What Can Political Economists Learn From Economic Sociologists? A Case Study of NASDAQ

Communication, Culture & Critique ISSN 1753-9129

ORIGINAL ARTICLE

What Can Political Economists Learn FromEconomic Sociologists? A Case Studyof NASDAQ

Micky Lee

Department of Communication and Journalism, Suffolk University, Boston, MA 02114, USA

This article discusses what insights economic sociology brings to a political economy ofcommunication. By using NASDAQ at its initial stage as a case study, this article suggeststhat economic sociological work influenced by science and technology studies (STS) shedslight on a political economic understanding of financial information by taking neoclassicaleconomic claims more seriously and by understanding how those claims became reality.However, political economists have to be cautious of sociological economists’ inattentive-ness to power in the financial markets. Nonetheless, STS writings may have alluded to howpower could be studied through the concept of “macroactors.”

doi:10.1111/cccr.12043

Given that the financial sector has accounted for a larger percentage of profits in theUnited States and global economies since the 1980s (Krippner, 2011), communica-tion scholars have understudied and undertheorized the relationship between finance,media, and information. The majority of existing studies focuses on financial mediasuch as television (Corner, 1998; Lee, 2012), press (Schiffrin, 2011; Suttles, 2010),advertising (Greenfield & Williams, 2001), and film (Lee & Raesch, forthcoming).There have been only a few studies on specialized media for financial professionals(Craig, 1999) and none on technologies. There has been a growing interest amongcommunication scholars, particularly political economists, to examine the nature offinancial information (Hope, 2006, 2009, 2010, 2011; Lee, 2013) and to problematizethe relationship between information, financial professionals, and the markets (Davis,2005, 2006a, 2006b, 2007, 2011; Thompson, 2009, 2010, 2013).

Outside the field of communication, anthropologists, discourse analysts, geogra-phers, and sociologists have produced exciting work that looks at how new infor-mation and communication technologies have impacted participants in the financialmarkets. They have looked at some technologies that political economists neglect,such as the stock ticker (Preda, 2006, 2008), computer interfaces for foreign money

Corresponding author: Micky Lee; e-mail: [email protected]

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M. Lee What Can Political Economists Learn From Economic Sociologists?

trading (Knorr Cetina, 2005; Knorr Cetina & Bruegger, 2002), arbitrage trading tech-nology (Beunza & Stark, 2008), and financial instruments (Arnoldi, 2004, on deriva-tives).

Because political economists of communication have an interest in understandinghow power governs the movement of capital in and through the media, the livelydiscussion among scholars in other disciplines urges political economists to joinin the conversation. Here it is argued that economic sociological work influencedby science and technology studies (STS) proves the most fruitful. To illustrate thisclaim, NASDAQ is used as a case study. At present, NASDAQ is the second largestexchange in terms of market capitalisation after New York Stock Exchange (NYSE).At the beginning, NASDAQ—which stands for National Association of SecuritiesDealers Automated Quotations—was conceived as a computerized communicationsystem that would connect dispersed over-the-counter (OTC) brokers and tradersacross the country. While trading in NYSE takes place in a physical location, that inNASDAQ has always taken place in a communication network.

Approaches to study the financial markets

The interest in studying money and society is not new. Georg Simmel argued thatmoney is a complex social phenomenon; Max Weber alluded to the importance ofstatus and trust in economic communities. Contemporary interest in studying financeand society is fueled by the collapse of the Bretton Woods system, the deregulation ofthe banking industry, the proliferation of information and communication technolo-gies, and the mainstreaming of financial news in the media.

Social studies of finance encompass the disciplines of geography, anthropology,politics, and cultural studies, even though the boundary between them is malleable(De Goede, 2005). International political economist Strange (1997) has likened theglobal financial system to a casino, which resulted from states’ shortsightedness insolving domestic problems at the expense of international ones. Foster and Magdoff(2009) argue that recent financial crises are consequences of monopoly capitalism andthe financialization of the economy.

Geographers such as Leyshon and Thrift (1997) believe that money is a geographyas much as an economy; different forms of money are constrained by space and time.Harvey (2010) sees the circulation of finance capital as a temporal fix to the inherentcontradictions of surplus overaccumulation in capitalism.

Anthropologists such as Zaloom (2006) take a micro approach to studying anexchange by examining its location in a city, its architecture, its technological design,the esthetics of a trading space, and the familial relationships and social ties amongtraders. Cultural studies scholars (Amin & Thrift, 2003; Du Gay & Pryke, 2002) high-light the critical role that culture plays in economic and organizational life, and thecultural performance of the production, distribution, and consumption of resources.Discourse analysts would agree with cultural studies scholars that economic practiceis discursive. Moreover, a focus on discourse would erase the disjunction between

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What Can Political Economists Learn From Economic Sociologists? M. Lee

method and philosophy in critical scholarship; thus to understand political economyis to critique the language (Graham, 2002). The discourse of economists should be cri-tiqued as a literary form because economists have agreed on how economics shouldbe talked about (McCloskey, 1985).

Lastly, economic sociologists have significantly contributed to the lively conver-sation by examining venues from investment clubs (Harrington, 2008) to auctionsites (Smith, 1989). It is, however, erroneous to assume that economic sociology isa unified subfield; its scope is wide, and its aims diverse (Preda, 2007). The body ofeconomic sociological work that this article draws on is influenced by STS, in par-ticular by Michel Callon’s work. As will be made clear later, this body of literaturemay challenge political economists to think about financial information because ofits focus on technology, information, and markets. In addition, STS directly engageswith economics as a discipline (Davis, 2006a) by taking more seriously some of theassumptions such as the economic man as a selfish, self-interested, and calculatingindividual.

Political economic approaches to study financial information

Political economists in the field of communication have pointed out that informationis a key concept to understanding contemporary capitalism, in particular the role thatinformation plays in an increasingly privatized world (Mosco & Wasko, 1988; Schiller,1999, 2007). Schiller (2007) differentiates information as a resource from informa-tion as a commodity. As a resource, information “is something of actual or potentialuse” (p. 8). As a commodity, information is “produced increasingly by wage laborwithin and for a market” (p. 8). Information is seen as a commodity manufactured bytransnational corporations, stamped with state approval for a “pay per view” society(Mosco, 1988).

The aforementioned theorists tend to lump all types of digital informationtogether. Lee (2013) hence argues that financial information is not only a commodity,but is also a spatiality and a temporality because the exchange value of informationdepends on spatial differentiation and timely delivery. Furthermore, Hope (2006,2009, 2010, 2011) suggested that the concepts of time and temporality can be usedto critique the political economy of global capitalism. Time is “disciplined” by cap-italism because it was made divisible and standardized. New technologies generateinstantaneous time, which give rise to real-time financial information.

Babe (1995) critiques a mainstream economic view of information as both a fac-tor of production and a final commodity. To him, information is not merely an inputbut it “defines, permeates, and transforms other input and indeed entire productionprocesses” (p. 15). Moreover, the public good and nonexclusive nature of informationmakes it hard to be qualified as a commodity. To illustrate the peculiarity of informa-tion, he raised the paradox of whether money, as a measuring rod of value and thecarrier of information, can itself measure the value of information, or carry infor-mation concerning the value of information. Instead, economics must be situated



in a broader communicating context (Babe, 2011) and commodity exchange mustbe seen as a form of communication (Babe, 1996). While Babe’s insights are valu-able, denouncing mainstream economics as ideological and as a mere social construct(Babe, 1995) does not help with understanding how mainstream economic thoughtconstructs the markets.

More recently, a few political economists draw attention to the reflexive and con-stitutive nature of financial information and the media. Contrary to the belief that thefinancial markets change how finance is reported in the media (Clark, Thrift, & Tick-ell, 2004), the elite members of the financial community shape media content (Davis,2011). Davis (2005, 2007) found that elite financial professionals rely more on “exclu-sive”/paid information (such as broker’s analyst research and fund manager reports)than on financial journalism. There is a desire for cheaply, widely disseminated infor-mation, yet a demand for exclusive sources of information that gives participants acompetitive edge. However, Davis (2007) asserted that information intermediaries arehomogeneous, resulting in repetitive and overproduced information.

Thompson (2009, 2010) states that the relationship between financial reality andfinancial information is reflexively constitutive on three levels: first, an implicit, per-formative level at which “the concepts, theories and discourses deployed by mar-ket actors to define, calculate, and articulate financial conditions help to constituteand performatively reproduce those conditions” (Thompson, 2009, p. 85). Second,an explicit and transactional level at which computerized information coordinatesshared meanings among actors in real-time. Third, a contingent/game level at whichactors act upon information not because of what it represents, but because of spec-ulation of what others may act. By differentiating between the three types of infor-mation, Thompson (2010) has complicated Babe’s assertion that communication pro-cesses play an integral role in economy reflexivity. Thompson (2013) further reinforcesBabe’s argument that “[the] positivist, representational concept of market informationdoes not take into account of the symbolic ontology of finance capital and the depen-dence of market values or investment models and the framework of interpretationcurrently deployed by investors” (p. 3). Less explicit in Davis’s and Thompson’s workare whether actors reach a consensus on the level of reflexivity and how technologiesengineer different types of reflexivity.

How to think about financial information?

On the basis of the discussion of different political economic approaches to finan-cial information, it is assumed here that information is a commodity that createssurplus value in the economy. However, to become a commodity, a new property ofinformation is created through technology. While financial information of all types ofreflexivity may perform a market, only that of explicit reflexivity can become a com-modity. Economic sociological work influenced by STS may lend insights to politicaleconomists.



STS scholar Michel Callon suggested that “rather than denounce economics for itsideological content or its impoverished account of culture, sociologists’ efforts mightbe better spent examining the role of economics in the constitution of markets” (Barry& Slater, 2002, p. 175). Callon argues that what is “outside” economics is not “socialcontext,” but a network of actors who “act on the very boundary of the economicsphere or market institution” (p. 182). Callon’s colleague Latour (2005) asserts thatthere is no such thing as society. Instead, the social is the glue that connects humanand nonhuman actors.

To Callon, economics is a technology. Echoing this, Mirowski (2002) suggestedthat economics has become a cyborg science and a processor of information. Byreducing the social to the natural, neoclassical economics blurs the distinctionbetween the two. Callon further suggested that economic models are sociotechnicalagencements, “a combination of material and technical devices, texts, algorithms,rules, and human beings with their various instruments and prostheses” (Callon,2007a, p. 160). Some material devices in the financial markets are contracts, regula-tions, and the architectural structures of financial institutions. Callon believes thatsociologists’ goal ought not to humanize the economic man, but to understand howeconomics produces both human and nonhuman agents who are capable of takingsocial action to transform an existing structure and to reconfigure its own context(Preda, 2006). STS recognizes that there are limitations for humans to process infor-mation; technology creates new calculative and metrological practices that transformreality, which humans cannot (Barry & Slater, 2002; MacKenzie & Millo, 2003).

Callon highlights the performativity of economics, that the discipline of eco-nomics is an intrinsic part of economic processes (Callon, 2007b; MacKenzie, 2006).Rather than seeing that economics reflects and explains the markets, Callon believeseconomics belongs to the infrastructure of markets. Neoclassical economists rely onmodels to make economics “more real.” At the same time, the application of modelsalters the economic process and the markets. MacKenzie (2006) and MacKenzieand Millo (2003) showed how the Black-Scholes model of finance theory was incor-porated into the informational infrastructure of an options exchange. Economiststest empirical data against a theory while “[empirical prices were] performativelyreshaped in conformation of the theory” (MacKenzie & Millo, 2003, p. 127).

To sum up, to STS scholars, technology consists of not only the objects (such as thecomputer) and the systems (such as the Internet), but also of the practices that per-form the markets and create new economic realities. NASDAQ, a computerized com-munication system designed to connect dispersed OTC brokers and traders througha centralized network has not only created a new property for financial information,but has also constituted a new market reality.

A case study method was employed to analyze the introduction of NASDAQto the OTC markets. News articles were gathered from six publications from 1968to 1972—2 years before and after the implementation of NASDAQ in early 1971.The publications are New York Times, Wall Street Journal, Barron’s, Fortune, BusinessWeek, and Forbes. For the first three publications, the keyword “NASDAQ” was



used in the database search. For the final three, an index was consulted and articlesabout NASDAQ were printed out from microfilms. In addition, oral histories ofkey personnels in the OTC markets were consulted. The online archive of the SECHistorical Society (http://www.sechistorical.org) collects the interview transcripts.The society is independent of SEC and is a nonprofit organization. The informationfrom the news articles and oral histories was cross-checked in order to build anaccurate picture of what NASDAQ was said to be like at the beginning. It is howeveracknowledged that journalists only received filtered information from publicists andthat the reconstructed story highlighted only a few aspects about NASDAQ whileneglected many.

The beginning of NASDAQ

NASDAQ was launched on 4 February 1971. NASD (National Association of Secu-rities Dealers) was charged by the SEC (Securities and Exchange Commission) todevelop a “network of computers and communications devices designed to accept anddistribute quotations for securities traded in the OTC markets” (SEC, 1963, p. 930).OTC was so named because investors could go to a local brokerage firm, hand overthe cash, and receive a stock certificate (Hardiman, 2009). The OTC markets tradedstocks, commodities, and derivatives.

OTC trading predated securities trading in NYSE and what was then known asAMEX (American Stock Exchange). The following documents the sentiments towardOTC trading as recorded by the press. The interpretation of the account will take placein the next few sections. OTC trading attracted brokers who were unwilling or unableto pay a steep membership fee to join NYSE or AMEX (Ingebretsen, 2002). The OTCmarkets also welcomed less well-established companies to list. Lacking a centralizedlocation, OTC trading was conducted by telephone. As a result, the prices quotedcould be unfair because of the lack of transparency. In contrast, the NYSE exchangefloor enables everyone to see what others are doing, brokers can therefore be guaran-teed a fair price. In addition, because specialists at NYSE monopolize the trading ofa particular company’s shares from wholesale traders, they have the best informationto maintain an orderly market (Ingebretsen, 2002).

The OTC markets also lacked a technology to report real-time trading activities.NYSE exclusively owned the ticker that displays prices and volume traded during reg-ular hours (Ingebretsen, 2002). OTC brokers relied on “pink sheets” to review the bidand ask prices of every stock from every trader of the previous day (Seligman, 1982).The prices listed on the pink sheets were opinions from traders, not the exact pricesat closing (Taylor, 1970). In addition, the pink sheets did not list the volume traded.

Given the dispersed locations of brokers and traders, and a lack of real-timerecording mechanism, brokers had to phone a number of OTC traders for quotes.This resulted in brokers working with select traders and failing to secure the bestprices for investors. In addition, the prices quoted became outdated quickly becauseof the time lapse between phone calls (Seligman, 1982). The chaotic OTC markets had



discouraged investors from buying OTC securities because of “wide spreads betweenbid and ask prices, incompleteness and frequent lack of reliability” (Stovall, 1971,p. 84). NASDAQ was therefore built to solve these problems in the OTC markets.

NASD chose Bunker Ramo to build the quotation system. The central processorcomplex was located in Trumbull, Connecticut, 60 miles away from New York City.Bunker Ramo gathered information from wholesale traders then distributed the com-puted data to the subscribers (“Bunker Ramo Denies,” 1971). The prices were updatedevery 5 minutes.

NASDAQ offered three tiers of services. The cheapest Level 1 service targeted stockbrokers. It displayed a representative quote, which is the median bid and ask pricesfor the 2,500 stocks listed in the OTC markets. The second level is for retail traderswho could see all bid and ask prices of all OTC stocks. The third level is for wholesaletraders who could view as well as enter bid and ask prices (“The Tussle Over Auto-matic OTC Trading,” 1971). The bid and ask prices and the volume traded at eachclosing day were sent to newspapers and news wires for release (Hammer, 1971). Atthe beginning, NASDAQ was a system to display quotes, not to make transactions.Brokers were still needed to execute a trade (Taylor, 1970).

Bunker Ramo invested US$25 million in the system. They made profit by sellingsubscriptions to brokers (10,000 subscriptions at $10 a month at the beginning) andto traders (1,400 subscriptions at $400 a month) (Armour, 1971). Because BunkerRamo designed both the hardware and software, subscribers were “locked into” thesystem. Bunker Ramo gave away the terminals at no charge in exchange for subscrip-tion (“Bunker Ramo Denies,” 1971). When NASD bought NASDAQ in 1975, BunkerRamo had run a profitable operation for 5 years (“Bunker Ramo to Sell,” 1975).

Information, technology, and flow architecture of the financial markets

Among economic sociologists who have written about the financial markets, AlexPreda and Karin Knorr Cetina have discussed extensively how information and tech-nology can be understood by drawing on the insights of STS scholars.

InformationPreda (2009) suggested that information is a central concept to finance because atransaction is an analytical unit in the study of markets and because transactionsare based on information. Unlike economists who see markets as machines that cap-ture, process, and distribute information (see Machlup, 1984), economic sociologistsbelieve information has “its contingent, communitarian, embedded and materiallymediated character” (Pardo-Guerra, 2010, p. 86). Information is a social phenomenon(Pardo-Guerra, 2010) and has implications on the character of market transactions(Preda, 2009).

What is information? Influenced by STS, information is defined as cognitively pro-cessed raw inputs, which can be manifested through material objects such as screendisplays and written formulae. Information is a result of observation, memorization,



classification, and calculation (Preda, 2007) and is salient to decision-making. In thissense, information is not data, which are signals like electric impulses.

Pardo-Guerra (2010) further investigated how the characters and texts on acomputer screen constitute market information by using the example of the automa-tion of the London Stock Exchange. In preautomation time, jobbers (intermediariesbetween brokers) quoted different prices for different brokers. Although jobbers usedwhite boards to write down prices, they were for reference purposes only. Prices wereembedded in interpersonal and highly embodied experiences, such as preexistingrelations that are spatially formed on the exchange floor. In the next stage of automa-tion, prices on the screen were seen as information, but the prices that traders quotedwere on the floor. The deregulation of the financial sector of the City of London,known as the Big Bang, ushered in the last stage in which the markets were mani-fested by screens and phones; the prices on the screens were information. Prices weregradually more disembedded from social relations. In different stages, participantshad to share the same “implicit reflexivity” frame, that is, which prices were to follow.

TechnologyIn STS, technology is a mediating agent that “align[s] the positions and interests ofheterogeneous, dispersed actors [. . .] by producing and distributing standardizedinformation, which contributes to the rationalization of economic action” (Preda,2006, p. 753). STS does not reject the neoclassical economic notion of a rational beingwhile seeking to understand how technology constitutes the markets. As a standard-izer, technology makes objects calculable, abstract, and homogeneous. Technologyrepresents prices as information and it is capable of calculating a large amount ofdata. Technology sets the boundary of relevant and irrelevant information. Relevantinformation has a larger chance to “move” the market. Take the case of Dow JonesIndex, it chooses 30 large blue chips stocks to represent the well-being of the stockmarkets. Prices of the other thousands of stocks are deemed irrelevant.

Preda (2006, 2008, 2009) argues that technology is also a generator of the mar-ket because it opens up “domain of institutional invention, along with the introduc-tion of routine-related constraints” (Preda, 2006, p. 756). Using the case study of theticker being introduced to NYSE, Preda (2006, 2008) argues that this price-recordingtechnology generated a new time structure and visual arrangement. First, the tickerintroduced a new temporal structure; it made price variations visible, and allowed foruninterrupted data flow. Second, the ticker allowed for more sophisticated printedstock lists. As such, the ticker was “neither a tool, nor a proxy for human action: it didthings that market actors could never have done without it” (Preda, 2006, p. 767).

Flow architecture and scopic systemKnorr Cetina (2005) disagrees with Manuel Castells that the financial markets are anetwork architecture in which a web of nodes are maintained through social relation-ship. She argues that a flow architecture better characterizes the disembedded for-eign exchange markets. A network architecture is a “face-to-face” world while a flow



architecture is a “face-to-screen” world (Knorr Cetina & Bruegger, 2002). A networkarchitecture presupposes a physical world while a flow architecture is a “timeworld”in which temporal coordination is more privileged. In a timeworld, the context isprocessal, not pregiven.

A scopic system emerges in a flow architecture; this system “project[s] market real-ity while at the same time [carries] it forward and [allows] the flow” (Knorr Cetina,2005, p. 40). The computer screens are not representations of the markets; instead theyare projection planes that conflate different kinds of information into layers of con-texts. As such, the scopic system is flat and nonhierarchical; it provides a comprehen-sive aggregate of things. The screens are the reality, the existence, and the continuationof the financial markets. The screen is a site where the whole economic and epistemo-logical world is set up (Knorr Cetina, 2005). Knorr Cetina and Bruegger (2002) donot downplay the interactions between participants, but conversations through onlinetrading systems also take place on screen.

Application to NASDAQThe introduction of NASDAQ to the OTC markets bears many similarities with thoseof the automation of the London Stock Exchange, the ticker to NYSE, and computerscreens to foreign money trading. There are two implications of NASDAQ being astandardizer of the markets. First, economic practice is embedded in technology. Likethe ticker in the 19th century, NASDAQ had separated the economic practice of ask-ing for quotes from that of placing orders. The computer was reserved for displayingand inputting quotes while the telephone was reserved for placing orders. It had alsosingled out the ask/bid prices and traded volume, not the opinions of traders, as rele-vant data which move the markets. The screen instilled a sense of explicit reflexivity, amoment of “the crystallisation of prices of buying/selling actions” (Thompson, 2013,p. 4). The separation of the two economic practices led to the coexistence of twokinds of architecture. Price quotation moved to a flow architecture, a “face-to-screen”world, while order placing remained in a network architecture, a “face-to-face” world.The “face-to-screen” world is illustrated by press photos. For example, Business Weekshowed the NASDAQ Computer Center by using an image of a man facing the com-puter screen while his colleague tackled a magnetic tape in the background (“TheTussle Over Automatic OTC Trading,” 1971, p. 72). In a New York Times article, thereaders were invited to stare at the tiny screen of a NASDAQ terminal that shows thebid and ask prices of a security (Robards, 1971a, p. F2). The screen proves the realityand the existence of the OTC markets, where traders and brokers were invisible. Themachine, not the individuals, was believed to have brought the market into being: “thescreen gives a gestural face to the signals that are transmitted through this informa-tion technology; it instantiates the market as a life-form that inhabits the technology”(Knorr Cetina & Bruegger, 2002, p. 924).

Second, as a standardizer, NASDAQ disembedded prices from individual traders;prices may no longer reflect those quoted by traders, but instead are those generatedby the markets. The use of language is illustrative of the embeddness/disembedddness



of prices—a broker can only quote a price, but not generate one. The assumed moreimpersonal market prompted brokers to work with less acquainted traders (Armour,1971). Once prices became abstract and calculative objects, market participants wereexpected to be rational beings. In pre-NASDAQ days, it was a common practice forwholesale traders to quote inaccurate prices to their advantage (“NASDAQ Comput-ing of OTC Stock Volume,” 1971). However, when wholesale traders input phonydata into NASDAQ, they were accused of interfering with the markets (Green, 1971;Robards, 1971b).

NASDAQ is also a generator because it introduced a regular time pattern to theOTC markets. Prices were updated every 5 minutes. An outdated price was “5 or 10minutes ago” rather than “a few phone calls ago.” Synchronized time prompted bro-kers and traders to respond to price changes by calling investors or placing orders.The standardized time interval encourages explicit reflexivity rather than contingentreflexivity because what moves the market appears to be the new price, not the antic-ipated action of other participants.

Second, as a generator, NASDAQ was a data transmission machine as well as acalculator that tabulated a large volume of data. NASDAQ has made printed stocklists more sophisticated by listing the median ask and bid prices as well as the volumetraded of all stocks at the end of each trading day. Digital information could also betransmitted to newspaper for printing. The pink sheets used in pre-NASDAQ days didnot show the last sale of the market (Simon, 2009). The pink sheets were eventuallydiscontinued.

At a broader level, NASDAQ also played the standardizer and generator roles bymaking the credibility of OTC markets comparable to NYSE. Before NASDAQ, theOTC markets were deemed chaotic and irrational, which only attracted speculators.They were also deemed insignificant because listed companies are regional and lesswell-known; these companies could not be listed in NYSE because of small size andsmall trade volume. Six months after NASDAQ was launched, the traded volume inthe OTC markets exceeded that of AMEX (Kraus, 1971).

However, the launching of NASDAQ did not change the practice of placing orders,it still had to be done through telephoning traders. The “face-to-face” world coexistedwith the “face-to-screen” world. Because brokers could only see the representativeprice, traders did not have to offer the displayed price. Prices were still an embodiedexperience in a network architecture (Pardo-Guerra, 2010). The real price continuedto reside with the wholesale traders (Becker, 2010). Further, traders still had the mostupdated prices because only they could use the services at Levels 2 and 3 at whichthe ask and bid prices of each trader of each security were displayed. The computerscreens showed two market realities: one for brokers, another for traders. Obviously,this situation was not deemed ideal as NASDAQ became an automated trading systemin 1988. Despite the coexistence of two market realities, all brokers shared a commonreference point while traders shared the other. Also, both had a heightened sense ofintersubjectivity knowing that there are two coexisting, codependent sets of prices:one approximate, the other exact.



As shown above, a flow architecture and a network architecture coexisted at theearliest stage of NASDAQ; the market reality was different in each architecture; andthe implementation of the system did not completely discontinue some economicpractices. Yet government officials, journalists, and traders believed that NASDAQhas ushered in a new era of OTC trading, if not financial markets. Even though NAS-DAQ was only a quotation display system, not a transaction system, the technologywas prematurely believed to help achieve a more ideal OTC market. According to theSEC Report (1963):

the single most essential item of information for informed investing or trading isreal-time information as to underlying stock prices. [. . .] The lack of thisfundamental information on a continuous, real-time basis could therefore resultin a public options market that was neither fair nor orderly. (p. 934)

The report reiterated a neoclassical economic ideal that timely and presumablysymmetrical information is critical to an efficient market. A more ideal market wasdescribed in the New York Times as one that has larger trade volume, less noise, moreconfident bids, and fewer speculative activities (Hammer, 1971). In an exchange suchas NYSE, it ensured an ideal market by employing technology (the ticker record-ing real-time transaction), spatiality (a floor layout where everyone’s activities canbe observed), and organizational structure (specialists monopolizing the trading ofspecific securities). In the OTC markets, the technology of NASDAQ was seen by jour-nalists and government officials to be the sole change agent to bring in a centralizedand national market. To the U.S. Congress, such a market would increase governmentsurveillance over Wall Street, which was tainted with scandals of loose accounting anddisclosure procedures in 1969 and 1970 (“Rendering the Rest of the Bill,” 1971). OneHouse Committee staff aide was quoted: “You take the NASDAQ [. . .] system for theover-the-counter stocks and just expand it. It would go a long way toward offeringthe level of service and surveillance that Congress will want from now on” (p. 17). Asshown above, it is however highly doubtful that the three-tiered system would allowfor maximum transparency.

Spatiality and organizational structure are deemed less important in this newcentralized market because technology alone was believed to have created a neweconomic reality. A prominent trader stated that “the central marketplace is no longera geographical concept. It’s really a communication concept, and the technology willallow people from all over the country to participate in a central market” (Weeden,2010, p. 27). This communication system is not a symbolic one like what Babe (1996)visualizes. It is more like an informational system that neoclassical economists (suchas Machlup, 1984) assume. NASDAQ has “emptied out” the physical location of afinancial market; it is a market that does not have physicality, nor does physicalitymatter. NASD president Gordon Macklin believed that the system links current mar-kets into a more efficient system because all securities markets and marketplaces arelinked into one “floor” (“NASD Chief Opposes,” 1971). The use of the “floor” imageryto describe NASDAQ is intriguing because unlike an exchange floor where price



negotiation is embodied through the spatiality of the floor layout (Pardo-Guerra,2010; Zaloom, 2006), NASDAQ is a supposedly “placeless” space that linked upthe markets. “Floor” here is more like a scopic system where all participants couldview the same information displayed on the screen. The information on the screenbrought in a new implication on prices. The prices on this virtual floor, or rather onthe computer screen, were believed to be fairer because they were disembedded fromsocial relations.

What can political economists learn from economic sociologists?

Some political economists (Mosco & Wasko, 1988; Schiller, 1999, 2007) view infor-mation as a commodity that is produced by alienated labor for a market. However,understanding financial information as a commodity from the vantage point of laboris not fruitful. As shown in the analysis of NASDAQ, multiple steps were intentionally(or unintentionally) taken to attribute a new property to financial information for it tohave an exchange value. In addition, financial information is not merely a commodityfor and within a market, but it also performs a market and creates a market reality.

The vantage point of labor is not useful to understand financial information as acommodity because it is difficult to argue that traders exercised their labor to inputquotes in NASDAQ. In pre-NASDAQ days, traders quoted prices to brokers throughthe telephone and those quotes were provided for free. However, “free” quotes didnot mean the quotes were a public good. It is unlikely that traders would entertain allinquiries. Bunker Ramo made a surplus by leasing the terminal to brokers and traders,yet the machine would be useless if no one bothered to input data. At the side of thetraders, they made profits by buying cheap and selling dear and hence informationasymmetries were crucial to their profits. NASDAQ, with the promise of providingmore timely and transparent information, would pose a threat to the livelihood oftraders. Furthermore, traders had to pay US$400 a month (approximately US$2,300in 2013 dollars) to subscribe to NASDAQ. If financial information had merely been acommodity (i.e., digitized quotes), NASDAQ would not have succeeded.

One plausible explanation why NASDAQ succeeded is that the system, as man-ifested by the screen, was seen as an improved OTC market. In this more efficientmarket, technology codified some kinds of information as relevant enough to movethe markets. Prices (median, ask/bid, volume traded) were singled out to be the onlyinformation worth occupying space on the screen, hence worth a subscription fee.This kind of information is explicitly reflexive—a crystallized moment of the state ofthe market that can be viewed. On the screen, all economic activities were reduced totransactions.

In pre-NASDAQ days, price quotes from traders could be implicitly, explicitly,and contingently reflexive. A price quote was implicitly reflexive because both bro-kers and traders shared a frame of how the OTC markets worked and how they weredifferent from NYSE; it was explicitly reflexive because the price represented what theapproximate state of the market was; it was contingently reflexive because traders had



to guess how many shares brokers would buy and what price they might offer. Brokerswho traded high volumes might be given a better price because traders could earn alarger profit margin.

With NASDAQ, price quotations on the screen became a “person-to-screen”world, in which only explicitly reflexive information was deemed relevant. Financialinformation of implicit and contingent reflexivities was reserved for telephone con-versations between brokers and traders who maintain a “person-to-person” worldelsewhere outside the markets. To Callon (1998), NASDAQ brought in a frame thatestablishes a boundary within which interactions take place independently of thesurrounding context. What brokers and traders subscribed to then was more thana machine and digitized financial information, but a more efficient market withpromised fairness and transparency.

The major insight that economic sociological work influenced by STS offers topolitical economists is to take some neoclassical economic assumptions more seri-ously and to understand “how [. . .] the formally rational behavior (“calculativeness”)described by neo-classical economics [is] actually achieved” (Slater, 2011, p. 235).Callon regards this to be more productive than to dismiss neoclassical economicsas ideological. The task is then to trace what has been considered relevant, intangi-ble, taken for granted, problematized, and unknown. Examining NASDAQ—whichbegan as a quotation system then quickly became the OTC markets—is instructive tofuture political economic work on the relationship between technology, information,and financial markets.

Concluding remarks: Where is power in economic sociology?

Economic sociologists have covered much ground that has yet to be trodden by polit-ical economists. However, in drawing on the ideas of economic sociologists, politicaleconomists have to be cautious of the negligence of power in the majority of economicsociological studies.

Power is a central concept in political economy. It governs what kinds of tech-nology and information are produced, distributed, and consumed; it determines whocontrols technology and who has access to it. The strength of political economy is toreveal power struggles at the macrostructure. The case study of NASDAQ well illus-trates that the system was designed to maintain power relationships between brokersand traders. The three-tiered services limited the access to information for brokerswho were not shown every ask/bid price of every security because traders feared thatNASDAQ would give away too much if brokers had the same information as they did.Another telling case is that NASDAQ had the ability to perform transactions, yet itwas restricted to only display quotes (Seligman, 1982). If NASDAQ had been enabledto perform transactions, traders would have been made obsolete.

STS scholars dismiss the idea that there is a macrostructure that power is nota stock that automatically provides an explanation, and that asymmetrical powerrelations are hard to maintain. Furthermore, capitalism is not the infrastructure of



economic transactions (Latour, 2005). Do these claims put STS scholars at oddswith political economists? The answer to this question requires a lengthy expositionelsewhere. Here it may be worthwhile to briefly summarize the concept of “macroac-tors” (Callon & Latour, 1981) to see if this leads political economists to theorize theexercising of power through human and nonhuman agents. Callon and Latour (1981)believe that the difference between macroactors (such as states and institutions) andmicroactors (such as families) is not size. Macroactors are also not more complexthan microactors or else they would not grow. The difference is “brought aboutby power relations and the construction of networks” (p. 280). The macroactorscreate lasting asymmetries by making associations and putting them in a black box.Macroactors are then microactors who are capable of pretending to close the blackbox and sitting on it. The place where sociologists ought to be is “where black boxesopen up, where the irreversible is reversed and techniques return to life” (p. 301). Thequestion then is whether political economists would choose this place or one wherethe black boxes are shut.

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What Can Political Economists Learn From Economic Sociologists? A Case Study of NASDAQ