The Fundamental Institutions of Capitalism by Screpanti Ernesto;

Author:Screpanti, Ernesto; [ERNESTO SCREPANTI]
Language: eng
Format: epub
Publisher: Routledge
Published: 2011-10-04T16:00:00+00:00

Markets and capitalist firms

A market could also be conceived as a utopian form of co-operation. Even if one does not adopt all the neoclassical hypotheses warranting the beneficial effects of atomistic competition, it would be sufficient to assume that all exchanges take place among actors who have passed a minimal altruist test. Then commodities would be sold at their production cost, since nobody would appropriate a value over and above what is offered in exchange. If the cost of production included a fair remuneration of the labour used in production, prices would coincide with embodied labour and the principle of equivalence would regulate all transactions. But these hypotheses are not appropriate for describing a capitalist economy.

In market exchanges, actors aim at the benefits of specialisation and enter into transactions in which everybody preserves some decision-making autonomy. Thus the possibility of formal subordination relations is excluded. Individuals are moved by egoistic sentiments, so that this form of co-operation can be used to perpetrate exploitation. Then some kind of power must be at work which is not reducible to formal subordination, but makes the extraction of a surplus value from exchange possible. Normally people do not participate in market exchanges in the pursuit of collective goals. And no law can compel people to pass a test of minimal altruism, so that nothing can prevent the possibility of unequal exchanges.

In a capitalist firm the worker who does not obey can be fired – a sort of forced exit resulting from a free exit decision of the employer. In markets there is no possibility of forced exit. Exit remains a free option exerted only when there is some incentive. Yet this freedom may be imperfect, for instance because an actor who dislikes a transaction might have no better alternative options. Normally changes in the distribution of information, asset specificity, wealth and market power take place under conditions of asymmetry.

With information asymmetry, better informed parties can enact opportunistic exploitation. The other party’s only form of defence is exit, but, as is well known, this option could cause the market to disappear – a situation which makes everybody worse off. Therefore the exploited party might accept the situation even if he knows he is buying a lemon. A poor car driver might prefer to run the risk of buying a bad car rather than be left without any car at all.

Asset specificity too can cause market exploitation. If a seller wishes to sell a commodity which is demanded only by a specific party, while the latter offers in exchange goods, e.g. money, which are desired by many other actors, then the seller is exposed to the buyer’s opportunism. He has no alternative but to deal with that buyer, and thus he has no real exit freedom.

Similar to this is the deformation in the terms of trade that can arise from an asymmetry in market power, which occurs when a contracting party has no competitor who sells (buys) the same commodities at better conditions, whilst the other party has competitors who would buy (sell) that commodity at those conditions.

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