language: the dominant currency is like the dictionary, and the one that writes the dictionary controls the language. From this standpoint, the dollar’s dominance is reinforced by U.S. geopolitical and military strength.

 

Barry correctly notes that the main argument against the demise of the dollar is that there is no alternative (not that TINA). He suggests that agents could run to gold, but essentially notes that gold is a bubble and that is very risky.

 

Neither the attack on the Fed, nor the intervention in Venezuela, to mention the two things that have been discussed the most in this eventful new year so far, would lead to inflation or a demise of the dollar. As Keynes said about Lloyd George, the leader of the Liberals, that he disliked (to put it mildly): "The difference between me and some other people, is that I oppose Mr Lloyd George when he is wrong and support him when he is right." Trump might be wrong about how he is going about changing the way we the US runs monetary policy. But on the need to reduce the rates, and the notion that central bank independence is not necessary for price stability, he might not be wrong.

 

PS: The rise of the dollar to hegemonic position between the collapse of the pound, the Tripartite Agreement in 1936 and Bretton Woods, occurred before the Treasury-Fed Accord of 1951 that made the Fed independent of the Treasury.