Abstract
This chapter introduces a theoretical construct, referred to as a “socio-economic space”, in which one can analyse the functioning of the social division of labour. This socio-economic space provides a framework in which to consider how economic agents interact, assume roles in the social division of labour, build networks and bring about institutional innovation through entrepreneurial activities. Particularly, this theoretical construct allows an analysis of how institutions govern wealth creation processes and how institutions change: economic agents are embedded in the governing socio-economic institutions through their socio-economic role in the networks that make up the trade infrastructure in the social division of labour. On the other hand, their entrepreneurial activities affect the functionality of these institutions and create new institutions.
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- 1.
I emphasise here that institutional change is not necessarily “good”. There have been voices that have argued that certain innovations are clear failures if viewed from the perspective of the functionality of the socio-economic space. Currently, the socio-economic consequences of inequality caused by the adoption of neo-liberal institutions comes to mind (Stiglitz 2011, 2013; Piketty 2014).
- 2.
The handshake is a very ancient social convention that has been depicted throughout history in art and texts. Many ancient artworks show representations of a handshake used for greeting and confirmation of accepted contracts.
- 3.
On the other hand, governance in the broad sense refers to the regulation and conduct of socio-economic interaction through a system of commonly accepted institutions and rules. Government can be an important part of that, but governance can be strong even in the presence of a weak government. The main example is economies that are founded on a strong sense of morality and conduct following accepted social conventions.
- 4.
It would be prudent to distinguish here the categories of media and platforms, even though they are closely related. The internet is clearly a medium, as is the mark-up language HTML and the programming language JAVA for building websites that allow platforms to develop. The platforms mentioned are built on top of these media. Indeed, Facebook uses the internet, HTML and JAVA to perform functions in its website design. Facebook itself, with its commonly accepted conventions, is however a platform that facilitates social interaction among its customers.
- 5.
The social or collective nature of preferences is an expression of the social embeddedness of individual citizens. Indeed, it is common for individuals to prefer one homestead over another based on social opinion rather than true individualistic reflection and investigation.
- 6.
I emphasise here that Pareto efficiency or optimality is a rather weak allocative property. Indeed, it does not impose any condition related to fairness or freedom. If all wealth is allocated to a single individual, say a dictator, then the situation is Pareto optimal: to make anybody else better off, one has to take wealth from the dictator.
- 7.
The interested reader is invited to check that the given allocation is indeed Pareto optimal.
- 8.
I emphasise here that the concept of willingness-to-pay has a purely individualistic meaning in neo-classical economics. There it is a purely individual expression of preference, and it is treated as such in the theory. There is a lack of reference to a strong relationship with purchasing power and social institutions such as societal hierarchy.
- 9.
In the analysis introduced by Easley and Kleinberg the set of excess demand properties is directly related to their notion of a constricted set. Their use of network analysis allows a much easier identification of equilibrium allocations in the absence of any constructed sets. This cannot be applied in the analysis with the representations through tables used here.
- 10.
- 11.
This theory clearly can be used as a theoretical justification for the bonus culture in our contemporary global economy. In particular, the prevailing remuneration culture in transnational corporations is affected by this. The theory is, however, more subtle than the bonus culture lets us believe: the balance between bonus and monitoring is very precise, requiring advanced structures for proper implementation. For a full and enlightening treatment of this subject, using elementary mathematical techniques, I refer to Ricketts (2003).
- 12.
I emphasise here that this implies that a link ij is exactly the same as a link ji. This reflects that both parties that constitute this link are equal and that the link represents an interaction that is founded on parity between the two parties involved.
- 13.
This implies that each node in D is connected to at least one other node, either as a predecessor or as a successor or both. It excludes the existence of unattached nodes in the directed network as is the case for (undirected) networks.
- 14.
Note that I avoid the many philosophical complications that the proper definition of a market has to incorporate such as the voluntary nature of economic trade. Here I base the given definition on a practical consideration only. For an account of the complexities of the concept of a market and its proper definition I refer to Rosenbaum (2000).
- 15.
In actuality, the lord was represented by a professional market master, who levied fees on the market participants on behalf of the lord. In many European cities, public markets are still run in this way, the market master nowadays usually being a municipal employee.
- 16.
This activation could happen with a certain delay. Indeed, if there are fewer final consumers interested in obtaining units of a certain commodity provided through a supply chain there is naturally a lag before these supply chains are de-activated.
- 17.
These historical episodes of collective entrepreneurship are usually just viewed as part of a process of economic development. In our managerial economy, they can also be referred to as research and development processes.
- 18.
The fundamental difference between risk and uncertainty is that risk can be assessed through statistical methods (in particular it is subject to a probability distribution), while uncertainty is also known as unmeasurable risk and cannot be assessed through these methodologies. Uncertainty is usually assessed purely subjectively. Knight argues that entrepreneurship required the ability to handle uncertainty quite well, while risk could be assessed through designing and implementing appropriate managerial contingencies.
- 19.
The Roman Empire actually continued in the east as the Byzantine Empire for another millennium after that.
- 20.
The period of the Principate ended with the assumption of the title “Dominus” by the emperor Diocletian in 284 CE, introducing the Dominate era of the Roman Empire. During the Principate the Roman Republican constitution was formally upheld, but with Diocletian this was formally abolished, together with republican institutions such as the Consulate and the Senate. The Dominate was a system that focused on the supremacy of the Dominus as the sole ruler of the Empire, making it a purely autocratic system of government.
- 21.
Definition: those chosen to fill a vacancy in any office or collegium.
- 22.
There was no evidence that Augustus would have the right to deny any man’s candidature for office. Nor did he take over any running of elections from the magistrate whose function it was at any time.
- 23.
A voting century refers to a class of eligible Roman citizens that are allowed to participate in the republican voting system. A century was based on ancient tribal heritage, but was expanded over time to include more and more new classes of (new) citizens.
- 24.
Surprisingly, not much upheaval has been recorded. These laws were intrusive and restricted freedom. It is not clear why there was no more resistance. It could be that the large emphasis on sport and games in the circus and amphitheatres was leveraged in order to show Augustus to be a benevolent ruler of the Roman population.
- 25.
The miracle itself was rather trivial from a modern perspective. The host given to a dying man in the sacrament of Holy Communion remained unburnt after it was thrown in a hearth fire. For a full account I refer to Shorto (2013, pp. 30–31).
- 26.
The Vereenigde Oost-Indische Companie was established as a joint venture of merchants in Amsterdam to finance expeditions to the East Indies. They were able to establish profitable trade routes to these regions for the trade of spices and other goods. The success of the VOC resulted in the creation of a global trade network that was governed from Amsterdam.
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Gilles, R.P. (2018). A Framework for Modelling Wealth Creation. In: Economic Wealth Creation and the Social Division of Labour. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-76397-2_3
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