Home > Uncategorized > Globalization: Markets are socially constructed “spaces”

Globalization: Markets are socially constructed “spaces”

from David Westbrook and The Inequality Crisis

Suppose we understand markets in fairly simple-minded fashion, as social contexts in which folks buy, sell, and invest. Markets have often been understood individualistically – homo economicus is not a friendly guy – and orthodox economics even proposed “methodological individualism” to be a cardinal intellectual virtue. But the social simply must be stressed at the present juncture. As digital enterprises make inescapably clear, markets are constructed through mutually intelligible communication. “The market” is not a place that exists ex ante, to which self-interested rational actors go to buy and sell. Instead, markets are socially constructed “spaces,” which can be real or virtual, in which economic communication and even law (most obviously contract and property) happen, and “where” actors must conform if they are to participate.

To tell a story by now familiar: once upon a time, there were many markets, more or less geographically distinct, for much the same thing, say wine, to echo Adam Smith. Traders might connect different markets, but transportation was slow, expensive, and often dangerous. And, to echo Smith again, actors could be expected to seek market power, rents. But the extent of their wealth was limited by the extent of the market in which they operated.

In the fullness of time, the implementation of new technologies and the set of processes collectively referred to as globalization lowered the cost of transport and other barriers to trade, notably tariffs. Distance became much less significant. After the digital revolution, prices and other information, as well as digital goods writ large, could be transferred instantaneously, and at almost no cost. There are many ways to complicate this “just so story,” of course, but many geographically distinct markets merged, that is, the social contexts in which trade was conducted became much larger, both geographically and in terms of the number of people involved. While globalization may make an individual’s world feel bigger and more diverse, for markets, globalization mostly has meant consolidation and simplification, and, due to the instant transfer of information, virtual locality. The social contexts in which folks bought and sold became national, regional, even global. Airport shopping is much the same worldwide. LVMH sells globally branded cognac and watches and purses and suchlike from Rio di Janeiro to Hong Kong, and for a little while, Bernard Arnault was the second richest person on earth. Dominating enormous markets, unsurprisingly, results in great wealth.

Such wealth often concentrates – global markets tend to be “winner take all”.

 US   UK   JP   AU

  1. pfeffertag
    November 3, 2020 at 5:56 am

    The concept of “methodological individualism” (MI) should not be confused with individualism. One sees this occasionally. MI just means a method of theorising using individuals. It does not imply individualism, i.e., homo economicus. You could apply MI by assuming homo socialis or homo imperiosis both of whom would be social, not individualist.

    Actually, it probably is a cardinal intellectual virtue for such an approach is the normal scientific one, where a phenomenon is theorised as a relationship between its parts. Obviously the parts of society are individuals.

    • Yoshinori Shiozawa
      November 3, 2020 at 9:14 am

      A good and timely comment, although I have methodological objection. Please wait until I post my reply.

  2. November 3, 2020 at 3:37 pm

    Very useful ! Fully agree on individualism . Also see my regular column ” FIXING THE MONEY MEME ” and how to take back our social sphere and our values beyond markets and money at http://www.wsimag.com going live this week.. Hazel

  3. Yoshinori Shiozawa
    November 6, 2020 at 12:41 pm

    I am not sure if Hazel Henderson distinguishes ethical individualism and methodological individualism. As pfeffertag contended, the two are totally different concepts and should not be confused. It is shame that David Westbrook did not take sufficient care not to induce confusion between the two individualism. In the following I only argue methodological individualism.

    In social sciences, there are traditionally two opposing methodologies: methodological individualism and methodological holism. The latter should not be confused with political totalism or collectivism. The former is often identified with atomism. Individuals and often firms deemed as social atoms. pfeffertag seems to stand on this methodology. I believe both of methodologies are defective as methodology of social sciences and as economics in particular.

    Post Keynesian economics has a strong tendency to claim the necessity of methodological holism. Standard argument for methodological holism is the existence of several paradoxes such as paradox of thrift (Keynes), paradox of costs (Kalecki), and paradox of tranquility (Minsky). An alternative term is fallacy of composition. See Marc Lavoie (2014, 1.3.3). But, in my understanding, fallacy of composition emerges from a bad formulation of the target event. In other words, it is only the result of using not well suited framework of analyses. (If readers want more detailed account on this point, I am ready to do it, but for the brevity of the argument, I skip this point here. This is also the reason why we plead the necessity of microfoundations of PK economics)

    Then, is methodological individualism a good and sufficient methodology for economics? I do not think so. Post Keynesians often criticize that mainstream economics argues behavior if a representative individual. It is right but it is weak as criticism. This criticism applies to macroeconomics that use DSGE model but it is supported by microeconomics like Arrow-Debreu theory (Arrow and Debreu 1954). This theory admits heterogeneous agents. The theory proves an existence of competitive equilibrium (i.e. a set of prices and quantities that all agents [households and firms] do not want to change their behavior). If we admit the assumptions, this existence proof is logically perfect. However, it does not mean that general equilibrium theory is valid as an explanation of our economies. Those assumptions are extremely unrealistic (infinite rationality, perfect information, and possibility of instantaneous actions). Moreover, there is no proof how this equilibrium state emerges or converges to.

    What happens when we admit that all individuals are an entity with limited information and bounded rationality? Based on what principles do individuals behave? We have to assume various institutions such as property rights and custom to use money as medium of exchange. Individuals’ behaviors are conditioned by these institutions. Economic life itself is conditioned by actual economic system. For example, our behavior is different when we live in a primitive community without money, when we live in a society where we engage distant trade, and when we live in a modern industrial economy. Mainstream economics is constructed on distant trade idea, in which two communities exchange what are surplus for them. It is in its essence economics of exchange economy. Arrow-Debreu model includes production but prices are determined by scarcity of endowments. In a modern industrial economy, logic is very different. We can assume that almost all goods and services are supplied as much as we want to buy in exchange of their prices. In this economy, we are no more hagglers. We behave whether we buy a product at a shop at a fixed price. This is one of the most common customs but these customs are conditioned by the structure of the economy in which we live. Thus, our individual behaviors are results of evolution among economic structure. What seems to be atom is not atom that exists independent of the structure or total process of the economy.

    Both methodological individualism and holism are defective. In place of the two, I propose a new methodology that takes in consideration existence of micro-macro loop. See for more details, read Chapter 1 of our book Microfoundations of Evolutionary Economics.that has the same title as the book itself. To see how production economy works, read Chapter 2 “A large economic system with minimally rational agents.”

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