One of the seminal assumptions of economic sociology is that markets are best conceptualized not as a sum of atomized individuals chasing their own self-developed interests, but as a product of relationships and interactions between individuals within a social environment. This environment is characterized by cultural norms, social change, political power, and trust. In short, markets are a field of networks wherein some people know the right people, some people don't know the right people, some people are in the right place at the right time, some people aren't, etc. Individuals, as such, are not uniformly rational 'agents' but, rather, are shaped in infinite ways by their environment and the interactions that take place within it. Finally, while it's not yet a central part of economic sociology, I would add to this that all these relationships take place within a context of massive organizational structures (e.g., corporations).
This article by Donald MacKenzie, a sociologist at the University of Edinburgh, provides a powerful example of markets as networks using the 'hedge fund' as a case illustration. Here's a particularly relevant excerpt. The main point comes in the second and third paragraphs. The first paragraph is a short description of the significance of hedge funds in the economic process:
[Hedge funds] control substantial amounts of capital. If a hedge fund manages less than $100 million it’s not seen as a big player; $1 billion or so is reasonably commonplace. The capital managed by the world’s ten thousand or so hedge funds totals around $2,000 billion. (Hedge funds don’t have to divulge the details of their finances and operations, so no-one knows the exact numbers.) About a fifth of this money is managed by funds based in London, and two fifths by those based in the US, mostly in New York and its upmarket suburbs, especially Greenwich, Connecticut.
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How do you get to run a hedge fund? Nearly all of those I’ve met who do this made their names as traders or managers in the big investment banks. Some simply want to make more money, but often the motivations are more complex. A couple of years ago, one professional investor in hedge funds told me that ‘a lot of the people who are setting up the best hedge funds are ... doing this for perhaps slightly egodriven and political reasons as much as anything else. They’re not doing it for the money: they’ve got their Bentley Continentals and their yachts ... so they’re going into it because they want to run something because they’re never, ever going to be the guy that sits right at the top [of an investment bank] because they can’t be bothered with the politics [i.e. organisational conflicts and jostling for promotion].’
Their previous careers in banks are often crucial to those trying to set up hedge funds. The accumulated bonuses they’ve received give them their initial stake, and they’ve built networks of contacts. Financial markets aren’t the atomistic, anonymous places portrayed in conventional economic models. Asked how he set up his fund, one manager told me: ‘you call your friends and, you know, just talk through your ideas’. If they are persuaded by the latter, those contacts may decide themselves to invest in the fund (if they have been successful, they too are likely to have substantial assets), and they also pass you on to other potential investors: ‘eventually you kind of pitch to people who allocate capital and if they like the idea they put money in; if they don’t then they send you on your way’. These investors will want to assess the personal characteristics of those pitching to them: asked how he actually knew what proportion of managers’ personal wealth was invested in their funds, one investor told me ‘it’s a look-in-the-eye part of it’. Professional allocators of capital will often phone people they trust who have worked with the aspirant founders of hedge funds. You’ll get phoned up, said a well-established hedge fund manager, and asked ‘“do you know so-and so?” And if you say, “oh actually he’s a smart guy”, that’s good; if you say “I’d rather not comment” ... That’s one of the ways it works, and because it’s people ... coming from those five or six big companies [the leading investment banks] the funds of funds have a fairly easy job of checking up’.