Markets and their social construction

Social Research, Summer, 2004 by Warren J. Samuels

Comparative advantage is in part a function of the law governing whose interests are a cost to which other agents; rights help govern costs, and costs help govern the economic significance of rights. Law is an instrument of forming advantage. Firms with one set of comparative advantage seek through legislation to have their advantage given a privileged position in restructured markets. The legal treatment of new technology generates new ways of who can do what to whom, and how. Claims of "ruinous competition" channel selective perception and the legal policies governing markets.

Firms are driven in part by the ambitions of leading or would-be leading owners and managers, each with their particular designs on the firm and the market in question. Entrepreneurship may be partly understood as the making of markets vis-a-vis their passive acceptance (Casson, 2003).

The formation and application of a firm's goals are influenced by transaction costs, principal-agent problems, differences between governance structures, the impact of firms seen as collections of contracts, the operation of the firm as a bureaucracy, an exercise in small-group sociology, as well as a set of power relations (Swedberg, 2003, chap. four).

Firms can also be seen as instruments for the control and use of the human labor force in the labor market.

The existence and size of a market depends on consumer demand large enough and supply cheap enough to sustain spending on production, advertising, research and development partly financed by government, and lobbying and litigation.

Some firms have greater opportunity than others to form their relevant capital market--for example, through internal financing, arm's length borrowing (though heavy borrowers may have greater mutual coercive power than small borrowers), and participation in capital-market networks.

SOME IMPLICATIONS

Markets are created, changed, manipulated, and restructured through the actions of government, firms, and groups of firms.

The proposition that "institutions matter" can be weak or strong. The weak has analysis touching base with actual institutions. The strong has institutions dominate--organize, structure, and operate through--markets.

   [T]he object of dissent is the conception of the market as
   the guiding mechanism of the economy or, more broadly,
   the conception of the economy as organized and guided
   by the market. It simply is not true that scarce resources
   are allocated among alternative uses by the market. The
   real determinant of whatever allocation occurs in any society
   is the organizational structure of that society-in short,
   its institutions. At most, the market only gives effect to
   prevailing institutions. By focusing attention on the market
   mechanism, economists have ignored the real allocational
   mechanism (Ayres, 1957: 26).

As for how the institutional structure governs the allocation of resources,

   whatever scope society accords individual choice and valuations
   is a consequence of the latitude for discretionary
   action which is built into the system.... It is through the
   assured zones of discretion or security of expectations that
   individual freedom becomes effective and may become
   power (Parsons, 1957: 26).