The Laws of the Markets

Citation

Earl, P.E. (1999), "The Laws of the Markets", International Journal of Social Economics, Vol. 26 No. 12, pp. 1505-1516. https://doi.org/10.1108/ijse.1999.26.12.1505.1

This Sociological Review monograph consists of eight chapters sandwiched between the editor’s lengthy introduction and his own contribution on the theory of externalities. Although the contributors are sociologists, this book should be of great interest to economists. Much of it should be essential reading for advanced undergraduates taking courses on society and business and for institutional and industrial economists who focus on structural change with reference to problems of path dependence and complexity.

Economists would be well advised initially to avoid spending much time with editor Callon’s rather rambling and wordy introduction and to head straight for the case study chapters which are generally very readable and clearly focused. Once one has read the rest of the volume Callon’s contributions will seem more interesting and thought provoking. For example, at one point the introduction meanders into a long discussion of gift‐giving which nicely augments what has been written on this topic in economic psychology but which did nothing to make clear to me what was being argued as regards the development of markets.

Callon has much to say about the problem of engaging in calculative behaviour, which he suggests economic actors grapple with via social networks and by framing problems so as to exclude broader spillovers that are too complex to fathom. Yet he never really sets out the nature of the coordination problems that market institutions emerge to ameliorate, such as entry and exit coordination or the need to identify goods of a particular quality. These issues have been analyzed by economists such as Mark Casson, Geoff Hodgson and G.B. Richardson, and a bridge to that complementary literature would have been very useful (to be fair, Hodgson and Richardson are referred to, but only very briefly).

Callon claims that the book is essentially concerned with the way that economics as a discipline affects the operation of markets rather than merely providing perspectives on what goes on in the economy. Since most consumers are not trained in economizing by economists, it is perhaps not surprising there are no case studies of co‐evolutionary processes of social network/agent interaction in consumer markets, which have received attention in the marketing literature on consumer behaviour. However, much of the first half of the book is more concerned with the practical business of coping in making transactions rather than with how economics has affected this task.

Callon’s comments about the significance of framing are augmented by a short chapter by Viviana Zelizer on “earmarking”, with particular reference to the process of household budgeting and husband/wife interactions. Then, in what appears to be a shortened version of a very interesting PhD‐based book, Mitchell Abolafia provides an account of how he used networking skills to penetrate the culture and social networks of traders in Wall Street investment banks, though he does not set out to explore the impact of developments in finance theory on Wall Street. Networks are also analyzed in David Stark’s chapter on the restructuring of Hungary’s economy. Here, the focus is on changes in ownership networks and the way that managers position the activities of their enterprises in relation to different accounting measures to justify their claims to be operating viable collections of resources and at the same time preserve the adaptability of their activities. This is a valuable discussion in evolutionary terms, though Stark holds back from saying anything about the extent to which the economics of transition is being shaped by mangerialist thinking from the West and the role that the consultancy gravy train is playing in this process. The role of economists as consultants or, at least, as expert witnesses is, however, usefully explored in the penultimate chapter by Hervé Dumez and Alain Jeunemaitre, which is a study of the cement industry and its anti‐trust problems over basing‐point pricing.

The impact of economics on business via its impact on accounting and marketing is discussed in a pair of chapters that deserve to be widely read by final year students and their teachers. Peter Miller examines how thinking and practice in cost and management accounting were influenced by the work of economists such as J.M. Clark, Ronald Coase, and Ronald Edwards in the 1930s. Franck Cochoy charts the development of marketing as a discipline, showing how it began with inductive studies by Midwest economists in the tradition of the German Historical School and went through a process of professionalisation that enabled academics to sell general knowledge of marketing instead of leaving would‐be marketers to pick up specific knowledge on the job.

Particularly interesting are Cochoy’s discussions of the role of the Great Depression in convincing managers that they should embrace new academic thinking about how to market their products, and of how economists Robert Gordon and James Howell in the early 1960s directed a Ford Foundation funding programme that succeeded in its goal of getting management sciences to use the technical tools developed during World War Two: the senior marketing academics who lacked quantitative training reinvented themselves as business school administrators rather than forego access to such funds. Cochoy also charts the rise of more socially focussed marketing (a tribute to the perceived success of marketing science) and growing influence on marketing of disciplines other than economics, such as literary criticism and semiotics.

Industrial economists who habitually look at the operation of markets in terms of the structure‐conduct‐performance paradigm should be encouraged to read this book as it does a good job in forcing one to keep alert to the fact that market structures do not stand still, and that the ramifications of activities in any market framed by an analyst are likely to extend well beyond the selected frame. For example, the early development of the electric car (which in 1902 comprised the majority of automobiles) was hindered by the failure of electricity companies at the start of the twentieth century to see overnight car battery recharging as a major means of improving their load balance. This was but one of many points made in the fascinating chapter by Mark Granovetter and Patrick McGuire on how social networks of managers in the US electricity industry locked it on to a particular pathway that years later would harm its adaptability.

The need for a historical perspective in economics is also forcefully made by Bai Gao’s chapter on economic, cultural and political perspectives on the emergence of the modern Japanese approach to business organization and innovation: never again will I teach “the Japanese way” to innovation and productivity without first noting that this system did not emerge accidentally but was designed (partly by Japanese economists who had been graduate students of Schumpeter) as a solution to the failure of an adversarial low‐wage approach to economic growth that had been tried in the early 1950s. The failed strategy had much in common with 1990s free‐market policies that are producing much greater inequality but little economic growth in countries such as New Zealand.