Law and Corporate Governance



One of the great intellectual divides in modern social science is the gap between economics and sociology. Classically, economists have seen the rise of modern society as the reduction of the role of governments and the influence of rent seeking actors and their replacement with calculating individuals who sought profits by producing for markets (Smith 1904). By being forced to compete with others, the “invisible hand of the market” pushed producers to create the efficient allocation of societal resources and of course, they became the source of the “wealth of nations.” While classical sociology saw the rise of modern society as deeply connected with markets, it also maintained that social elements like law, norms, religion, social classes, and politics played crucial roles in the development of firms and markets (Durkheim 1997, Marx 1977, Weber 1978; 2001). Both Marx and Weber foresaw many of the problems markets would create, such as the economic instability caused by ruinous competition, the attempts by producers to obtain monopolies and enlist the state on their behalf in these efforts, and the possibility that governments would be rent seekers in their own right.