1.2 Social Construction of Markets
(Coordinate with reading from Chapter 3)
This section will provide you with a conception as to how markets emerged throughout history and developed their current forms. Markets are not unique to a particular political system, but some political-ideological systems are more favorable towards markets than are others. Markets are essential to economic growth and development, and are key to providing dynamic movement in the economy. (If you are short on time, you can skim through pages 44 through 67 of the Markets book.)
From Community and Gift Exchange to Fully Developed Markets
What is important to understand within this section is that markets have a history, a genealogy, of their development. Initial trading or exchange began with the basic practices of community, and worked along a trajectory of formalization and anonymity in terms of the trade. Markets, as Aspers refers to them, are about "the exchange of rights under competition." (Aspers p. 38) Earlier modes of market development were more direct interactions and less established on trade networks. (Now, I am able to log into Amazon and purchase, with my credit card, all of the solar photovoltaic equipment that I need to provide my home with energy.) The markets we are referring to and studying in this course, i.e., energy markets, are globally connected both through technology and energy exchange; yet, they are highly localized in influences both environmental and socio-cultural.
The primary reason for studying the sociocultural underpinnings of markets, here in this course, is to be able to recognize that an economic theory of markets alone will not provide us with ways to comprehend how what we call nonmarket strategies can work. What we refer to here as nonmarket strategies are actually not solely economic market strategies. In other words, economics is not the only factor that shapes the market. (And markets are not the only factor in economics.) Humans, as Aspers states, are both the beginning and the end of the economy. Aspers does not mean this in terms of an end to the economy, but rather, he is arguing that the economy is fundamentally a human enterprise. The economy is an essential system of means with which humans achieve their ends, i.e., the pursuit of family, happiness, security, well-being, etc. In this regard, economic outcomes are not measurable only in numbers.
Why Sociological Foundations?
Aspers presents us with a sociological understanding of the economy. This is significant and important because most economic understandings are based on a conception of economic actors as highly rational individuals working with perfect knowledge of all contingencies. While this approach functions well for mathematical modeling of economic actors, it does not map well onto real-world situations. In other words, reducing market interactions and intentions to quantifiable rational terms does not get at the complexity of economic and market interactions. Aspers suggests that instead of basing an approach on a "perfect economic rationality," we should instead understand economics through given identities, where interpretations of value are dependent upon a given position within a social framework. This would lead us to evaluate market decisions and other economic considerations based on a given social standpoint. Actions of a given identity are dependent on where the identity resides within a (social) network.
The last section of chapter 3 presents us with a social understanding of market and trade interactions. While taking a "social approach" may seem merely historically significant and somewhat academic, it is very important for understanding what we refer to in this course as nonmarket strategies, precisely because nonmarket strategies require taking a social approach. For example, it can be very difficult to quantify precisely the value of the company's reputation. A product in the marketplace may be identical to what another company has produced, but if one of the companies' reputation gets sullied for some reason, then the company may lose significant market share for a time period or even entirely. Environmental accidents, such as exploding oil rigs, can significantly impact how a company's product is perceived in the market, even if the crude oil being produced is identical to that of another company drilling in the same area.