The social structure of liquidity: Flexibility, markets, and states

Theory and Society

Volumn 28, Issue 3, 1999, Pages 353-382

  Carruthers, Bruce G ^a   Stinchcombe, Arthur L ^a  

^a NORTHWESTERN UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0033419229     PISSN: 03042421     EISSN: None     Source Type: Journal    
DOI: 10.1023/A:1006903103304     Document Type: Review

References (51)

1. Liquidity also grants to market participants the "exit" option to express their unhappiness with a commodity. See Albert O. Hirschman, Exit, Voice and Loyally (Cambridge: Harvard University Press, 1970).
2. Adolf Berle and Gardiner Means, The Modern Corporation and Private Property (New Brunswick, N.J.: Transaction Books, 1991), 249.
3. The eighteenth-century British case involves an early modern state and market in their co-evolution. The American case involves a mature capitalist economy with a developed state. See Otto Hintze, "Economics and Politics in the Age of Modern Capitalism," in The Historical Essays of Otto Hintze, Felix Gilbert, editor (New York: Oxford University Press, 1975), 424-452.
4. Leon T. Kendall, "Securitization: A New Era in American Finance," in A Primer on Securitization, Leon T. Kendall and Michael J. Fishman, editors (Cambridge: MIT Press, 1996), 5. An organized futures market: "...deals in a highly fungible good that is readily traded among strangers." Lester G. Telser and Harlow N. Higinbotham, "Organized Futures Markets: Costs and Benefits," Journal of Political Economy, 85 (1977): 969-1000, 997. Futures markets reduce and simplify the informational requirements of their members, facilitating trade and rendering futures contracts more liquid. Berle and Means put it thus: "... if property is to become a liquid ... it must become impersonal" Berle and Means, The Modern Corporation, 250. For a discussion of the more general issue of commensuration and cognition, see Wendy Nelson Espeland and Mitchell L. Stevens, "Commensuration as a Social Process," Annual Review of Sociology, 24 (1998): 313-343.
5. Leon T. Kendall, "Securitization: A New Era in American Finance," in A Primer on Securitization, Leon T. Kendall and Michael J. Fishman, editors (Cambridge: MIT Press, 1996), 5. An organized futures market: "...deals in a highly fungible good that is readily traded among strangers." Lester G. Telser and Harlow N. Higinbotham, "Organized Futures Markets: Costs and Benefits," Journal of Political Economy, 85 (1977): 969-1000, 997. Futures markets reduce and simplify the informational requirements of their members, facilitating trade and rendering futures contracts more liquid. Berle and Means put it thus: "... if property is to become a liquid ... it must become impersonal" Berle and Means, The Modern Corporation, 250. For a discussion of the more general issue of commensuration and cognition, see Wendy Nelson Espeland and Mitchell L. Stevens, "Commensuration as a Social Process," Annual Review of Sociology, 24 (1998): 313-343.
6. Leon T. Kendall, "Securitization: A New Era in American Finance," in A Primer on Securitization, Leon T. Kendall and Michael J. Fishman, editors (Cambridge: MIT Press, 1996), 5. An organized futures market: "...deals in a highly fungible good that is readily traded among strangers." Lester G. Telser and Harlow N. Higinbotham, "Organized Futures Markets: Costs and Benefits," Journal of Political Economy, 85 (1977): 969-1000, 997. Futures markets reduce and simplify the informational requirements of their members, facilitating trade and rendering futures contracts more liquid. Berle and Means put it thus: "... if property is to become a liquid ... it must become impersonal" Berle and Means, The Modern Corporation, 250. For a discussion of the more general issue of commensuration and cognition, see Wendy Nelson Espeland and Mitchell L. Stevens, "Commensuration as a Social Process," Annual Review of Sociology, 24 (1998): 313-343.
7. Leon T. Kendall, "Securitization: A New Era in American Finance," in A Primer on Securitization, Leon T. Kendall and Michael J. Fishman, editors (Cambridge: MIT Press, 1996), 5. An organized futures market: "...deals in a highly fungible good that is readily traded among strangers." Lester G. Telser and Harlow N. Higinbotham, "Organized Futures Markets: Costs and Benefits," Journal of Political Economy, 85 (1977): 969-1000, 997. Futures markets reduce and simplify the informational requirements of their members, facilitating trade and rendering futures contracts more liquid. Berle and Means put it thus: "... if property is to become a liquid ... it must become impersonal" Berle and Means, The Modern Corporation, 250. For a discussion of the more general issue of commensuration and cognition, see Wendy Nelson Espeland and Mitchell L. Stevens, "Commensuration as a Social Process," Annual Review of Sociology, 24 (1998): 313-343.
8. Although we emphasize here the effect of classification schemes on supply and demand (and thus market liquidity), sometimes causality goes the other way. See Charles W. Smith, Auctions: The Social Construction of Value (Berkeley: University of California Press, 1989), 31.
9. James Tobin, "Financial Intermediaries," in The New Palgrave: Finance, John Eatwell, Murray Milgate, and Peter Newman, editors (New York: Norton, 1989), 42.
10. Yoram Barzel, "Measurement Cost and the Organization of Markets," Journal of Law and Economics 25 (1982): 27-48.
11. Mitchel Y. Abolafia, Making Markets: Opportunism and Restraint on Wall Street (Cambridge: Harvard University Press, 1996), 24. Keynes put the matter thus: "...professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not the faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view." John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt Brace Jovanovich, 1964), 156.
12. Mitchel Y. Abolafia, Making Markets: Opportunism and Restraint on Wall Street (Cambridge: Harvard University Press, 1996), 24. Keynes put the matter thus: "...professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not the faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view." John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt Brace Jovanovich, 1964), 156.
13. Or, similarly, the determination of a transfer price in the absence of comparable market prices. See Robert C. Eccles, The Transfer Pricing Problem: A Theory for Practice (Lexington, Mass.: Lexington Books, 1985).
14. Edith J. Friedman, Encyclopedia of Real Estate Appraising (Engewood Cliffs, N.J.: Prentice-Hall, 1968).
15. Lester G. Telser, "Why There are Organized Futures Markets," Journal of Law and Economics 24 (1981): 1-22, and Telser and Higinbotham, "Organized Futures Markets," describe how organized futures exchanges create liquid markets.
16. Lester G. Telser, "Why There are Organized Futures Markets," Journal of Law and Economics 24 (1981): 1-22, and Telser and Higinbotham, "Organized Futures Markets," describe how organized futures exchanges create liquid markets.
17. Frank J. Fabozzi and Franco Modigliani, Mortgages and Mortgage Backed Securities Markets (Boston: Harvard Business School Press, 1992).
18. See William Cronon, Nature's Metropolis: Chicago and the Great West (New York: Norton, 1991), 116-120; Jonathan Lurie, The Chicago Board of Trade 1859-1905: The Dynamics of Self-Regulation (Urbana: University of Illinois Press, 1979). Sheehan describes in entertaining detail the lengths to which Green Giant goes to produce predictable, homogeneous, uniform green peas. Susan Sheehan, "Peas," The New Yorker, Sept. 17, (1973): 103-118.
19. See William Cronon, Nature's Metropolis: Chicago and the Great West (New York: Norton, 1991), 116-120; Jonathan Lurie, The Chicago Board of Trade 1859-1905: The Dynamics of Self-Regulation (Urbana: University of Illinois Press, 1979). Sheehan describes in entertaining detail the lengths to which Green Giant goes to produce predictable, homogeneous, uniform green peas. Susan Sheehan, "Peas," The New Yorker, Sept. 17, (1973): 103-118.
20. See William Cronon, Nature's Metropolis: Chicago and the Great West (New York: Norton, 1991), 116-120; Jonathan Lurie, The Chicago Board of Trade 1859-1905: The Dynamics of Self-Regulation (Urbana: University of Illinois Press, 1979). Sheehan describes in entertaining detail the lengths to which Green Giant goes to produce predictable, homogeneous, uniform green peas. Susan Sheehan, "Peas," The New Yorker, Sept. 17, (1973): 103-118.
21. Thus, the spread between market makers' buying and selling prices reflects liquidity. A high spread indicates low liquidity, and vice versa. See Telser, "Why There Are Organized Futures Markets," 17.
22. For the details on how bills operated, see Larry Neal, The Rise of Financial Capitalism (Cambridge: Cambridge University Press, 1990), 5-7.
23. See U.S. Department of the Treasury, Government Sponsorship of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (Washington D.C.: Government Printing Office, 1996), 17; Anthony Downs, The Revolution in Real Estate (Washington D.C.: Brookings Institution, 1985), 239.
24. See U.S. Department of the Treasury, Government Sponsorship of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (Washington D.C.: Government Printing Office, 1996), 17; Anthony Downs, The Revolution in Real Estate (Washington D.C.: Brookings Institution, 1985), 239.
25. James F. Gatti and Ronald W. Spahr, "The Value of Federal Sponsorship: The Case of Freddie Mac," Real Estate Economics 25 (1997): 453-485,453.
26. Congressional Budget Office, Assessing the Public Costs and Benefits of Fannie Mae and Freddie Mac (Washington D.C.: Governmert Printing Office, 1996), 3.
27. Downs, The Revolution, 241-243.
28. This does not imply that such stratifications of risk into junior and senior categories necessarily makes senior claims more liquid than junior ones. In the case of claims on a corporation, for example, shares (residual or junior claims) can be as liquid as bonds (senior claims). What matters is that both are relatively homogeneous classes of assets, with knowable risks.
29. Compare this to the "negotiated information order" in Carol A. Heimer, "Allocating Information Costs in a Negotiated Information Order," Administrative Science Quarterly 30 (1985): 395-417.
30. George A. Akerlof, "The Market for Lemons: Quality Uncertainty and the Market Mechanism." Journal of Economics, 84(1970): 488-500.
31. U.S. Department of the Treasury, Government Sponsorship, 17.
32. Underwriting such liquidity has increased homeownership and thus also provided political benefits to the government.
33. Michael Lewis, Liar's Poker: Rising Through the Wreckage on Wall Street (New York: Norton, 1989), 85.
34. A new liquid financial instrument, the collateralized mortgage obligation (CMO) solved this problem of prepayments: "Take a typical three-hundred-million-dollar CMO. It would be divided into three tranches, or slices of a hundred million dollars each. Investors in each tranche received interest payments. But the owners of the first tranche received all principal repayments, from all three hundred million dollars of mortgage bonds held in trust. Not until first tranche holders were entirely paid off did second tranche investors receive any prepayments. Not until both first and second tranche investors had been entirely paid off did the holder of a third tranche certificate receive prepayments.... Now at last, investors had a degree of certainty about the length of their loans. As a result of CMOs, there was a dramatic increase in the number of investors and volume of trading in the market." Lewis, Liar's Poker, 136-137.
35. Fabozzi and Modigliani, Mortgages.
36. Ann Carlos, Jennifer Key, and Jill DuPree, "Learning and the Creation of Stock-Market Institutions: Evidence from the Royal African and Hudson's Bay Companies, 1670-1700," Journal of Economic History 58 (1998): 318-344, 332, 337.
37. Sir William Blackstone, Commentaries on the Laws of England, Vol. 2 (Chicago: University of Chicago Press, 1979 [1766]), 442; Bruce G. Carruthers, City of Capital: Politics and Markets in the English Financial Revolution (Princeton: Princeton University Press, 1996), 129-132.
38. Sir William Blackstone, Commentaries on the Laws of England, Vol. 2 (Chicago: University of Chicago Press, 1979 [1766]), 442; Bruce G. Carruthers, City of Capital: Politics and Markets in the English Financial Revolution (Princeton: Princeton University Press, 1996), 129-132.
39. Carruthers, City of Capital, 76, 132.
40. Marjolein C. 't Hart, The Making of a Bourgeois State: War, Politics and Finance during the Dutch Revolt (Manchester: Manchester University Press, 1993).
41. Carlos et al., "Learning and the Creation."
42. Carruthers, City of Capital, 169.
43. Carruthers, City of Capital, 84.
44. Joseph Stiglitz, Economics (New York: W.W. Norton, 1993), 260.
45. James D. Thompson, Organizations in Action (New York: McGraw-Hill, 1967).
46. Alfred D. Chandler, Strategy and Structure: Chapters in the History of the Industrial Enterprise (Cambridge, Mass.: MIT Press, 1962).
47. And, as Keynes pointed out, asset-owners cannot all be liquid at the same time. See General Theory, 155.
48. Georg Simmel, The Philosophy of Money (Boston: Routledge and Kegan Paul, 1978 [1907]), 131-203.
49. For some interesting work on the history and politics of standardization, metrology, and the creation of uniformity, see Ken Alder, "Making Things the Same: Representation, Tolerance and the End of the Ancien Régime in France," Social Studies of Science, 22 (1998): 499-545, and Bruce Curtis, "From the Moral Thermometer to Money: Metrological Reform in Pre-Confederation Canada," Social Studies of Science, 22 (1998): 547-570.
50. For some interesting work on the history and politics of standardization, metrology, and the creation of uniformity, see Ken Alder, "Making Things the Same: Representation, Tolerance and the End of the Ancien Régime in France," Social Studies of Science, 22 (1998): 499-545, and Bruce Curtis, "From the Moral Thermometer to Money: Metrological Reform in Pre-Confederation Canada," Social Studies of Science, 22 (1998): 547-570.
51. Bruce G. Carruthers and Wendy Nelson Espeland, "Accounting for Rationality: Double-Entry Bookkeeping and the Rhetoric of Economic Rationality," American Journal of Sociology, 97 (1991): 31-69.