The Market as a Social Space, and What Happens When The Firms that Occupy That Space Disappear Due to Economic Disruption

|Peter Boettke|

Virgil Storr is one of the most perceptive and intellectually challenging social scientists I know.  He also writes with grace and eloquence, but leave that aside at the moment.  He has pushed an argument for many years now that not only is the atomistic model of competition wrong headed, the more general "model" of cooperation in anonymity is mistaken.  Markets are spaces in which relationships are formed and sustained.  His argument makes one think, his argument makes one take notice, and his argument invites inquiry.  

For much of my academic life, I have been attracted to the cooperation in anonymity idea and the proposition of commerce enabling us to benefit from the company of strangers.  Consider Adam Smith’s discussion of the common woolen coat that ends up on the back of the day laborer.

Observe the accommodation of the most common artificer or day-labourereven the day-labourer’s coat being the produce of a vast number of workmen. in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation. The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! how much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world! What a variety of labour too is necessary in order to produce the tools of the meanest of those workmen! To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labour is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting-house, the brick-maker, the brick-layer, the workmen who attend the furnace, the mill-wright, the forger, the smith, must all of them join their different arts in order to produce them. Were we to examine, in the same manner, all the different parts of his dress and household furniture, the coarse linen shirt which he wears next his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen-grate at which he prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth, and brought to him perhaps by a long sea and a long land carriage, all the other utensils of his kitchen, all the furniture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in preparing his bread and his beer, the glass window which lets in the heat and the light, and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these northern parts of the world could scarce have afforded a very comfortable habitation, together with the tools of all the different workmen employed in producing those different conveniencies; if we examine, I say, all these things, and consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to, what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.

Leonard Read’s "I, Pencil" was little more than a mid-20th century restatement of this Smithian point about the division of labor, division of knowledge, and complexity of the exchange relationships in anonymity. None of us knows how to make a common woolen coat, just as none of us possess the knowledge, skill, and aptitudes to make a #2 pencil from scratch.  Our ability to enjoy the comfort of the coat, and the utility of the pencil, we rely on productive specialization and mutually beneficial exchange with a vast network of individuals that far exceeds our computation and our ability to know as persons and people that we have deep ties to.  Smith a few pages later, hits this point home in the passages that set up his famous butcher, brewer and baker quote:

In civilized society he stands at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this: Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

But when we think about each node in the network of the exchange relationships that form the system, the anonymity aspects seems to move into the background or perhaps even disappear altogether.  We share stories, we smile, we express regret, and most importantly we talk.  Our commercial lives are filled with conversations, and in many instances deeply meaningful conversations.  Markets are arenas for social activity, and not only economic relationships are forged in that arena but often deep non-economic relationships are formed and sustained.

I think Smith (and Hayek) and Storr are both right.  In fact, I think Storr gives us a clearer window into the doux commerce thesis of Smith and others, than one gets from Smith interpreted through the lens of neoclassical economics and perhaps even a clearer picture that one gets from Smith as interpreted by Boettke (perhaps I say because I am stuck in my ways). Storr’s Smith is a better version of Smith than say Arrow’s Smith and the invisible hand theorem of general competitive equilibrium.  But this isn’t just a conceptual issue, it is an empirical issue of understanding what markets and commerce do in communities, and what happens when the world changes and firms and markets that once were vibrant now disappear. This was the topic of a discussion this morning on NPR’s Marketplace Morning Edition focused on Thrift Town. Hint: it isn’t just the wide variety of products at discounted prices that could be found at the store that is now missed, as it failed to survive the economic disruptions of the last year and a half.

Teams of researchers would do well to be in the field engaged in ethnographic study of the impact on communities when commercial spaces and work disappears due to economic disruptions, we will learn a lot if we are willing to take notice, ask the right questions, and LISTEN.

Read the Full Article here: >Coordination Problem