Social Foundations of Markets, Money and Credit

Costas Lapavitsas

• Publisher: Routledge
• Year: 2003
• Topic: Business
• eBook ISBN:
  9781134368792
• Subtopic: Business General
• Index: Business

Where does the power of money come from? Why is trust so important in financial operations? How does the swapping of gifts differ from the exchange of commodities? Where does self-interest stop and communal solidarity start in capitalist economies?These issues and many more are discussed in a rigorous, yet readable, manner in Social Foundations of

Part I

Commodities, markets and capital

1 Social relations underpinning commodity markets

The ‘market’ appears to be a simple concept, naturally lending itself to analysis by social science in general and economics in particular. This assumption is so commonly made that it is not even noted in theoretical work. The core of neoclassical economics, for instance, consists of theoretical analysis of commodity exchange in the market. Similarly, recent sociological work on the ‘embeddedness’ of markets in social relations takes the market as this point of departure. But the assumption is misleading. There is no such thing as a ‘market in general’, nor is the ‘market’ a simple concept that could serve as starting point for theory. On the contrary, markets are complex concepts that have to be constructed from simpler categories. The fundamental category in this respect is the most elementary component of markets, the commodity.¹ To undertake analysis of markets, commodities have to be examined first, identifying their differences with products and, at a further remove, with other traded objects. For this purpose, it is necessary to specify the social relations under which products become commodities. Analysis of commodities makes it possible to identify qualitative differences among markets, particularly between markets in produced commodities, markets in objects unrelated to production (such as financial and real estate assets) and even ‘pretend’ markets, i.e. trading practices attached to phenomena that have nothing to do with commerce (for instance, the practice of bribing).

The first section of this chapter considers the difference between products and commodities, and shows that it is necessary to pursue socially and historically specific analysis. In particular, capitalist social conditions are privileged terrain for theoretical analysis of commodities, because the products of capital are commodities immediately and automatically. Commodities produced by capital fully encapsulate the inherent aspects of all commodities, and provide a reference point for other traded things and their markets. Capitalist social relations are discussed in the second and third sections, paying particular attention to the interplay of the economic with the non-economic. Class is a salient aspect of capitalist social relations, especially with regard to property over resources as well as authority and fiat at the point of production. In this light, it is shown in the fourth section that the value of commodities produced by capital is dictated primarily by economic factors. Capitalist relations of production and exchange give social substance to commodity value (abstract human labour) and determine exchange ratios and relative prices. By the same token, commodities not produced by capital lack the social substance of value, and their exchange ratios and relative prices are strongly susceptible to the influence of non-economic relations. Moreover, for traded objects unrelated to production, non-economic relations play a decisive role in determining exchange ratios and prices. Thus, in the fifth section, markets are shown to be differentiated according to their underlying social relations of production to such an extent that in ‘pretend’ markets the form of the commodity becomes attached to things and transactions that have no economic content at all.

1.1 Products and commodities

In mainstream economic theory, market agents are rational individuals with different tastes and preferences (this is discussed more extensively in Chapter 5). The exclusive aim of market agents is personal gratification through consumption of commodities that are obtained in exchange for commodities they already hold. Individuals have neither social nor private relations that openly influence their regular give and take in the market. They do not even know each other – the market is assumed to be ‘anonymous’. In so far as individuals have any determination other than ‘human being’, it is as ‘commodity owner’. When other fundamental characteristics of individual agents are explicitly acknowledged, such as kinship, gender, ethnicity and friendship, awkward problems emerge for theory. It is intuitively implausible, for instance, that father and son would exchange things, services and favours in purely egoistic fashion, or as apparent equals. Similarly, members of hostile ethnic groups are unlikely to shun violence in their give and take, naturally complying with the principle of quid pro quo. Thus, economic theory typically postulates a pure ‘economic’ outlook for its agents by assuming away relations other than those that might arise among ‘rational egoists’. The mode of operation of individuals in economic models is fundamentally determined by the ownership of and desire for commodities.²

In all societies, however, there is a vast range of products that are possessed, consumed and exchanged in ways unrelated to commercial exchange. These include family services, things produced for personal consumption, and gifts. Despite not being bought in markets, it is apparent that they influence the decision-making of the ‘economic individual’, whose only purpose is, after all, to seek gratification from consumption. This difficult issue is often tackled by economic theory by means of a simple expedient: it is assumed, implicitly or explicitly, that everything is (or could be) a commodity. Yet it is far from obvious that possession and consumption of products could be logically equated with possession and consumption of commodities. Even in contemporary capitalism, in which commodities permeate most areas of social life, there are things produced that indisputably lie outside the market, such as objects of great national or religious significance – unique symbols of past wars, the crown jewels, venerated church icons. Products certainly can, and do, become commodities, but this is neither automatic nor immediate. It is therefore incumbent on theory to specify the social and historical conditions under which the transformation of products into commodities takes place, instead of assuming it away.

It could be thought, perhaps, that much of the difficulty would melt away if a definition of the commodity was adopted that applied across history and society. Commodities, for instance, could be defined simply as things that are bought and sold. The difference between commodities and products would then become irrelevant and all that would matter would be the owner’s intention to trade, which could be expressed toward anything and under any social conditions. However, the deficiencies of this definition become apparent as soon as the qualitative differences between traded objects come into view. As objects of trade the products of human labour belong to a different category compared to things provided by nature, and even more compared to economic titles, claims on others, or abstract cultural practices. Analogously, the market for motorcars belongs to a different category to the market for fishing rights, or the market for financial derivatives, or even the market for access to the ear of the Minister for Public Construction. To be more specific, pricing behaviour, institutional structure and customary practices in the market for motorcars are closely related to production of motorcars, a process that requires hired labour and the use of machinery and raw materials. In contrast, no production activities are involved in markets for fishing rights or financial derivatives, and if the traded objects take a concrete form at all, it is mostly as scraps of paper. Prices, institutions and customary practices in these markets reflect the absence of production, as is shown below. The need to differentiate between products and commodities in a historically and socially specific way cannot be eliminated through mere definitions.³

The neglect of social and historical conditions of commodity trading by neoclassical economics has its roots in Smith, for whom human beings have an innate tendency to ‘truck, barter and exchange’ (1776, p. 17) that sets them apart from other animals. The social conditions under which commodity trading takes place are not as important to Smith as the transhistorical aspect of trading, which he adduces to human nature. Consequently, in a celebrated paragraph Smith (1776, p. 53) exemplifies his argument by having a deer-hunter and a beaver-hunter (from a ‘nation of hunters’) meet, agree on the rate of exchange of one beaver to two deer, trade, and depart satisfied with their purchases. Yet Smith’s example bears no relation to observed hunter-gatherer practices, as anthropological work made clear long ago.⁴ If the deer-hunter and the beaver-hunter belonged to the same band, it would not enter their heads to trade, for the game would probably belong to the group as a whole. If they belonged to different bands but still happened to meet, they would be as likely to ignore each other, or even to fight, as to trade. Smith’s trans-historical approach is thus predicated on ignoring the social conditions within which trade occurs or, more accurately, on making the tacit assumption that social conditions are such that, when producers meet, they neither fight nor ignore each other but engage in trade as a matter of course. This tacit supposition injects an element of universality to Smith’s analysis of commodity exchange, allowing him to attribute the existence of commerce to a ‘natural’ human disposition to trade. But the universality is artificial. Smith’s deer- and beaver-hunters are not at all ‘primitives’ engaging in barter – they are capitalist traders dressed up in loincloths.

Ignoring the social and historical conditions under which products become commodities leads to major theoretical difficulties. The commodity is best analysed in socially and historically specific terms. The snag is, however, that commodity trading has historically occurred under a remarkable variety of social conditions. Commercial activities, for instance, were deeply familiar to ancient Phoenicians, Greeks and Romans. Similarly, there was domestic and foreign trade of rice and other goods in imperial China and Japan, and the Silk Road brought into contact a multitude of peoples from the western reaches of China to Byzantine Constantinople for more than a millennium. After the discovery of the Americas and the beginning of the modern era, commodity trading gradually expanded and spread across the world. The dominant capitalist social conditions of the last two centuries, finally, have sustained an explosion of commodity trading and markets with neither historical precedent nor parallel. If indeed products become commodities according to underlying social and historical conditions, there seems to be an inordinate variety of such conditions compatible with commodity trading. Where should the theorist start?

The approach adopted in this book derives from an interpretation of Marx’s work that relies on Fine and Harris (1979) and Weeks (1981). Broadly speaking, analysis focuses first on markets for produced commodities, and then identifies important qualitative differences with other markets. These differences can be ascertained because the social and historical conditions under which products become commodities are explicitly considered. Specifically, it is assumed that capitalist social relations provide apposite terrain for analysis of commodities. There are two fundamental reasons for this assumption. First, capitalism has sustained an unprecedented expansion of commodity trading in the history of humanity.⁵ Commodity trading in non-capitalist societies, substantial as it might have been during particular historical periods, pales into insignificance compared to that under capitalism. Second, and partly resulting from the first, capitalism encourages full development of all economic aspects of the commodity, including value, price, money, interest, and so on. Theory, therefore, is able to penetrate the mysteries of commodity value, the social form of commodities, the types of labour that contribute to commodity value, the transformation of products into commodities, but also the widespread and systematic emergence of markets in things that are not produced at all. In other words, trading in commodities produced under capitalist relations is assumed to constitute the fully developed form of all trading. Consequently, analysis of capitalist commodity trading allows for concepts to be formulated and conclusions to be drawn that afford insights into other trading. This theoretical position derives directly from Marx (1939; see 1973, pp. 105–106) for whom the fully developed form of a social phenomenon provides vital insights into its less-developed forms.⁶ Admittedly Marx (p. 105) uses an unfortunate analogy to demonstrate his argument:

Human anatomy contains a key to the anatomy of the ape. The intimations of higher development among the subordinate animal species, however, can be understood only after the higher development is already known.

This nineteenth century view of biological evolution as progress, with humanity at its peak, is now obsolete – apes are neither a ‘subordinate’ nor a ‘less developed’ form of human beings. Nevertheless, Marx’s methodological point is powerful, and does not hinge on his example: theoretical analysis of a social phenomenon should focus on its most developed form, even if less developed forms appear independently, or earlier in historical time. This methodological principle underpins the work in this book.

However, the approach adopted here has also been influenced by the outlook of the Uno (1980) current of Japanese Marxism.⁷ In particular, conclusions drawn about markets in commodities produced by capital are not expected directly to apply to markets for things that are not produced, or to non-capitalist commodity markets. Analogously, analysis of commodities produced under capitalist conditions does not immediately reveal what also holds for commodities produced under feudal, tribal or other non-capitalist conditions. In short, the fully developed aspects of the commodity are not directly and immediately its general aspects. This does not mean, however, that there is one theory for capitalist commodities, another for feudal commodities, yet another for tributary society commodities, and so on. There are common features of trading across markets, societies and historical periods, which could be illuminated through analysis of commodities produced under capitalist conditions – as is shown in more detail below. But in establishing what is general about markets, it is important not to contradict the historical order of precedence of market-related phenomena. This point is of paramount importance for the substance of commodity value – arguably the most important economic aspect of the commodity – defined by Marxist political economy as abstract human labour. For the approach adopted here, abstract human labour is a specifically capitalist phenomenon, the result of capitalist social relations of production, and refers to commodities produced under capitalist relations. It applies neither to objects traded generally in a capitalist economy, nor to commodities traded in non-capitalist societies. Commodity value as abstract labour is a social category whose existence requires capitalist conditions of production, and hence only the analysis of commodities produced under capitalist conditions could reveal its substance. The significance of this point will become apparent in demonstrating the emergence of money out of commodity exchange in Chapter 3.

To analyse commodities further, it is necessary to discuss capitalist social relations more fully. In the next section it is shown that social class is a decisive aspect of capitalist economic and non-economic relations. Markets are the social organisers of the capitalist economy, but their importance derives ultimately from the class structure of capitalist society.

1.2 The economic and the non-economic spheres of capitalist society

The first step in specifying the nature of capitalist social relations is to distinguish between capitalism as a social system in theory and capitalism as social reality in particular countries. The appropriate concepts are capitalism as a mode of production and capitalism as a social formation, developed by post-war French Marxism and associated closely with Althusser.⁸ The capitalist mode of production is an integral whole of economic, political, ideological and cultural relations that have a specifically capitalist character. A capitalist social formation, on the other hand, is a historical entity that contains more than one mode of production, though the capitalist dominates the others. In this book the focus is exclusively on the capitalist mode of production, also referred to as capitalist society. A characteristic feature of the capitalist mode of production is that its economic aspects stand apart from its political, ideological and cultural aspects (Fine and Harris, 1979, pp. 12–15). The capitalist economy constitutes a separate social sphere, and has a degree of autonomy from the rest of society that is not found in other modes of production. There is a multitude of links between the economic sphere and the spheres of politics, law, ideology, family, tradition and custom that comprise the rest of capitalist society. Economic relations among capitalists, for instance, give rise to political relations, and legal and ideological relations can also generate economic interaction. But the most striking feature of the capitalist economy is its historically unprecedented degree of autonomy from the rest of society. This autonomy derives, at one remove, from the pervasive role of markets in the capitalist economy, but, at a further remove, originates in the class structure of capitalist society.

Readers familiar with Marxist theory will have already recognised the distinction between ‘economic base’ and ‘social superstructure’. It is not intended here to rehearse old debates about the relationship of the two, especially arguments regarding the dominance of the ‘base’ over the ‘superstructure’. However, the continuing importance of this Marxist distinction can be simply demonstrated by drawing a parallel with contemporary economic theory. In the extremely influential economics of ‘institutions’ and ‘transactions costs’, associated with North (1990) and Williamson (1975), the institutional structure of society determines the performance of the economy (this is discussed in more detail in Chapter 5). Specifically, the social mechanisms that finesse and enforce the law of contract, the institutional practices that establish rules of the game among economic agents, even the religious and moral beliefs in society, are supposed to affect transactions costs and thus to determine economic efficiency. For our purposes, it is notable that this current of mainstream economics in effect recognises the distinction between ‘base’ and ‘superstructure’ in the capitalist mode of production, further claiming that the non-economic ‘superstructure’ sets the terms within which the economic ‘base’ functions. Williamson (2000, p. 597), while distilling the major findings of ‘transactions costs’ economics during the last three decades, has even produced a diagrammatic depiction of social relations, in the form of four successive layers. He identifies the following, from the bottom up: (i) a layer of narrowly economic relations, (ii) a layer of ‘governance’ relations through which legal regulations are enforced, (iii) a layer of formal institutional relations, above all laws relating to property rights, and finally (iv), a layer of informal institutional relations (called ‘social embeddedness’) that are customary, ideological and religious. Each layer apparently has its own appropriate form of theory – for the first, straightforward neoclassical theory, for the second, transactions costs economics, for the third, economics of property rights as well as political theory, for the fourth, sociology or similar ‘social theory’. Thus Williamson, one of the most influential figures in contemporary economic theory, maintains that capitalist social relations are vertically layered – the economy being at the bottom. He presents this view as an original idea, with no mention of Marx’s distinction of ‘base’ and ‘superstructure’, and little of Marx’s philosophical sophistication.

In classical Marxism, economic relations are assumed to have primacy over other social relations. This is a mu...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Acknowledgements
• Introduction
• PART I Commodities, markets and capital
• PART II Money and credit
• PART III Theoretical approaches to the social relations sustaining markets and money
• Notes
• Bibliography
• Index