Economy/Society

Markets, Meanings, and Social Structure

Bruce G. Carruthers, Sarah Louise Babb

• Publisher: SAGE Publications, Inc
• Year: 2012
• ISBN:
  9781483307107
• Edition: 2
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

In this long-awaited second edition of Economy/Society Markets, Meanings, and Social Structure, authors Carruthers and Babb continue to offer an accessible introduction to the way social arrangements affect economic activity, and shows that economic exchanges are deeply embedded in social relationships. Understanding how society shapes the economy helps us answer many important questions. For example, how does advertising get people to buy things? How do people use their social connections to get jobs? How did large bureaucratic organizations come to be so pervasive in modern economies—and what difference does it make? How can we explain the persistence of economic inequalities between men and women and across racial groups? Why do some countries become rich while others stay poor? This book presents sociological answers to questions like these, and encourages its readers to view the economy through a sociological lens.

1

The Embeddedness of Markets

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In a chapter titled “Closing the Deal (Getting Him to the Altar),” a book for husband-hunting single women observes that “getting the man you want to propose and then to turn that proposal into an actual wedding date [is] a feat some women say can be tougher than any corporate transaction” (Fein and Schneider 1997:99). The idea that there are “markets” in seemingly noneconomic areas, such as love and marriage, has become quite widespread in recent years, and not just in popular advice books. To optimize their marketability and increase their success rates, single men and women can set up online profiles to advertise the qualities that make them ideal candidates for marriage. These individuals can then essentially “shop” online, sifting through various “models” until they identify a few potential products to test out. Online dating sites facilitate transactions between buyers and sellers in the “marriage market” in the same way that eBay provides a marketplace for books or movies. Today, even personal matters such as selecting a spouse are conceptualized as market transactions into which “buyers” and “sellers” enter with their preferences and resources and leave with their individual utilities maximized.

Mirroring the spread of economic ideas and market metaphors, economists have increasingly begun to look at issues and problems previously reserved for political scientists, anthropologists, psychologists, and sociologists. This approach is apparent in the New York Times best seller Freakonomics (2005), the lead author of which, Steven D. Levitt, is an economist at the University of Chicago. The book uses economic principles to investigate an enormous range of social phenomena—from dating to parenting to crime.

We propose to stand Freakonomics on its head (so to speak). Instead of offering interpretations of social behavior through the lens of economics, this book looks at market behavior from the perspective of sociology. Instead of viewing social institutions as akin to markets, we examine markets as social institutions. Economic models of marriage, childbearing, crime, education, and other social phenomena can provide us with useful insights. However, they tend to assume—or at least imply—that something like market rationality is a fundamental part of human nature. The idea of the rational individual maximizing his or her own utility in the marketplace seems completely natural to us today. How could people ever behave differently? Why wouldn’t people pursue their own self-interest? And if such behavior is second nature in markets, it seems logical to expect it in other areas of social life, such as marriage and education.

The central message of this book, however, is that markets are not natural or inevitable. Rather, they are social constructions. Markets, like all social constructions, do not appear or arise automatically. And they do not everywhere look the same. Markets are real in the sense that they have real and important consequences for human behavior, but they are not something humans cannot control; they are not natural in the same sense that the weather, or human biology, is a part of nature. Rather, markets can be shaped this way or that in different societies.

Markets and Their Alternatives

The socially constructed character of markets is illustrated by the fact that unlike economies, which are an inevitable feature of human societies, markets are only one of an array of institutional possibilities. Since every society must produce, distribute, and allocate the goods that people need to live with, all human societies have an economy of one sort or the other. But economies can be organized in many different ways, as any anthropologist or historian can tell you. In other words, the bases on which economic activities occur can vary widely. For example, economic production occurs within subsistence economies, in which families produce all—or almost all—of what is needed for household consumption. In traditional hunter-gatherer societies, people live in small family-based communities in which men hunt and women gather wild roots, seeds, and other vegetable products. Nobody buys or sells anything, and there are no markets to speak of.

Aside from markets, another way to exchange and distribute goods is through gift giving. Anthropologists have long noticed that in traditional societies, gift giving plays a crucial role in exchange—often much more important than exchange through markets. In the words of one famous anthropologist discussing the Maori of New Zealand, “Gifts were presented in the event of births, marriages, deaths, exhumations, peace treaties and misdemeanors, and incidents too numerous to be recorded” (Lévi-Strauss [1949] 1996:18).

During the Middle Ages in Europe, market exchange was relatively unimportant. Most of the valuable goods that circulated did so because they were either stolen or given as gifts (Spufford 1988). When thinking about how French gold coins ended up in a medieval Danish hoard, we might be tempted to suppose that traders from Denmark exported goods to France and were paid in cash. Far more likely, however, is the possibility that Vikings simply stole the coins during a raid on the French coast and took their loot back home to Denmark. In this historical period, theft and gift giving governed the circulation of precious goods much more than did market exchange.

Traditional obligations between people at different levels in the medieval social hierarchy also regulated economic activity. During the Middle Ages, economies were governed through an economic system known as feudalism. In a feudal economy, serfs worked the land of the lord of the manor according to a set of long-held traditions (with the threat of coercion lurking in the background). In return, the lord was supposed to protect the serfs, dispense justice, and provide for the local church. Thus, agricultural produce and other staple goods were distributed in the local economy, but not primarily through market exchange. The serfs were not paid wages for their labor, and the lord was not paid for his protection: Their symbiotic relationship was based on social tradition, not on the market.

A market is but one institution for governing economic activity, although it is the one most familiar to us today. In markets, goods are exchanged voluntarily on a bilateral basis rather than yielded under the threat of unilateral coercion, given as gifts, or offered in satisfaction of a traditional obligation. Market exchanges occur between individuals motivated by the satisfaction of their own desires but constrained by both their budgets and the rules of the marketplace. Markets are an old and well-known form of economic activity, although they have not been ubiquitous. Archaeological and historical evidence from Africa, Europe, and the Americas documents the existence of ancient transcontinental trade networks (Abu-Lughod 1989).

Although market exchange is an ancient form of organizing economic activity, the economic system of capitalism is actually quite recent. Whereas earlier in human history, markets coexisted with other forms of economic governance (e.g., traditional obligations, gift giving, theft), under capitalism, markets became dominant. This is not to say that all other bases of economic behavior have completely disappeared under capitalism: Gift giving plays a central role in stimulating Americans, especially around Christmas, and the circulation of goods and money within families continues to occur largely outside of markets (parents typically do not sell breakfast to young children or charge them rent). Furthermore, markets are regulated by various formal and informal institutions (consider how often gifts figure into how firms manage their customer relations). And many contemporary transactions occur inside of large organizations, where they are dictated administratively rather than negotiated bilaterally. Nevertheless, markets generally play a much bigger role in people’s lives today than they have at any other period in human history. Under contemporary industrial capitalism, almost all of the things we use in our everyday lives are acquired through markets—food, clothing, shelter, transportation, entertainment. To purchase these things, most of us earn our livings by getting jobs in the labor market. Since the widespread entrance of women into the paid labor market, one last bastion of nonmarket economic activity has been undermined, namely, the unpaid contribution of the housewife to the national economy. As a result, many goods and services—such as meals, child care, and housework—that only 40 years ago were provided within the family (usually by Mom and for no pay) are today being provided to upper-middle-class households through a paid labor force of cooks, nannies, and cleaners.

Like gift giving in hunter-gatherer societies, markets enter our lives today in ways “too numerous to mention.” Given the near-complete penetration of market relations into our modern economic lives, it is not surprising that we tend to use the market metaphor for other areas of social life, such as dating and marriage. However, in applying this market language elsewhere, we tend to forget that markets themselves are not inevitable but, rather, represent one of many possible economic arrangements. This book considers markets as social institutions and calls the “naturalness” of markets into question. Our argument is informed by two general observations. The first is that markets have certain preconditions without which they cannot function. The second is that markets function very differently at different times, in different places, and in different spheres of economic life.

Markets and Their Preconditions

Markets involve a form of social activity that is possible only under certain specific circumstances. Markets don’t appear out of thin air; rather, they depend on an institutional foundation (Collins 1992; Weber [1927] 1981). Four key elements constitute that foundation: property, buyers and sellers, money, and information. Markets depend on the existence of property. Market exchange cannot occur unless there is something to exchange, and what people buy and sell in markets are not things or objects themselves but rights over those things. Today, the idea of private property has become so commonplace that we tend to take our ownership of properly for granted. If I buy a car, I assume that it is my car and that nobody can take it away from me; my ownership of the car seems obvious. If my car were stolen, however, my property rights would be violated. And although I would no longer possess the car, I would still own it (the thief, in contrast, possesses the car but does not own it). What makes the car mine is a set of property rights, which apply because I live in a society that recognizes private property rights and enforces them through an effective legal system.

In the United States today, if my car is stolen I can call the police to help recover it, and, if caught, the thief will be prosecuted in court. In many other societies in history, however, my rights over my car (or a similar object) would not have been so secure. In some countries, I might not even be able to use the law or the police to recover my stolen property if I am a member of an oppressed ethnic minority. In other countries, and at other times in history, law enforcement officials might actually use their coercive powers to take my property for themselves. In general, markets perform poorly in places where private property rights are insecure (why should I invest in a factory if it can be taken away from me?), and insecure property rights are cited by economists as a factor contributing to economic underdevelopment.

Property rights are not “natural”; they are a social construction—the creation of groups of human beings. And property rights evolve over time. In the United States today, property law has been extended to encompass things such as software, music, and computer operating systems. A century ago, such forms of property did not even exist. Whatever tangible and intangible things property law covers, without reasonably secure property rights, markets cannot function.

Another precondition for markets is the existence of buyers and sellers. This precondition seems easily met today, but during earlier historical periods, the absence of buyers and sellers limited how much economic activity could be conducted in markets. Throughout much of human history, people have hunted, gathered, and grown the food they ate, made their own clothes, and constructed their own shelters—all things that today we are used to receiving through markets. People who make their own clothing or provide their own food do not need to buy in the market. Thus, a grocery store that opened in a community of subsistence farmers would probably fail due to a lack of buyers. Even today, the importance of advertising serves as a reminder that the existence of buyers for a product cannot be taken for granted. Entrepreneurs and inventors must hire teams of marketers and advertisers, or their products will never be sold.

If buyers cannot be taken for granted, then neither can sellers. The fact that someone wants to buy does not mean that there is someone else who wants to sell. The experience of employers in colonial sub-Saharan Africa during the late 19th and early 20th centuries illustrates the point. European firms established extractive enterprises to exploit Africa’s natural resources—mining for gold, diamonds, and copper and producing cash crops such as rubber and kola nuts. They needed workers to labor in the mines and plantations, so they tried to hire the indigenous population. The mine and plantation owners wanted to “buy” in the labor market, but the indigenous population, who were mostly subsistence farmers and hunter-gatherers, did not want to “sell.” Working in a mine is dangerous, unpleasant work, and they didn’t need money.

One solution the colonial governments found was to force natives into the cash economy by requiring them to pay taxes in cash. The governments instituted new taxes, and, to acquire the money necessary to pay the taxes, indigenous people had to offer themselves as wage laborers to the mines and plantations (Arhin 1976:460). Thus, colonial governments found a way to create “sellers” in the labor market.

The need for buyers and sellers draws our attention to another precondition for markets: the existence of a medium of exchange. During earlier periods of human history, exchange took place through barter, or in-kind exchange: a sack of wheat for a baby goat and so on. In-kind exchange is restricted, however, by the need for a “double coincidence of wants”—the person with wheat has to want a goat, and the goat owner has to want wheat. Otherwise, the deal doesn’t go through.

Gradually, however, a diversity of different forms of money emerged, from gold and silver in Europe and parts of Asia to cowry shells in parts of Africa, to cacao beans in the trading region of the ancient Aztecs. The value of these earliest forms of money derived from the value of the objects serving as money: A gold coin, for example, possessed value because gold possessed value. The first forms of paper money were essentially “IOUs”—pieces of paper that certified that they could be redeemed for certain quantities of precious metal. Today, however, we have become accustomed to “fiat money,” or money that is valuable simply because we all agree that it is worth something. Fiat money is the ultimate social construction, because its value depends entirely on collective beliefs regarding its worth.

The final precondition for the functioning of markets is the availability of reliable information. People won’t buy or sell things if they don’t know enough about them. The absence of accurate information presents an enormous obstacle to markets. For example, people would hesitate to buy gold jewelry if they have no way of knowing how pure the gold is (10-, 14-, 18-, or 24-carat gold). Shoppers might not purchase hamburger meat at the supermarket if they are not sure that it is pure and uncontaminated by germs. And almost no one purchases a used car sight unseen. Market participants need information about both the quantity and the quality of the goods they buy and sell (as in three pounds of USDA-inspected hamburger with only 10% fat content).

The importance of information for markets is reflected in the role that governments play in providing that information. For centuries, rulers have recognized that they can help markets grow and flourish if they offer standards for information. Kings and princes would often establish standardized weights and measures so that in the markets, merchants could be sure that a pound measure really weighed a pound or that 100 yards of thread really was 100 yards long.

The Embeddedness of Markets

This book introduces the field of economic sociology. One of the central insights of economic sociology is that markets are embedded in nonmarket social relations (Granovetter 1985). By embedded we mean that markets coexist with, are shaped by, and depend on other social relations. Market relations constitute but one way for human beings to interact with one another. Social relationships consist of many other types of human interaction, including participation in a religious community, belonging to a family or having a network of friends, having political allegiances and animosities, taking part in professional interactions among coworkers, and having citizenship in a country. Economic sociologists study the different ways in which markets are influenced by these other kinds of social relationships (Carruthers 1996).

Earlier, we mentioned the four different preconditions needed for markets to exist and operate. In general, these are not met by the markets themselves but, rather, must be satisfied in some other fashion. Markets do not automatically engender secure property rights, provide accurate information, offer a medium of exchange, or generate sufficient numbers of buyers and sellers. Frequently, government plays some kind of role in the satisfaction of these preconditions. Governments promulgate and enforce formal property rights (North 1981). The legal system also offers contract law so that people who wish to transact with each other can create legally binding agreements. A formal contrac...