3.1. Networks and transaction costs

Mackenzie and Millo conducted an empirical study of the Chicago Board Options Exchange. Trading futures and derivatives, it could have been a jungle of aggressive queue jumpers, seeking to trample their fellow traders under foot. In fact it was characterized by ‘action at odds with homo oeconomicus's rational egoism’, by cooperative alliances that were a world away from the marketeer's expectation of Olson-like free ridership: ‘Chicago practice . . . contradicts Chicago theory’ (Mackenzie and Millo, Reference Mackenzie and Millo2005 [2003]: 116, 120). Traders at the Chicago Board banded together in stable subnetworks, dealing at different prices: arbitrage was not perfectly competitive, the capital market never textbook efficient. Moral community and personal links ensured that time-consuming lobbying would be performed by unremunerated representatives and that hand signals would be scrupulously respected since no permanent member will trade with a monitored offender. Personal sanctions and face-to-face interaction ensured that long-term reciprocity would be put before the short-term snatch-and-grab reward. It is a result market economists fail to incorporate into their empirically impoverished abstractions concerning profit seeking cut off from respect or sociability: ‘Morally atomistic markets are conceivable. We are not, however, convinced that any actually exist’ (Mackenzie and Millo, Reference Mackenzie and Millo2005 [2003]: 141).

Podolny and Page bring out the unique nature of ‘relational contracting’ that Dore (Dore, Reference Dore1983: 477) found so crucial to the nexus of quality workmanship and self-policing cooperation in the Japanese business ethic. Podolny and Page reaffirm that much becomes possible – joint ventures, strategic alliances, oligo-polistic prisoner's dilemmas, principal/agent loyalties, research and development pools, outsourcing, subcontracting, franchising – that would be difficult or impossible where business relationships were episodic rather than enduring (Podolny and Page, Reference Podolny and Page2005 [1998]: 73). Where the players have learned to trust each other through experience, self-perpetuating ties and reputations keep reliable standards up.

The authors also acknowledge that outdated knee-jerks can discourage much-needed innovativeness and that surprise cuts in transaction costs can make yesterday's fealty dysfunctional. But that is not to underestimate the ubiquity of core persistencies that resolve claims without the need for either market or hierarchy. Sociology is what society does. The networks are there. Even the entrepreneur, as Thornton points out, builds an ‘opportunity structure’ (Thornton, Reference Thornton2005 [1999]: 137) that extends to social contacts as well as to social recept-iveness, venture capitalists, and headhunter consultants. Even the entrepreneur marries up networks of buyers with networks of sellers at the same time that he indulges in the Schumpeterian creative destruction that produces something new. Ronald Burt has been especially clear in identifying the entrepreneur as a middleman who brings parties together because they share the same hole: ‘Competitive advantage is a matter of access to holes’ (Burt, Reference Burt1992: 2). There is no point in pretending that buyer–seller relationships are ships passing in the night, always a short-term swap.

DiMaggio and Louch reinforce the conclusion that within-network exchanges are a common source of credible commitment and that ‘continuous multipurpose relationships’ (DiMaggio and Louch, Reference DiMaggio and Louch2005 [1998]: 623) have the risk-reducing attraction that reputation is held hostage as a guarantee. Using data from the 1996 General Social Survey in the United States, they concluded that most people buying a car or house had expressed a strong preference for a trading partner such as a relative or a friend with whom they already had a personal tie. As many as 46% of all used car sales and home sales in the United States (in dealings where no agent is employed) take place between known faces. The crowding-out by ‘lemons’ (Akerlof, Reference Akerlof1984 [1970]) clearly does not pick up the transactions that are a part of a history of group participation. Lemon-theory transactions are impersonal transactions. Can, however, 46% of Americans be wrong?

Simon-like ‘bounded rationality’, ‘educatability’, ‘teachability’, ‘docility’ (Simon, Reference Simon2005 [1997]: 41) are transitive as well as one-to-one. People are more likely to trust an electrician who has been recommended by a friend of a friend whom they know to be reliable. Imperfect information is a major obstacle to textbook supply and demand. Rules of thumb are adopted because of the limits to information collecting and processing. One of these rules is the heuristic of generalized gift exchange within a patterned set of ongoing ties. Economically speaking, what happens then is that the law of the single market-clearing price that Cournot took to be the defining feature of a discrete and separate market gives way to a heterogeneity of charges and the locking in of voice instead of exit. Economizing actors are willing to sacrifice price and quantity in order to ensure reliability, protect disclosure, and insure against uncertainty. They are willing to sacrifice anonymity in order to situate themselves in structure.

Market segmentation is all around. It was the great insight of Chamberlin (Reference Chamberlin1933) and Robinson (Reference Robinson1933) that there are monopolistic elements even in multi-firm competition. Product differentiation narrows the market and makes the many into the few. The demand curve for the product is not the demand curve for the firm. The position is well described by Aspers when, writing of fashion photography and the market for aesthetic values, he says that each model, make-up artist, or photographer has a personal style, a status, and an identity. Each must trade with a large number of different magazines and advertising agencies. Yet each also knows that no two actors occupy an identical quality niche. Markets are roles. Each player must take the others into account. He can do so since the interconnected participants are known to each other. They are more than disembodied purchases or one-dimensional sales.

Acquaintanceships and professional gossip, trade associations and business lunches are the core in the strategic interaction of subsets dependent on subsets to reach subsets that Aspers maps: ‘To be in the market is to know what is known by those who know’ (Aspers, Reference Aspers2005 [2001]: 11). The market is its people and the people are their perceptions. It is Husserl and not Friedman who shapes the segmented identities in commercial and aesthetic space (Aspers, Reference Aspers2005 [2001]. Each market must evidently be carefully observed to learn what makes it tick.

The distinguished Harrison White clearly casts a long shadow before when he stresses that the market must be seen as the ‘regularized construction of mutual perceptions among conscious actors’ (White, Reference White, Wellman and Berkowitz2005 [1997]: 228). Known to one another rather than numerous, independent and isolated, actors and potential entrants recognize and accommodate. They do so precisely because ‘a production market is a social structure’, ‘a form of social control’ (White, Reference White, Wellman and Berkowitz2005 [1997]: 249, 254). Perfect competition never situated them at so microscopic an interface. It never tempered their gain seeking with social rewards and cultural resonances. Role maintenance is a different matter. The ties to others are a pattern of interconnectedness. The interdependence is a social fact.

3.2. Networks and finance

Some of the most interesting papers in this collection are those that extend the theory of preexistent confidence from producer goods and consumer goods to credit cards and financial services. Guseva and Rona-Tas, writing on the creditworthiness of prospective credit card holders, document well the problem of converting radical uncertainty into probabilistic risk in an evolving society where ex post sanctions are difficult (the only valuable asset for most Russians being their home: it cannot be seized) and the legal system slow and unpredictable. Ex ante screening is bedevilled by the lack of blacklisting via central credit-reporting agencies, lack of a reliable Inland Revenue that accurately measures income, and lack of a history of institutional stability such that accountability can be calculated from a large number of past observations. Proxy information still exists (age, length of time with an employer, type of residence, existing indebtedness, home ownership as a guarantor that the borrower will not abscond), but, far more than in the US, duplicity, non-disclosure, and delinquency are ever-present and the transaction costs of verification are very high.

Anonymity in such a situation makes unsecured credit dangerous – but rating and hedging through anchoring, insider knowledge, and trust fill the market vacuum. A catnet is a group where the members are linked in a single network of family and friends. A netcat is a screening mechanism where the applicants are sorted not by existing contacts but because they occupy the same position in a separate but similar network (Knight, Reference Knight1957 [1921]: 225). The Russians rely on social relations to do what ‘generalized trust’ cannot (Guseva and Rona-Tas, Reference Guseva and Rona-Tas2005 [2001]: 625). Such trust being limited and restricted by definition, a mass market for credit cards is unlikely to develop.

If credit is an emanation from the microstructure, then so is the virtual society in interbank currency markets where regular interaction embeds interdealer transactions in a world-wide social system that has no physical locus and exists entirely in trans-national symbolic space. Cetina and Bruegger (the latter a former trader himself) report on an empirical study showing how electronic brokerage systems are not independent of interinstitutional and interpersonal contact. A network need not be local or regional. A market need not have a place.

The authors take Goffman's definition of the ‘situation’ as ‘any physical area anywhere within which two or more persons find themselves in visual and aural range of one another’ (Goffman, Reference Goffman1981: 84). Their participant observation and analysis of transcripts in three Zurich banks allows them to extend the concept of ‘setting’ from the physical or geographical configuration. Marshall explained the ecology of business in terms of the externalities, transmissible know-how, decentralized contacts, and local knowledge of a single trade, spatially clustered in a single place. His printers in Paternoster Square (Marshall, Reference Marshall1949 [1890]: 222–31) are echoed by the density and proximity of the information technologists in more recent incubator regions such as Silicon Valley that are analysed by authors like AnneLee Saxenian. Saxenian is convinced that interfirm networks are crucial in explaining the dynamism and flexibility of the Silicon Valley complementarities (Saxenian, Reference Saxenian2005a [1991]: 436). Cetina and Bruegger broaden the meaning of ‘place’ but the implication is Burt's ‘structural hole’. Culturally specific actions are economic inputs into the production process even if they are performed at a distance by specialist negotiators who will never meet. The only condition is perceived relatedness. The actors must have played the game long enough to be well versed in its codes and its modes of communication.

In creating their future through the medium of their past, the actors are following in the tradition of Hegel on recognition as a determinant of self-awareness and of phenomenologists like Simmel and Schutz on the coordination of observations: ‘Each phase of my consciousness is co-ordinated with a phase of my partner's . . . I experience myself through you, and you experience yourself through me . . . Experience in the We-relation is genuinely shared’ (Schutz, Reference Schutz and Brodersen1964 [1932]: 29, 30). Face-to-screen replaces face-to-face. Yet the I–We element remains powerful even in a spot market where currencies are bought and sold within seconds by operator-members who, through the intermediaries that employ them or as individuals on their own, ensure that market supply and market demand have an unchallenged continuity in time (Cetina and Bruegger, Reference Cetina and Bruegger2005 [2002]: 914). Prices channel information and signal the logic of deal making. They do this in a context that is not the standard model of anonymous, atomistic, discrete perfect competitors who are integrated despite not being co-present.

3.3. Networks and imperfect competition

Free, open, competitive, self-stabilizing markets are central to the theology of the capitalist order. Large corporations, state intervention, and conspiracies in restraint of trade discredit the welfare optimization and introduce the deadweight loss of supernormal price. Networks too can cause the market to underperform. No one ever said they were an unmixed blessing.

Baker and Faulkner (Reference Baker and Faulkner2005 [1993]), studying archival data on illegal networks in the heavy electrical equipment industry, show that the social relationships behind observed communication and collusion are such that price fixing and bid rigging maximize concealment rather than stimulate the efficient pursuit of corporate profit. Most knowledge about interorganizational networks is about legally sanctioned practices. Baker and Faulkner extend the investig-ation into crimes committed by individuals acting as agents for the company that keeps the cash. Networks, they found, were the consequence and not just the cause. They resulted from the need for a balance between secrecy and efficacy.

Davis (Reference Davis2005 [1991]) makes a similar comparison of the agency and the interorganizational theories of the large firm, where ownership and control are not the same. His data are on interlocking networks in the Fortune 500 companies, and the impact they have on hostile takeovers. He finds that corporations in which salaried officers and directors own a larger percentage of the equity (or where equity ownership is highly concentrated) are less likely to adopt ‘poison pills’ as a ‘shark repellent’. There is less of an incentive to block buyouts where the insider's own shares will go up or where the insider's vote will in itself be enough to drive away predators.

Davis pays particular attention to interlocking directorships. He finds that the sharing of directors was a mechanism that both promoted elite cohesion and contributed to the diffusion of information and innovation. Those with previous experience of a hostile takeover will be able to share their knowledge. Imitation is a form of social capital and a source of legitimacy (Davis, Reference Davis2005 [1991]: 608). What is interesting is that the mimicry was through cross-industry contacts, not of structurally similar competitors. Overlapping memberships on multiple boards turned the contagion loose. The phenomenon was social emulation and interpersonal relationships. Agency theory played a secondary role. It assumes the autonomous firm is cut off from others when in fact the interconnected firm is part of a stable matrix.

Whether the integrity of the interlocks also maximizes the shareholders’ returns is less certain. Mizruchi (Reference Mizruchi2005 [1996]) finds no evidence that the presence even of suppliers and financiers on the board actually feeds through into profits: Hilferding's finance capital and Mills's class-common outlook seem not to foster collusion or a unified effort to keep new entrants out. If interlocks do impact on profits, moreover, the effect might be through the enhanced reputation of the firm. It can attract more resources since it has signalled its credit-worthiness through the recruitment of knowledgeable outsiders able to scan state-of-the-art practice and to give advice based on a wealth of remembered experiences. The outcome, interestingly, can also be perverse. Mizruchi finds that new directors (especially bankers) appear to make a firm more vulnerable to a takeover. Other firms assume it is desperate to attract external financing to see it through a sequence of difficulties.

4.1. Conservatives and historians

Veblen defined institutions as rules, habits, and evolution (Veblen, Reference Veblen1994 [1919]: 241). His emphasis on ‘meaning’ and path-dependence, collective action in place of economystic insularity, is an appeal to values, affects, and conventions that links the old institutionalism of Commons on normative holism (Commons, Reference Commons1934) with the old economic sociology of Mauss on gift reciprocity as a topic in national culture (Mauss, Reference Mauss and Halls1990 [1924]). It is less clear how this emphasis on rigidities and memories is related to in-house calculation of transaction costs and benefits (Coase, Reference Coase1988 [1937]). It is not clear at all how the normative restraint is related to the new economic sociology of Granovetter's networks that not only situate the neoliberal individual in a shared matrix he did not create, but also empower him to economize as much as he wishes within the box.

Not all interaction is mediated through the interest-furthering quid pro quo. A sociological theory of the economy must decide how much weight to assign to material values, narrowly defined, and how much to tradition, charisma, political regulations, social rules, and established pattern maintenance. Neoclassical economics is optimistic about convergence and development, Sachs observes, but singularly weak on the observed differences in the dynamics of nations (Sachs, Reference Sachs, Harrison and Huntington2005 [2000]). Purposive rationality is not the whole of economics, nor is accurate assessment its own ought-to-be. Carruthers and Espeland, obviously impressed by Weber on the anterior condition of the Protestant Ethic and by Schumpeter and Sombart on the subjective rationality of a selective standard in which the actor takes pride, write convincingly on double-entry bookkeeping as a topic in rhetoric and in the fabrication of identity. Economic information is not just neutral, dispassionate order and technical instrumentality. It is no coincidence that double-entry bookkeeping evolved at the time of the Papal prohibition of usury and the concern with equal value in exchange. Godliness, execution of contract, disciplined conduct, and accurate record-keeping went hand in hand (Carruthers and Espeland, Reference Carruthers and Espeland2005 [1991]: 42).

Carruthers and Espeland do not deny that business was evolving, that reputation and creditworthiness within an international network presupposed proof of performance, or that the principal–agent relationship of the large joint-stock company made it essential for the owner to insist upon careful documentation. What they also say is that the new tool-kit became a desideratum in itself. Predictability, numeracy, pecuniary commensurability, and certainty mark out our way of life as something unique: ‘Merchants prided themselves on their arithmetic skill and took pleasure in applying it in varied contexts’ (Carruthers and Espeland, 2005 [1991]: 50, emphasis added). Quality is reduced to quantity, randomness gives way to design, and magic is squeezed out. The cognitive schema had a ritual value as a symbol of competence. The ritual cannot be understood as a superior technical input alone.

The emphasis on the supra-utilitarian is continued in Loewenstein's paper, where he says that ‘visceral factors’ and ‘passions’ have an impact on the trade-offs between goods and services that neoclassical economists disregard at their peril. The psychology of emotion cannot be expunged from the science of decision making (Loewenstein, Reference Loewenstein2005 [2000]: 427). People impute deliberativeness to their choices even when it is their feelings – such as hunger – that account for their conduct. Road rage makes people behave in a way that their rational self would have rejected as contrary to their own best interests. Jealousy makes consumption competitive and wasteful for reasons that cold detachment would discount as unsound. Exaggerated risks or underestimated fears cause people to over-insure or undersave.

Samuelson has suggested that the calm calculus is commonly assumed to be the essence of economizing (Samuelson, Reference Samuelson1947: 90). Becker has said that ‘all human behavior can be viewed as involving participants who maximize their utility from a stable set of preferences’ (Becker, Reference Becker1976: 8). Loewenstein prefers to take people as the contradiction and the mix that they are. Short-term planning periods lead to self-destructive smoking, even on the part of people who are not suicidal. Contracts sometimes include a cooling-off period to allow for immediate impulsiveness to wear off. Economists should accept the reasoning and incorporate the impact of the emotions on the current and intertemporal tradeoffs that people make.

4.2. The economic system

Textbook principles are the principles of maximization, utility, and profit; of surplus forever renewed through exchange; of fiduciary money, transferable private property, instrumental rationality, non-satiety, and the market mode. Textbook microeconomics is the economics of ideological capitalism. It is normative, non-neutral, and committed to the value of decentralized exchange. Most people today probably agree with the morals. That does not mean that value judgments suddenly become scientific facts. Greed remains greed. Cooperation remains cooperation. High-minded ethics may not put a chicken in every pot, but it is ethics nonetheless.

The economic market puts a chicken in every pot. It is, Lie concedes, after the collapse of communism ‘the only viable form of exchange or coordination in a complex economy’ (Lie, Reference Lie2005 [1997]: 341). The sociology of economics is the sociology of supply and demand. Yet that is only part of the story. There is a need to go behind the curves. There is a need to explain the origins and future of the system; to compare the differences between, say, capitalism in Japan and capitalism in America. Economic action is situated in time, place, religion, politics, family, ethics, state. The success of state leadership in the Asian economies, such as Taiwan or Singapore (and, arguably, in the ORDO culture of West Germany after the War), suggests that there may be more to economic growth than hands-off deregulation. Ethics is a silent partner, but a partner nonetheless.

The cross-cultural dimension, the acknowledgement of diversity, seems to be underrepresented in the literature. It would in particular be useful to study the sociology of the market in a less-developed country, where traditions like caste are often said to be especially strong. Marion Fourcade-Gourinchas, taking apart the different intellectual traditions of Britain, Germany, France, and the US, demonstrates the need for a cross-cultural study of comparative market economies (Fourcade-Gourinchas, Reference Fourcade-Gourinchas2005 [2001]: 397–8). Frank Dobbin similarly makes a distinction between the industrial policies that emerge in the unique circumstances of different countries. He says that the reason may be found in the evolution and the resonances of political power (Dobbin, Reference Dobbin, Granovetter and Swedberg2005 [2001]: 404).

Victor Nee's contribution in the present collection illustrates the value of localized structures and place-specific norms. Referring to the course of market reforms in post-Mao China, he shows that efficiency and power are intertwined, that rapid growth in living standards makes the distributive struggle less contentious, and that affluence itself is the reason why the peasants and the urban poor regard entrepreneurship and the privatization of property-rights as somehow good despite the fact that old-style redistribution, planning, and social services were supposed to integrate them more successfully than was the factored-down exchange. In the short-run, cadres enjoying privileges under hierarchical centralization will probably have a head start; and it is widely believed that socialist officeholders in transitional economies have turned the market to advantage through corruption. In the long run, meritocratic selection processes and post-bureaucratic networks of guanxi will tell on them all (Nee, Reference Nee2005 [1989]: 679).

Getting rich seems to be the solvent of class conflict both in Nee's new China and in the capitalist West. The collection includes three essays on household wealth and income inequalities, which make the reader wonder if birth-borne privilege really did become an irrelevance on the day the Berlin Wall gave way to the shopping precinct. Thus Keister and Moller establish that the top 1% of American wealth-owners have held at least 30% of household-sector wealth since the 1920s. The distribution of inherited (family) wealth is more unequal than that of income (Keister and Moller, Reference Keister and Moller2005 [2000]: 76). Spilerman (Reference Spilerman2005 [2000]) too notes that merit, skill, achievement, and education can conceivably alter the income structure, but that the equity in shares, houses, cars, and savings instruments is significant.

Morris and Western take up the theme of unequal earned incomes. Demography, restructuring, globalization, immigration, and unemployment policies to contain inflation have all contributed to the polarization of the home-grown periphery. So has market-friendly state intervention that keeps the minimum wage down and lets cheap Third World imports in (Morris and Western, Reference Morris and Western2005 [1999]: 650). The high-end service sector offers a minority of the population secure employment in banking and insurance. Such jobs pay above-average salaries, offer a good chance of internal promotion, and spare the incumbent the uncertainties of the external job-fair (Morris and Western, Reference Morris and Western2005 [1999]: 650). It is not much consolation to a single parent working part time or a downsized labourer whose rust-belt job has been outsourced and whose union is falling victim to deindustrialization.

Surplus value, the labour-embodied theory, the worker/capitalist dialectic, the expropriation of the expropriators and the power relations of production give way to fair market prices, leisure-time lifestyle, ongoing status groups, and networking in the new economic sociology. Inequality seems not to be linked to the social or the economic structure. There is an exception. The collection includes one essay on the Marxian perspective to remind the reader that there are other ways of interpreting the economic system. John Sitton's paper on Jürgen Habermas shows how one of the last great Marxists (self-defined), building on Marx's alienation of profits in exploitative production, has argued that cultural socialization and the welfare state are irreplaceable in the reproduction of the advanced capitalist economy. Habermas adopts a hermeneutic-interpretive approach. He tries to explore the way in which the lifeworld is seen by social actors as a meaningful whole. Habermas also adopts a systems approach. He is interested in the material and functional imperatives that allow the self-maintain-ing economic order to survive.

Sitton points out that participants’ perceptions might not deliver the estrange-ment that would undermine the normative convergence. Habermas, he says, needs to expand the theory of inadequate funding for welfare, the barriers to sustained growth, or the collapse of Keynesian full employment policies to show that matter and not mind, structure and not perception, is undermining the present-day consensus. As it stands, his theory of communication is weak on the material underpinnings that deliver (or in the Marxian sense fail to deliver) the goods. Habermas says that the economy remains the prime mover in social evolution. Yet he does not explain how: ‘Functionalism begs the question of what makes itself possible’ (Sitton, Reference Sitton2005 [1998]: 73). It is economic sociology without the economics. It does not live up to the task of explaining what economic systems actually do.

4.3. Evolution

The market is not general equilibrium, eternal and static. It is a discovery process (Hayek, Reference Hayek1949) and a groping towards accommodation (Axelrod, Reference Axelrod1986). In that sense, economic balance is a contradiction in terms. The market itself is a social fact that emerged with capitalism at a given moment in historical time and that has never ceased its inbuilt mutation.

Economic sociology needs to explain the dynamic. As Sitton puts it: ‘To say that something is functional does not explain how it came into existence’ (Sitton, Reference Sitton2005 [1998]: 73). The historical dimension is underrepresented in this book. The lack of an in-depth and uncommitted inquiry into what actually happened before the a priori was born is a shortcoming which, as Hodgson writes, is a characteristic of some heterodox economics as well (Hodgson, Reference Hodgson1994 [1993]: 8). In order to start from here, we must first start from there, and that means dirtying our hands with long-forgotten primary sources. Dispassionate investigation is a valuable resource. The reader would have appreciated more essays that traced out the events without putting words in their mouths. Yet some well-documented work is here nonetheless. The essay by Lounsbury, Hirsch, and Klinkerman on aggressive new entry, following the deregulation of banking and transport, is especially sensitive to the nature of ‘an institutional shift when existing routines and belief systems can be challenged and potentially remade’ (Lounsbury, Hirsch, and Klinkerman, Reference Lounsbury, Hirsch and Klinkerman2005 [1998]: 133). Flux and even turbulence in market structures shake up old rules. Upheaval begins a new sequence of adaptations, beliefs, allegiances, and commitments. The evidence shows the precise nature of the facit saltum.

The theme of entrepreneurship versus loyalty, marketized risk-taking versus stable collective belief, is taken up by Douglass North. His analysis, as always, is supported by the historical skein, even if, as Hodgson observes, it is blinkered to the extent that the subset of witnesses ‘fails to explain the rational, deliberative and guileful individual which it assumes at the outset’ (Hodgson, Reference Hodgson1994 [1993]: 8). The collection reprints North's well-known essay on the definition and modification of social institutions. North defines institutions as humanly devised constraints, both informal (customs, codes, sanctions) and formal (constitutions, laws, property rights). Diffuse or politicized, they reduce uncertainty and create order in the economic sequence. Institutions are not substitutes but complements to the textbook market. They influence costs, production, profits, and the path-dependence of the incentive structure (North, Reference North2005 [1991]: 97). They ensure that economic investigation will not make efficient allocation the sole test of performance for the very reason that institutions are shaped by relationships and conventions that go beyond self-stabilizing mechanisms and the use of scarce resources alone. An illustration would be Bourdieu on habitus and on Algerian peasants. For them their consumption patterns were constrained by past resources and dispositions. There was no rational calculation of the possibilities that the future might bring (Bourdieu, Reference Bourdieu2005 [2000]).

In North's historical schema, the private sector plays a role in making trans-action costs less. Consider marine insurance and the bill of exchange that con-verted uncertainty into risk, or the ‘penalties for late payment’ that circumvented the interest-rate interdiction (North, Reference North2005 [1991]: 107). Profit is the mother of innovation. Yet the state too has become involved where no better way existed to correct a market failure: ‘The state was a major player in this whole process’ (North, Reference North2005 [1991]: 107). Cost-effective law enforcement is an illustration. Voluntarism was too expensive and the state had the monopoly of coercion.

The role of the state is also explored by Fligstein. New countries find capitalism difficult, he writes, precisely because the rule of law is not yet a rock on which they can build: ‘Having stable rules is often more important than the content of the rules’ (Fligstein, Reference Fligstein2005 [1996]: 662). Fligstein adopts the perspective of the evolutionist and the conservative when he writes that yesterday's templates impact upon today's regulations: ‘New rules follow the contours of old ones’ (Fligstein, Reference Fligstein2005 [1996]: 661). He also stresses that governments are important in defining and enforcing the rules that circumscribe the economic contest: ‘Such laws are never neutral. They favor certain groups of firms’ (Fligstein, Reference Fligstein2005 [1996]: 660). Deciding on tariffs, patents, licenses, taxes, cartels, entry-barriers, the state is simultaneously skewing the exercise of property rights from one elite to another. What he does not explain is why one set of entitlements wins out and another set is rejected.

It is easy enough to see that an incumbent alliance has a first-mover advantage when it lobbies the government to exclude interlopers who are in a position to undercut. The more difficult task is to explain why governments refuse to defend entrenched interests against non-embedded challenges. A political theory of contested rights must explain why the state perpetuates some privileges and lets others go to the wall. Path dependence must bring in state-building as well as market-building. A cross-disciplinary theory of history would be required to establish the precise relationship between the chicken and the egg.

That is why a collection of essays such as Swedberg's New Developments, invaluable as it is in showcasing the product, leaves the reader with an awareness of how many questions remain unanswered in the literature that the two big volumes reflect. The little picture is here; the larger picture is not. To say that business is structured around interpersonal linkages such as those of kinship, friendship, or repeat custom does not explain how those support mechanisms add up to a national interpenetration of self-perpetuating subsets. The old economic sociology assigned pride of place to Durkheim's macro-to-micro conscience collective and Parsons's four-part model of adaptation/goal attainment/integration/pattern maintenance (AGIL) in which all aspects of the social system had to be seen as well-articulated collaborators: ‘No concrete unit is “purely economic”’ (Parsons and Smelser, Reference Parsons and Smelser1956: 14). The new economic sociology does not say if there is a central value system, a common culture, a national power-elite, or an overriding commitment to duty and citizenship that is above and beyond the economic rent. Perhaps it is Hamlet without the Prince. Perhaps it is Hamlet put on for an audience that is satisfied enough with a watered-down show.