3. Markets, the Social Contract, and the ‘Smithian Result’

Indeed, Williamson in his pioneering book famously declared in biblical tones that “in the beginning there were markets” (Williamson 1975: 20). In a subsequent interview, however, he saw the issue more agnostically: “You could start with the neoclassical theory markets and market failures and interpret hierarchies as a response to market failures. But a sociologist might start with hierarchies and hierarchical failures and interpret markets as a response to hierarchical failures. I think... that the literature on markets and market failures is in a lot better shape than the theory of hierarchies and hierarchical failure... [but] if the literatures on both sides develop equally and symmetrically, then it is a toss-up” (Hodgson and Gindis 2007: 378–379).

For example, North, Wallis, and Weingast (2009: 114).

North, Wallis, and Weingast (2009: 205).

See Smith (1998) for an argument along these lines.

See also North (2005: 62).

Cited in Klein and Daza (2013: 531).

I will discuss the underlying game theoretical argument concerning the ‘players of the game’, and the significance of the prisoner’s dilemma and other coordination and cooperation problems for this aspect of North’s approach, more fully in the next chapter.

As emphasized at the end of VSO: North, Wallis, and Weingast (2009: 271).

Similarly, a much less sanguine view of the operation of ‘the Smithian result’ of the market itself, showing the negative effect increasing market exchange has had on social institutions in various historical settings, can be found in the pioneering work of Van Bavel (2016).

A case in point would be the way VSO freely roams from the Aztec empire to the Carolingians, Napoleonic France and Norman Britain, or the use of the Soviet case to demonstrate the preconceived argument concerning adaptive efficiency in UPEC.

To some extent of course, the one can be reformulated as the other. But Cohen (2010) is an excellent example of a study that asks why a major transformation (the Scientific Revolution) did occur when and where it did, based on a comparative study of cases where it did not. The negative provides the benchmark; the positive the question.