Markets E-Book

Patrik Aspers

• Herausgeber: John Wiley & Sons
• Kategorie: Geisteswissenschaft
• Serie: PESS - Polity Economy and Society Series
• Sprache: Englisch

Seitenzahl: 361

Veröffentlichungsjahr: 2013

Beschreibung

Our lives have gradually become dominated by markets. They are not only at the heart of capitalistic economies all over the world, but also central in public debates. This insightful book brings together existing knowledge on markets from sociology, economics and anthropology, and systematically investigates the different forms of markets we encounter daily in our social lives.

Aspers starts by defining what a market actually is, analyzing its essential elements as well as its necessary preconditions and varied consequences. An important theme in the book is that a whole host of markets are embedded within one other and in social life at large, and Aspers discusses these in the context of other forms of economic coordination, such as networks and organizations. Combining theory with empirical examples, the book cuts to the core of understanding how different markets function, the role they have played in history, and how they come into being.

This accessible and theoretically rich book will be essential reading for upper-level students seeking to make sense of markets and their complex role in social life.

Leseprobe

Markets

Economy and Society

Nina Bandelj and Elizabeth Sowers, Economy and State

Bruce G. Carruthers and Laura Ariovich, Money and Credit

Miguel Centeno and Joseph Cohen, Global Capitalism

Markets

Patrik Aspers

polity

Copyright © Patrik Aspers 2011

The right of Patrik Aspers to be identified as Author of this Work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988.

First published in 2011 by Polity Press

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ISBN-13: 978-0-7456-5512-3

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Contents

List of Figures and Tables

Preface

Acknowledgments

1  Introduction

Markets not Market

Market Definition

Prerequisites of Market Order

Summary and Outline of the Book

2  Coordination in the Economy

The Economy

The Fundamental Economic Problem

Forms of Coordination

Combining Forms of Coordination

Markets Embedded in Markets

Relations of Economic Coordination

The Market as the Benchmark of Efficiency

Summary

3  Markets in Social Life

Interpreting Markets in History

Market Making in History

Differentiation of Spheres of Life

Capitalism

Marketization

Market Ideology

Economic Man and Social Man

Summary

4  Forms of Markets

Market Elements

The Central Ordering Principles

Market Boundaries

Markets and Market Place

Summary

5  Order out of Standard Offers

Order by Standard

Fixed- and Switch-role Markets

Neoclassical Market Theories

The Stock Exchange

Markets in Markets

Differentiation and Fixed Roles – Monopolistic Competition

Out of the Market – Monopoly – Back into the Market

Summary

6  Order out of Status

Differentiation of Goods and Identities

Economic Thinking

Status Markets

Summary

7  Making and Controlling Markets

The Study of Market Making

Mutual Adjustment and Social Order

Mutual Adjustment Leads to Markets

Organized Market Making

Performing Markets

Making and Controlling Market Forms

Change in Markets

Summary

8  Conclusion and Future Research

Everyday Interaction and Markets

What Do We Know?

How to Study Markets – Ask Seven Questions

What Remains To Be Done?

Notes

References

Index

Figures and Tables

Figures

1.1

Trade and market relations as two forms of economic exchange

2.1

Coordination of production based on input, market, network, and hierarchy

3.1

Forms of economic exchange

4.1

Interconnected markets in an industry, presented schematically

4.2

Aalsmeer flower auction, with descending prices

7.1

Actors in phases of market formation

Tables

4.1

Market typology

7.1

Phases of spontaneous and organized market making

Preface

We all regularly participate in markets. We do it when filling up the car with gasoline, when buying a bagel on the way to a lecture, or when deciding which book to buy from the Internet bookstore. Markets have become taken for granted, and they are so integrated in our daily activities that we can hardly act without participating in them. But as people come face to face with economic reality, not least due to the financial crisis that began in 2007 and continued to unfold to the date of finalizing this book, they have increasingly become aware of how markets can fail and cause turmoil, but also that they are globally interconnected. In other words, people, regardless of whether they wish to be or not, are affected by the global market economy.

Although neither markets nor research on markets are recent phenomena, it is clear that markets have attracted more interest in the public debate, as well as in the research community, over the past 20 years. The field of “new economic sociology” came into being in the mid-1980s in the USA, and markets soon became one of its central fields of research. The wave of conservative politics with a liberal market view associated in the USA above all with Republican President Ronald Reagan, who held office from 1981 to 1989, and Margaret Thatcher, British Prime Minister from 1979 to 1990, has certainly affected the centrality of markets in the public debate. What we call globalization is partly marketization at the global level, but also the rise of truly global markets.

This book aims to introduce and discuss the burgeoning research on markets that social scientists have produced, with a focus on the sociological contribution. It offers a systematic overview of the central issues in the academic discussion of markets, with the ambition of giving readers enough detail to understand and to conduct analyses of real markets.

We face markets on a daily basis, but the everyday concepts we use to describe them – for example, consumer markets, producer markets, business-to-business markets, or labor, financial, global, consumer, and monopoly “markets” – may not be the most useful ones if we want to understand and explain what goes on in markets. These different market prefixes have been created on an ad hoc basis, but what we need are ways of making theoretically grounded distinctions between types of markets. Thus, what kinds of markets can be observed and what distinctions should be made are central questions. What we also want to know is how markets are interrelated, and how they affect each other. Moreover, the conditions and consequences of markets are discussed in the literature, but what is lacking is a clear understanding of what is general to all markets, and what is specific to the various concrete markets we experience and observe.

This book’s ambition is not only to review the existing literature, but to offer a sociological approach to markets. It aims to make a number of specific contributions. The first contribution is to generate systematic and analytic knowledge of markets. The second is to provide an approach to understanding and explaining markets.

Having a systematic and analytical knowledge of markets is also the condition for contributing to the broader societal discussion of “market society” and capitalism. Seen from an analytical point of view, it is almost paradoxical that so much has been written on market society and capitalism without defining or paying enough attention, theoretically or empirically, to its most central institutions, markets.

A central argument of this book is that we should talk about markets instead of the market. In social life, we face concrete markets, but “the market,” as in the “Single Market” of the EU, is nowhere to be found. To make this point clear, we must show what markets are and how different markets work. This book provides a definition that encompasses all markets: a market is a social structure for the exchange of rights in which offers are evaluated and priced, and compete with one another.

At a more general level, I stress in this book that markets should be understood as a basic form of coordination. This is to follow the path of Simmel, identifying social units and forms of relations that can be observed in several social spheres. To view markets as a form of economic coordination suggests that we can compare markets with other forms of economic coordination, notably hierarchies (organizations) and networks.

A central claim of the book is that economic actions are essentially social, which has consequences for the definition of the economy. I see it as central to replace economic man with social human man, instead of trying to add flesh and blood to economic man, as so many social scientists have tried to do.

The book identifies a number of central ideas which have sometimes been accommodated and taken for granted in contemporary texts on markets. I will thus focus on the arguments and the original sources, and then relate them to more contemporary thinkers, instead of merely reviewing the existing literature. This is an attempt to reduce complexity by presenting the most central ideas without being caught up in the details. Details will not be spared when they are needed to explain and discuss important issues, however.

This book offers a map which can help to sort different approaches in accordance with the form of markets, rather than according to the more traditional dividing lines in economic sociology, such as cultural, structural (network), or organizational perspectives.

To accomplish its aim, the book uses and presents a substantial portion of the research on markets which has been done in the social sciences. But it provides a particular perspective on the material. Although this is the task and responsibility of the author, no author is an island; “I” is henceforth replaced by “we.”

Acknowledgments

The bulk of this book has been written at the Max Planck Institute for the Study of Societies in Cologne, Germany. Other parts were written in Sweden, where I am based as a researcher at the Department of Sociology and SCORE at Stockholm University.

Regardless of how many books an academic has written, any interpretation is grounded in her lifeworld. Our knowledge of markets is conditioned by us taking part in markets on a daily basis. This, however, is not enough to gain the academic view on reality. What I know, and the value of this is to be judged by you as a reader, I have learned from reading texts and from talking to colleagues all over the world. The research group on markets at the Max Planck Institute for the Study of Societies in Cologne has been the most natural arena for discussions. The research group was set up in 2005, and I was there from the start. This group, and the work we have done, has been an important resource for the results presented here. In discussion with many of its members, Jens Beckert, Philipp Gerlach, Thorsten Kogge, Mark Lutter, Guido Möllering, Sascha Münich, Geny Piotti, Irene Troy, Raymund Werle, and Frank Wehinger, central questions of this book have been developed. A graduate seminar at the Oslo Summer School (at Oslo University) in 2008 was instructive to the formation of important ideas for this book, and so too were comments from Risto Heiskala.

Alexander Dobeson has provided valuable input for the historical part of the book. Sebastian Kohl has been involved in the research on several of the matters discussed. The anonymous reviewers and my editors at Polity Press, Jonathan Skerrett and Emma Longstaff, as well as Helen Gray, the copy-editor, have helped me to improve the quality of this work.

My work with the book has benefited from financial support from the Max Planck Institute for the Study of Societies, Stockholm University – the Department of Sociology and SCORE, with the research grant on Organization of Markets (M2007-0244:1-PK) from the Riksbankens Jubileumsfond – and the research grant (2009-1958) from the Swedish Research Council (VR).

That the topic of markets is pivotal in economic sociology was shown to me by Richard Swedberg. What he has given can never be returned, only passed on. I dedicate this book to Richard, my dear friend and teacher.

The final revision of this book has been done in a small village on the east coast of Sweden, where the social and economic importance of other forms of economic coordination, too, are more clearly seen.

Patrik Aspers, Axmarby, June 20, 2010

1

Introduction

When people are surveyed on how much alcohol they have consumed during the past week, they commonly underestimate their consumption. This they do not because of the direct effects of alcohol, but because they tend to forget some of the occasions when it was consumed, as they form part of their daily lives. If you were asked how many markets you have been involved in over the past week, could you give the correct answer? This depends on what we mean by “market,” but we can agree that there are many, and it is likely that you would leave out a few of them.

Although markets have not existed since the dawn of humankind, and much of social life takes place outside markets, few will have failed to notice that markets have become central in our everyday lives. If you are living in the UK, Germany, China, or the USA, you, and your activities, are embedded in markets. Children are born into a lifeworld in which markets are taken for granted. It does not take long before they start to play “shop.” Markets have over time penetrated other areas of life, as is manifested by the introduction of life insurance and its accompanying markets. This penetration of market activities into various spheres of our lives means that we have the opportunity to make a choice, but it also means that we have to make choices. Markets have created wealth but they are also part of the reasons for the emergence of economic crises. Let us begin by looking at how markets are related to one another.

Markets not Market

Markets do not come in isolation, but together. The reason is that markets are embedded in one another. Let us take one particular consumer market that we all know as our point of departure and see where it leads us. When you buy a pair of trousers in a local store, the firm from which you buy the pair of trousers competes with other fashion stores by offering different price and fashion/quality levels. The money you use for the purchase is transferred from you to the firm selling the garment, perhaps using a credit or debit card. The card is issued by a bank, and banks compete with other banks to have customers’ savings and deposit accounts, but they also compete with each other for the capital they need to lend to customers and firms. The bank holds money, which is issued by the state – money which is traded in currency markets, around the clock, all over the world. The plastic card is issued by a company that competes with others to offer its services to banks. Firms that employ labor need capital to get off the ground, to invest, and to give credit, and to obtain capital they may take part in different investment markets. Furthermore, production of garments is today a global affair, largely coordinated in markets, populated by buying firms in some countries and suppliers in others, with much lower cost of labor.

Although it is possible, no firm controls the entire garment production chain, which also includes, for example, food for the workers and many other suppliers who may not be directly involved in the production of the garments. The relationship between the fashion firm and its suppliers who manufacture the trousers is established across a market, and it is typical in this market that buyers are located in developed countries, and manufacturers are spread across the globe in less developed countries. The competitors that a manufacturer in India faces can be firms in the same industrial district, but it could also be producers in China or Mexico.

The manufacturing supplier operates in several markets. It buys input material, such as zippers and fabrics, from firms or agents of firms in different markets. The goods have to be shipped and insured, which involves actors who operate in yet other markets. The fashion firm and its suppliers operate in different labor markets. Some of these may be global and others extremely local, and in some stages of production – for example, among suppliers of the garment manufacturers, or even among the suppliers’ suppliers – we can be almost certain that the economy touches on “informal” or “black” markets. The firm that washes the garments before they are shipped may, for example, have suppliers who employ illegal immigrants.

The questions to be addressed

We experience the “market economy” directly and indirectly on a daily basis. Its complexity, however, is often hidden in the wheels within wheels of relations between markets, hierarchies, and networks. A whole range of concrete questions must be addressed if we are to better understand and explain this complexity. For example, how come sellers (and buyers) on the stock exchange are anonymous, whereas sellers in a consumer mass market are known as brands? How is it that markets rather than the activities of peddlers or fairs have become the dominant form of exchange? Can one have capitalism without markets? What are the conditions for black markets? How come some objects are traded in markets and not others?

There are also a number of more theoretical questions which researchers must pose if we are to understand markets. How is order achieved in markets? What roles do the offers, social structure, and culture of the market play with regard to order in the market? Where do markets end? What other forms of economic coordination are possible as alternatives to the market? The over-arching question is as trite as it is tricky: what is a market? We shall now attempt to provide a definition, upon which the rest of the book will rest.

Market Definition

This and the following section will deal with the core of markets and, although they are dense, we will continue to discuss these central issues at length and in detail in the chapters to come. A market is a social structure for the exchange of rights in which offers are evaluated and priced, and compete with one another, which is shorthand for the fact that actors – individuals and firms – compete with one another via offers. This definition covers the market as a place, as well as markets as an “institution.” This connection is observed not only if we trace the phenomenon – as we shall do in chapter 3 – but also in its Latin etymology, mercatus, which refers to trade, but also to place. Another notion, forum, should also be mentioned. It refers more specifically to place and market place. Both, however, refer to public activities. Each market usually has a name, which normally refers to what is being traded – for example, the market for military aircraft – but, as we will see, the product is not necessarily the ordering principle of the market. Other markets, and their names, are connected to a specific place, such as Spitalfields market in London.

Like other definitions, this market definition is based on the life-world and its bed of taken-for-granted behavior, institutions, and propositions which represent and enable all kinds of social relations. What we shall concentrate on, however, is, as a first step, the essential market elements that constitute the definition. Only then shall we look at the three equally necessary prerequisites which, in contrast to the elements of the definition, may be solved in different ways. When the definition and the market prerequisites are taken together, we have a good view of what makes markets different from other social formations.

Elements of the market definition

The rest of the book assumes that structures are the result of human activities which have become “coagulated,” so that they are, in relative terms, stable over time. Fundamentally, we can talk of a structure because of actors’ shared practices and/or cognitive frames. The notion of structure thus accounts for the fact that a market has extension over time. The market structure is constituted by the two roles, buyer and seller, each standing on one side of the market, facing the other. This means that a market implies a record of actual transactions and not merely potential transactions. The two roles have different interests (Swedberg 2004): “to sell at a high price” and to “buy at a low price” (Geertz 1992: 226). It is only because of actors’ interest in trading that there can be a market (Swedberg 2003). In a market, actors get something in return for what they give up; this is the generic buy-and-sell relationship. A market is characterized by “voluntary” and peaceful interaction (Weber 1922: 383; 1968: 17), and this follows from the fact that property rights – that is, a form of ownership based on socially recognized economic rights (Carruthers and Ariovich 2004: 30) that fixate the underlying assets – are accepted. The property rights that actors exchange must be recognized; if not, we must either speak of robbery, if one party simply takes everything, or gift giving, if one party gives without getting anything in return. Property rights, moreover, must be possible to enforce in all kinds of trading, not just market trading, and this facilitates trade (North 1990).1

To accept property rights is not to deny the struggle (Simmel 1923: 216–32; Weber 1978) inherent in the processes of “higgling and bargaining” (Marshall 1961: 453) between buyers and sellers (Swedberg 1998) in the market, and rivalry between actors on the same side (Simmel 1955: 57). Pure market transactions have a distinct ending, in contrast, for example, to the openness and future orientation of network relations (Powell 1990). Market exchange is a voluntary form of economic coordination in which actors have a choice: they can decide to trade, sell, or buy whatever is seen as a legitimate offer, at the price at which they are offered, but they do not have to. In the past, when one slave owner sold slaves on the market to other slave owners, this – as appalling as it may seem – was as much a market as when children choose which lollipop to buy in the supermarket. As long as the property rights and the right to trade are legitimate, granted by the state or any other force capable of imposing sanctions, if only among those who control the rights, a market can exist. Property rights, of course, are also enforced by means of violence, reputation and status in illegal markets, for example, those controlled by the Mafia (Gambetta 1996). Property rights are often embedded in social custom, which means that they are normally not contested (Hodgson 1988: 147– 71).

With the help of these notions, let us now try to see what falls outside of market interaction. People may be more or less forced to sell goods, and even their organs or children, in a market. This does not necessarily affect the way the market functions. The issue at stake is how illegal and/or immoral actions push (by force) and pull (through the expected “prosperity”) people and their goods into a market, not the question of whether it is a market or not. However, the capturing of slaves in Africa or elsewhere was not a market, as the slaves did not have a choice. That the slave market is characterized by voluntary transactions by the owners of the assets – the slaves – does not mean that participation in the market is a joyful experience for those being traded. In other markets, too, people are sold, for example, players who are traded from one club to another in the National Hockey League or in European soccer. However, these players get a large sum of the costs of transfer, and they decided to be on this market, and seem to know the conditions.

We must, consequently, separate the question of how the offers in the market are made from analysis of the market. As indicated, the objects of trade in markets must not only be of interest to the actors, but must also be morally legitimate objects of market transactions, as Zelizer and others have shown (Zelizer 1979, 1981; Healy 2006). Some objects of trade are “blocked” from being exchanged, such as political decisions (Beckert 2006). Financial markets which, by and large, are seen as legitimate today, have only gradually become so; they were not necessarily legitimate outside financial circles in the eighteenth century, when “financial transactions took place in coffee houses and in the adjacent streets, with traders and customers often chased by the police” (Preda 2009: 60–1). Legitimacy must be separated from the distinction between legal and illegal markets; the market for student apartments in the former Soviet Union was seen by many as morally legitimate, though it was illegal (Katsenelinboigen 1977). Legitimacy as a market condition may appear as tautological, but the important point is to think of the degree of legitimacy a certain market has – some black markets are, under certain conditions, accepted by many, and in other cases by few people; an issue to which we return in chapter 7, which deals with the making of markets. We may conclude that the market as a form of coordination does not, per se, exclude trade of any kind of goods or services. We can thus observe “black” or illegal markets, meaning trade of objects that are not legal to trade.

Trade and markets

All exchange in markets is trade, but not all trade takes place in markets. In contrast to trade, which can take place between two parties who exchange different kinds of “rights,” markets are characterized by two additional elements, interchangeability of the roles of buyers and sellers, and competition.2 Roles imply the exchangeability of sellers and buyers. Consequently, in a market, in contrast to trade, at least one of the two sides, whether the buying or the selling side, must be composed of at least two actors. Thus, the minimum number of actors required for a market to exist is three; only with three actors can we talk of roles. This is the condition for a comparison of their offers. Comparison is not enough to have a market, however. To speak of a market, as the definition suggests, requires that there is competition between at least two offers (parties), on the one side, for exchange with the other side. It is in this selection process that evaluation takes place in such a way that competing offers can be compared to each other. Competition refers to the relation between two or more actors aiming for an end that cannot be shared between them.3 It must be underlined that competition is for the benefit of the third party, who enjoys the advantages derived from it – tertius gaudens. It is this actor, for example, a single buyer, who can choose among those who strive to sell their offers, who benefits from the competition, not those who compete (Simmel 1955: 154–62). Figure 1.1 illustrates the distinction between trade and market.

Figure 1.1 Trade and market relations as two forms of economic exchange.

Note: The arrows represent relations between actors, who are depicted as circles.

The difference between trade and market, both of which are instances of economic exchange, suggests that the connotation, already mentioned, of the market as something “public,” or transparent, is important. Competition can be either public or secret. The tertius gaudens buyer may utilize its superior position and let two or more sellers compete publicly so that participants and others know of this, but this may also be secret so that no actor but tertius gaudens is aware of the competition that takes place among the sellers. Moreover, if one side – for example, a single seller – lies to the only existing buyer that there is also another buyer, we have “quasi-competition” since this may cause the only buyer to reveal how much value he would be willing to give the product in a “real” competition. In some cases, we have competition among both sellers and buyers in a market; this is the case in the so-called double auction of stock exchanges.

Public prices are of considerable importance for making markets transparent, and the fact that markets generate transparency is an important aspect by means of which they operate as coordination devices. Competition must not boil down to price competition between homogeneous goods – this is just one special case. Competition can be due to innovation, as in Schumpeterian economics (Nelson 2005: 9), or to virtually any variables which are identifiable with regard to the offer, such as quality, service, or style (Chamberlin 1953).

Prerequisites of Market Order

We have now outlined what a market is by describing its essential characteristics. There are, in addition, three prerequisites that must be met for a market to be ordered; in other words, so that we can talk of a market. We have decided to treat them separately, as each of them can be met in empirically different ways: either actively, such as by organized coordination, or passively, in the form of an emergent order. The first prerequisite is that it is clear what is traded in the market; the second is that there must be rules governing what to do and what not to do in the market, and, finally, the offers of what is traded must obtain an economic value in the market. These will be discussed in detail in chapter 4.

1.

What the market is “about.”

Human organs are not sold in the same market as cars. Garments are sold in yet another market. This means that “things” that are acknowledged as similar are traded in the “same” market.

2.

How things are done in the market.

The second prerequisite has to do with culture in the market. We define culture as beliefs, norms, “tools,” rules and behaviors – for example, discourse and practice – appropriate to the setting. That is to say that the institutional framework may differ, including between markets that “are about the same thing,” such as two different markets in which the shares of one company is traded.

3.

The value of the offer.

Given that actors know what is traded, the economic value of the good can, and must, be determined. This can be done in different ways, for example, in different forms of auctions (Smith 1989), or in markets such as food stores, in which the sellers offer groceries with fixed prices; consumers can then react to these prices.

When the elements described are present, and the prerequisites are met, we have an ordered market. It is only when there is order that we can talk of a market. The order enables actors to overcome uncertainty (Beckert 1996; White 2002b: 1). However, in any existing market the problem of order has already been solved (Luhmann 1981). In fact, the question of order is central to both sociologists (for example, Aspers 2010; Beckert 2009b) and economists (Nelson and Winter 2002: 23). One difference is that sociologists focus on order as a result of value or of social structure, and refer to, for example, moral order (Durkheim 1984), whereas economists focus on equilibria, which emerge in evolutionary processes (Nelson and Winter 2002). From a sociological point of view, the problem of order is the fundamental problem, which of course means that it is central also in the economy. Equilibrium is only one form of how order is made, as will be shown, and this suggests that the sociological question is more profound than the economic question. The latter is more narrowly defined and it comes with a full set of assumptions, including, for example, many small actors, homogeneous products, free entry and exit.

Summary and Outline of the Book

The first chapter summarizes the various theoretical concepts which will be discussed in more detail in later chapters. A market definition is the starting point of any serious discussion of markets, and it is upon this idea of market, and the corresponding idea of identities in markets, that we will build throughout the rest of the book. In the following chapters we shall present the sociological foundations and starting point for the economy and, more explicitly, the sociology of markets.

Each chapter begins with an introduction that ties it to the previous chapter(s) and ends with a summary. At the end of the book, we present our findings and suggest a set of questions to pose when studying markets, as well as additional areas of research.

In chapter 2, we draw on the definitions drawn and look at the general economic problem of production and consumption under the condition of uncertainty, to see how it can be solved by different coordination forms: markets, networks, and hierarchies. This analysis contrasts markets with other forms of economic coordination, thereby clarifying what they are and what they are not. Chapter 2 also deals with the expansion of markets at the expense of other forms of economic coordination. Chapter 3 takes a closer look at the actors who populate markets and also puts markets in the larger social context, with a discussion of the history of markets and market society. The fourth chapter makes several important distinctions that pertain to markets. The most important addresses the roots of market order. Order can be rooted in either offers or the social structure, although real markets are usually the result of a combination. Chapter 4 presents central ideas of man as the foundation for market theories, introduces the distinction between status and standard markets, between switch-role and fixed-role markets; this chapter also discusses monopoly markets and other forms. In this discussion, the most important kinds of markets are clarified. Chapters 5 and 6 provide ample discussion of markets, based upon the distinctions made in chapter 4. In chapter 5, we study markets in which the offers traded in the market are entrenched; these markets are called standard markets, and it is among such markets that we classify the neoclassical market model. Chapter 6 mirrors chapter 5, but focuses on markets in which the specific social structure is more entrenched than the offers in the market. To analyze how markets are made is the task of chapter 7. The last chapter of the book, chapter 8, concludes, but also looks ahead and discusses areas of research, as well as methods with which to research markets.

2

Coordination in the Economy

The first problem for human beings was not how to act in a market, but survival. To survive, our predecessors had to gather, hunt, produce offspring, build shelter, and, more generally, to protect themselves from the environment, as well as learn how to extract resources from it. They started to cultivate the environment to serve their purposes. This cultivation, of course, includes human beings and social life. Historical, sociological, and anthropological research has provided ample information on cultural variation, in the broadest sense of the word. Regardless of what historical path we follow, it took much effort and time before the first “markets” with any similarity to what we observe today were made.

The discussion of the historical development of markets is postponed until chapter 3, while here we continue to develop the tools for understanding and explaining markets. This chapter focuses on forms of economic coordination, that is, forms of bringing people and resources together in an orderly fashion to enable production, consumption, and distribution. In addition to markets as a form of economic coordination, there are hierarchies, which are often seen as organizations, networks, and autarchies. By contrasting markets to other social formations, it will be easier to understand what markets are and what they are not. First, we analyze the economy and define the most central economic problem. Then we discuss the different forms of economic coordination in addition to markets, followed by a discussion of how these ideal-typical forms are related to each other, also in the real economy.

The Economy

We have said that markets reside in the economy, but left the notion of “economy” undefined. It is embarrassing that new economic sociology has not generated a definition of the economy, as pointed out by Sklair (1997). To do this, we first turn to some existing definitions. Economy refers, in its etymological sense, to the administration of a household, a farm, or an enterprise; one definition of the economy goes back to Aristotle – or, more correctly, Xenophon. Xenophon wrote the text in the fourth century bc for the purpose of the “gentleman landowners,” who were the citizens. Xenophon’s text is a set of instructions on how to manage the household, and it refers to how to have a good life, how to treat and organize one’s wife and slaves, and the technology of farming (Xenophon 1970). This notion of the economy is clearly broader than the one we use today.

Xenophon’s concepts reflected the situation at the time, and the definition that economist Alfred Marshall proposed, about two thousand years later, is similar in this respect:

Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing. Thus it is on the one side a study of wealth; and on the other, and more important side, a part of the study of man. (Marshall 1961: 1)

Marshall’s broad definition puts humanity and, indirectly, social life, at the center of the economy, and it refers to the production, distribution, and consumption of wealth. Wealth refers not only to material conditions, as its etymology includes being “happy” and “prosperous.”1 Nonetheless, it has somehow to be “produced.” How and what to produce, a notion which refers to something that is done or generated, was the first concrete problem facing humanity. Human beings have made progress over several thousand years, and one consequence is that the importance of consumption has gradually increased. Marshall, who follows Aristotle and Marx, viewed activities (“production”) as more important than wants (“consumption”): “[A]lthough it is man’s wants in the earliest stages of his development that give rise to his activities, yet afterwards each new step upward is to be regarded as the development of new activities giving rise to new wants, rather than of new wants giving rise to new activities” (Marshall 1961: 89). “Want” has its roots in Scandinavian languages (vänta) and means to wait for something that is missing and that is not there yet. The active solution is to “produce” what we want (are waiting for). Thus, wants (consumption), or what we are missing, are tied to our activities (production).

However, many economists, at least since Lionel Robbins’s work in 1932, define economics not as the study of a specific entity, the economy, but as an approach to understanding social life from a certain point of view: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses” (Robbins 1935: 16). Another economist, Hayek, follows this idea, declaring that an economy “consists of a complex of activities by which a given set of means is allocated in accordance with a unitary plan among competing ends according to their relative importance” (Hayek 1976: 107). Hayek’s formal definition of the economy is in line with the Austrian school of economics, of which he was part, and includes those activities that are valued due to their importance, thus stressing “scarcity” in relation to what actors want (Menger 1994: 77). The action theory at the heart of economics is a decision theory on how to act that has been turned into an assumption of how real actors behave. These formal definitions say more about the imperialist ambitions of economics (Stigler 1982) than about what the economy is, or its “substance.”

Furthermore, actors in economics are isolated atoms who try to maximize their utility. In fact, the economic definition of the “Robinson Crusoe economy” developed by economists means that “Economic character is by no means restricted to goods that are the objects of human economy in a social context” (Menger 1994: 77). However, the perfect “economic laboratory” of the stranded Crusoe dismisses what cannot be left out – Crusoe is essentially social in his orientation and cannot become non-social.

What then is the economy? We rely on the following definition of the economy: people’s coordination of production, consumption, and distribution of wealth. Economic sociology is the study of this. This implies that the economy is inherently social and that actors’ orientation to others (Swedberg 1999; Weber 1978) is of central importance when addressing economic issues too. Economic theory – as we will see in chapter 3 – is merely one approach on the economy that restricts the assumption on humanity.

It is, moreover, worth stressing how this definition implies a radically different view from what is normal in economic sociology – the application of the sociological approach to the study of the economy. This unfortunate definition simply involves “the social” being added to “the economic.” Economic sociology, in other words, took over the economic view of humanity, economy, and economic action from the outset. Moreover, as many sociologists have taken over questions from economics, such as equilibrium and the idea of what a market is, essentially without questioning them or their foundations, history, or etymology, the sociological contribution to our understanding of the economy has not yet fulfilled its potential. Economic sociology has so far taken upon its shoulders the responsibility of rectifying this, by adding flesh and blood to “economic man,” as he is called in economics.2

Our definition, which draws on social human beings, stresses, in contrast, the essentially social starting point of economic activities. This definition also implies that all spheres of life may include social economic activities or consequences for actors or their environment. The production and consumption of cars, art, food, and much more include, of course, artistic, religious, moral, political, and many other aspects, but there are clearly also “economic” aspects to the production of art, or when a family harvests berries in the forest. The economy is made up of all these activities. Production can be coordinated in different ways, and what is produced can be distributed for consumption in different ways, which is to say that the market is one form of coordination among others. Nevertheless, the main point is that all of these coordination forms are inherently social. We will later return to the issue of “market economy,” which consequently is a smaller part of what we call the economy. This will also bring up the central question of capitalism.

The Fundamental Economic Problem

Survival used to be the most direct problem that people faced and to some this is still the most pressing issue, as when an earthquake or flood throws a society into turmoil. However, by survival we generally mean the survival of the identities of economic actors.3 A person who goes bankrupt is unlikely to die because of it – though at an early stage Durkheim (1992) recognized economic rupture as a cause of suicide. A firm which goes bankrupt ceases to exist, which is to say that this economic identity – the firm with its name – does not survive. Although few people’s survival today depends exclusively on the market or even on economic wealth, we need only look at firms struggling to survive in periods of economic crisis to see that this is still the most fundamental problem.