Keeping records has its own cost. Groups evolve ways to avoid thesecosts by avoiding the keeping of explicit records, dealing not in money(the formal system) but in credit, the informal system, because it ischeaper, faster and more exclusive. We use money because it saves onthe effort of paying honour specifically and fully, but we use the informalsystem of favours, that works on an implicit understanding of credit andhonour, because it saves on the cost of explicit accounting represented bymoney. ‘There are purely cognitive costs of organising and monitoringtransaction, such as the calculation of bill.’
No calculation is made withinthe family, the association or firm. ‘The function of the firm is not simplyto maximise transaction costs, but to provide an institutional frameworkwithin which the very calculus of costs is superseded.’
The informal andformal systems are not necessarily rivals. Without simultaneous use of both systems, and tactical decision-making about when to resort toexplicit record-making and when not, both systems would grind to a halt.
There are two reasons why we have to go to work. We go because we
to and we go of work because we
to. Let us think over thesecond since it is the neglected reason. We go to work because we wantto be with other people. Being a member of this company is the rewardwe seek. The firm bestows your identity on you and so your identity issecured. Belonging is everything. Being united to your fellowman is thefundamental union towards which every transaction gestures.We get a job, become an employee and come into relationship with theseother employees, our fellow members in this household. We join them, sothere is an unmediated form of reconciliation and united between us here.We go to work to be with our mates; a bond, of honour, of humour, holdsus together. We perform for their praise, and bound to one another by acommon distrust of some other group, our managers or customers. This isthe ‘economy of regard’.
‘Even the largest multinational corporation, even the largest factory ismade up of small groups, the paint shop, on the assembly line, or in theboardroom. In face-to-face settings the economy of regard kicks in.’
This elective household is a thing of many levels. Each member goes towork in order to sustain their position in it. There is no absolute securityof tenure. Together we play the game of deciding which of our fellows wewill combine against next and attempt to demote or eject; the frisson thisgives is part of our reward.
Economics and Institutions
(Polity 1991) p. 203
Economics and Institutions
, Ethnicity and Identity: Beyond the New Institutional Economics of Ethnic Trading Networks, Contract Law, and Gift-Exchange
(Michigan 1995) p. 49 ‘It is implicitlyassumed in the standard theories of exchange that there are no costs in the making of transactions. In such a world of zero transaction costs, institutions such as money,middlemen, and the legally-binding contract would be redundant. Recent contributionshave emphasised the costliness of the barter exchange process and the positive roleplayed by money and middlemen in reducing costs.’
The Challenge of Affluence
(Oxford University Press) p. 89