1 Introducing Economic

Neil J. Smelser and Richard Swedberg

As a designated field of inquiry, economic soci- gists, at the same time as that dimension has come ology is not much more than a century old, even to penetrate the actual economies of the contem- though its intellectual roots are identifiable in older porary world (Makler, Martinelli, and Smelser traditions of philosophical and social thought.1 1982; Evans 1995). During the past quarter-century it has experienced an explosive growth, and now stands as one of the most conspicuous and vital subfields of its parent MAINSTREAM ECONOMICS AND ECONOMIC discipline. In this introduction we first define the SOCIOLOGY COMPARED field and distinguish it from mainstream econom- ics. Next we trace the classical tradition of econom- We now compare and main- ic sociology, as found in the works of Marx, Weber, stream economics as a way of further elucidating Durkheim, Schumpeter, Polanyi, and Parsons- the sociological perspective on the economy. This Smelser. Finally, we cite some more recent develop- is a useful exercise only if qualified by the caution ments and topics of concern in economic sociolo- that both bodies of inquiry are much more com- gy. Throughout our discussion in this chapter we plex than any brief comparison would suggest. Any emphasize the importance of paying attention to general statement almost immediately yields an ex- economic interests and social relations. ception or qualification. To illustrate the caution on each side of the comparison: 1. In economics the classical and neoclassical THE DEFINITION OF ECONOMIC SOCIOLOGY traditions have enjoyed a certain dominance— hence the label mainstream—but the basic as- Economic sociology—to use a term that Weber sumptions of those traditions have been modified and Durkheim introduced2—can be defined simply and developed in many directions. In a classic as the sociological perspective applied to economic statement, Knight ([1921] 1985, 76–79) stressed phenomena. A similar but more elaborate version is that neoclassical economics rested on the premises the application of the frames of reference, variables, that actors have complete information and that in- and explanatory models of sociology to that complex formation is free. Since that time economics has of activities which is concerned with the production, developed traditions of analysis based on assump- distribution, exchange, and consumption of scarce tions of risk and uncertainty (for example, Sandmo goods and services.3 One way to make this definition 1971; Weber 2001) and information as a cost (for more specific is to indicate the variables, models, example, Stigler 1961; Lippmann and McCall and so on, that the economic sociologist employs. 2001). In addition, numerous versions of econom- When Smelser first put forth that definition (1963, ic rationality—for example, Simon’s (1982) em- 27–28; 1976, 37–38), he mentioned the sociolog- phasis on “satisficing” and “bounded rationali- ical perspectives of personal interaction, groups, ty”—have appeared. Still other variations on social structures (institutions), and social controls rational behavior have been developed in behav- (among which sanctions, norms, and values are ioral economics, which incorporates many psycho- central). Given recent developments, we would logical assumptions at variance with the main- add that perspectives of social networks, gender, stream (Mullainthan and Thaler 2001; Camerer, and cultural contexts have also become central Loewenstein, and Rabin 2004). Looking in the di- in economic sociology (e.g., Granovetter 1974, rection of sociology, some economics now incor- 1985a, 1995; Zelizer 1988). In addition, the in- porates “norms” and “institutions,” though with ternational dimension of economic life has as- meanings different from those found in the socio- sumed greater salience among economic sociolo- logical tradition. 4 Smelser/Swedberg

2. Sociology lacks one dominant tradition. Vari- the former generally assumes that actors are not ous sociological approaches and schools differ connected to one another; the latter assumes that from and compete with one another, and this cir- actors are linked with and influence one another. cumstance has affected economic sociology. For We argue below that this difference has implica- example, Weber was skeptical about the notion of tions for how economies function. a social “system,” whether applied to economy or society, while Parsons viewed society as a system The Concept of Economic Action and economy as one of its subsystems. Further- In micoeconomics the actor is assumed to have more, even if all economic sociologists might ac- a given and stable set of preferences and to choose cept the definition of economic sociology we have that alternative line of action which maximizes util- offered, they focus on different kinds of economic ity. In economic theory, this way of acting consti- behavior. Some do so following Arrow’s hint tutes economically rational action. Sociology, by (1990, 140) that sociologists and economists ask contrast, encompasses several possible types of different questions—about consumption, for ex- economic action. To illustrate from Weber again, ample. Others, including what is called new eco- economic action can be either rational, traditional, nomic sociology (see Granovetter 1990 for a pro- or affectual (Weber [1922] 1978, 24–26, 63–68). grammatic statement), argue that sociology should Except for residual mention of “habits” and “rules concentrate directly on core economic institutions of thumb,” economists give no place to tradition- and problems. al economic action (which, arguably, constitutes its These caveats recorded, a comparison between most common form; see, however, Akerlof 1984; the central features of mainstream economics and Schlicht 1998). economic sociology will clarify the specific nature Another difference between microeconomics of the sociological perspective. The following dif- and economic sociology in this context concerns ferences are most salient. the scope of rational action. The economist tradi- tionally identifies rational action with the efficient The Concept of the Actor use of scarce resources. The sociologist’s view is, To put the matter baldly, the analytic starting once again, broader. Weber referred to the con- point of economics is the individual; the analytic ventional maximization of utility, under conditions starting points of economic sociology are typically of scarcity, as formal rationality. In addition, how- groups, institutions, and society. In microeconom- ever, he identified substantive rationality, which ics, the individualistic approach finds its origins in refers to allocation within the guidelines of other early British utilitarianism and political economy. principles, such as communal loyalties or sacred This orientation was elucidated systematically by values. A further difference lies in the fact that the Austrian economist Carl Menger and given the economists regard rationality as an assumption, label methodological individualism by Schumpeter whereas most sociologists regard it as a variable (1908, 90; for a history of methodological indi- (see Stinchcombe 1986, 5–6). For one thing, the vidualism, see Udehn 2001). By contrast, in dis- actions of some individuals or groups may be more cussing the individual, the sociologist often focus- rational than others (cf. Akerlof 1990). Along the es on the actor as a socially constructed entity, as same lines, sociologists tend to regard rationality as “actor-in-interaction,” or “actor-in-society.” Often, a phenomenon to be explained, not assumed. moreover, sociologists take the group and the Weber dedicated much of his economic sociology social-structural levels as phenomena sui generis, to specifying the social conditions under which without reference to the individual actor. formal rationality is possible, and Parsons ([1940] Methodological individualism need not be logi- 1954) argued that economic rationality was a sys- cally incompatible with a sociological approach. In tem of norms—not a psychological universal— his theoretical chapter introductory to Economy associated with specific developmental processes in and Society, Weber constructed his whole sociolo- the West. gy on the basis of individual actions. But these ac- Another difference emerges in the status of tions are of interest to the sociologist only insofar meaning in economic action. Economists tend to as they are social actions or “take account of the regard the meaning of economic action as derivable behavior of other individuals and thereby are ori- from the relation between given tastes, on the one ented in their course” (Weber [1922] 1978, 4). hand, and the prices and quantities of goods and This formulation underscores a second difference services, on the other. Weber’s conceptualization between microeconomics and economic sociology: has a different flavor: “the definition of economic Introduction 5 action [in sociology] must . . . bring out the fact gists take such influences directly into account in that all ‘economic’ processes and objects are char- the analysis of economic action. Other actors facil- acterized as such entirely by the meaning they have itate, deflect, and constrain individuals’ action in for human action” ([1922] 1978, 64). Meanings the market. For example, a friendship between a are historically constructed and must be investigat- buyer and a seller may prevent the buyer from de- ed empirically, and are not simply to be derived serting the seller just because an item is sold at a from assumptions and external circumstances. lower price elsewhere (e.g., Dore 1983). Cultural Finally, sociologists tend to give a broader and meanings also affect choices that might otherwise more salient place to the dimension of power in be regarded as “rational.” In the United States, for economic action. Weber ([1922] 1978, 67) insist- example, it is difficult to persuade people to buy ed that “[it] is essential to include the criterion of cats and dogs for food, even though their meat is power of control and disposal (Verfügungsgewalt) as nutritious and cheaper than other kinds (Sahlins in the sociological concept of economic action,” 1976, 170–79). Moreover, a person’s position in adding that this applies especially in the capitalist the conditions his or her econom- economy. By contrast, microeconomics has tended ic choices and activity. Stinchcombe (1975) evoked to regard economic action as an exchange among the principle that structural constraints influence equals, and has thus had difficulty in incorporating career decisions in ways that run counter to con- the power dimension (Galbraith 1973, 1984). In siderations of economic payoff. For example, for a the tradition of perfect competition, no buyer or person who grows up in a high-crime neighbor- seller has the power to influence price or output. It hood, the choice between making a career stealing is also true that economists have a tradition of an- and getting a job has often less to do with the alyzing imperfect competition—in which power to comparative utility of these two alternatives than control prices and output is the core ingredient— with the structure of peer groups and gangs in the and that the idea of “market power” is used in neighborhood. labor and industrial economics (e.g., Scherer 1990). Still, the economic conception of power is The Economy in Relation to Society typically narrower than the sociologist’s notion of The main foci for the mainstream economist are economic power, which includes its exercise in so- economic exchange, the market, and the economy. cietal (especially political and class), as well as mar- To a large extent, the remainder of society lies be- ket, contexts. In a study of the power of the U.S. yond where the operative variables of economic banking system, for example, Mintz and Schwartz change really matter (see Quirk 1976, 2–4; Arrow (1985) analyze how banks and industries interlock, 1990, 138–39). Economic assumptions typically how certain banks cluster into groups, and how presuppose stable societal parameters. For exam- banks sometimes intervene in corporations in ple, the long-standing assumption that economic order to enforce economic decisions. More gener- analysis deals with peaceful and lawful transactions, ally, sociologists have analyzed and debated the not with force and fraud, involves important pre- issue of the political implications of wealth in- suppositions about the legitimacy and the stability equality and the extent to which corporate leaders of the state and the legal system. In this way the constitute a “power elite” in the whole of society societal parameters—which would surely affect the (e.g., Mills 1956; Dahl 1958; Domhoff and Dye economic process if the political legal system were 1987; Keister 2000). to disintegrate—are frozen by assumption, and thus are omitted from the analysis. In recent times Constraints on Economic Action economists have turned to the analysis of why in- In mainstream economics, actions are con- stitutions arise and persist, especially in the new in- strained by tastes and by the scarcity of resources, stitutional economics and game theory. They have including technology. Once these are known, it is varied the effects of institutional arrangements in in principle possible to predict the actor’s behavior, various logical experiments (see, e.g., Eggertsson since he or she will always try to maximize utility 1990; Furubotn and Richter 1997). Nevertheless, or profit. The active influence of other persons and the contrast with economic sociology remains. groups, as well as the influence of institutional When economists talk about institutions, norms, structures, is set to one side. Knight codified this and the like, their vocabulary is identical to that of in the following way: “Every member of society is sociologists, but they often mean something quite to act as an individual only, in entire independence different. It is still very common, for example, for of all other persons” ([1921] 1985, 78). Sociolo- economists to treat the economic arena as lacking 6 Smelser/Swedberg norms and institutions. The latter only emerge “uncritical enthusiasm for mathematical formula- when markets cannot be constructed or when tra- tion” (1971, 1). When economists do turn to em- ditional rational choice analysis fails. Economic so- pirical data, they tend to rely mainly on those gen- ciology, on the other hand, has always regarded erated for them by economic processes themselves the economic process as an organic part of society. (for example, aggregated market behavior, stock As a consequence, economic sociology has usually exchange transactions, and official economic statis- concentrated on three main lines of inquiry: (1) tics gathered by governmental agencies). Sample the sociological analysis of economic process; (2) surveys are occasionally used, especially in con- the analysis of the connections and interactions be- sumer economics and in labor economics; archival tween the economy and the rest of society; and (3) data are seldom consulted, except by economic the study of changes in the institutional and cul- historians; and ethnographic work is virtually non- tural parameters that constitute the economy’s so- existent. By contrast, sociologists rely heavily on a cietal context. great variety of methods, including analyses of cen- sus data, independent survey analyses, participant Goals of Analysis observation and fieldwork, and the analysis of As social scientists, both economists and sociol- qualitative historical and comparative data. ogists try to explain phenomena encompassed by their respective subject matters. Within this com- Intellectual Traditions mon interest, however, different emphases emerge. Sociologists not only rely on different intellectu- Economists tend to be critical of descriptions— al traditions that overlap only slightly, but they also they condemn traditional institutional economics regard those traditions differently. Evidently influ- as too descriptive and atheoretical. Instead they enced by the natural science model of systematic stress the importance of prediction. Sociologists, accumulation of knowledge, economists have by contrast, offer fewer formal predictions, and shown less interest than sociologists in study and often find sensitive and telling descriptions both exegesis of their classics (with notable exceptions interesting in themselves and essential for explana- such as Adam Smith and David Ricardo). Corre- tion. As a result of these differences, sociologists spondingly, economics reveals a sharp distinction often criticize economists for generating formal between current economic theory and the history and abstract models and ignoring empirical data, of economic thought. In sociology these two and economists reproach sociologists for their facets blend more closely. The classics are very “post factum sociological interpretations” (Merton much alive, and are often required reading in the- 1968, 147–49). Though these differences have be- ory courses. come part of the professional cultures of econo- Despite these differences, and despite the per- mists and sociologists, it should be noted that the sisting gulf between the traditions of economics last 10 years have seen a new interest for model and economic sociology, some evidence of synthe- building and game theory among sociologists, and sis can be identified. Major figures such as Alfred a new interest in culture and use of empirical ma- Marshall, Vilfredo Pareto, and terial among economists (e.g., Greif 1998, forth- have attempted theoretical syntheses. Certain coming; Swedberg 2001). It is also possible that other figures, notably Weber and Schumpeter, the fields of economics and economic sociology have excited interest among both economists and may one day agree on some methodological com- sociologists. In addition, economists and sociolo- promise, say along the lines of “analytic narratives” gists find it profitable to collaborate in specific (Bates et al. 1998). problem areas such as poverty and labor markets. Later in the chapter we will reraise the issue of Models Employed intellectual articulation among economists and The emphasis on prediction constitutes one rea- sociologists. son why mainstream economists place such high value on expressing hypotheses and models in mathematical form. Though the advantages of this THE TRADITION OF ECONOMIC SOCIOLOGY formal theorizing are readily apparent, economists themselves have at times complained that it tends There exists a large and rich tradition of eco- to become an end in itself. In his presidential ad- nomic sociology, which roughly begins around the dress to the American Economic Association in turn of the twentieth century. This tradition has 1970, Wassily Leontief criticized his profession’s generated both important concepts and ideas and Introduction 7 significant research results, which we now present something that most sociologists would agree on. and set in perspective. Economic sociology has That he also made contributions to economic soci- peaked twice since its birth: in 1890–1920 with ology is, however, less known (Tocqueville [1835– the classic theorists (who were all interested in and 40] 1945, [1856] 1955; cf. Swedberg 2003, 6–8). wrote on the economy), and today, from the early Of these various precursors we will concentrate 1980s onwards. A small number of important only on Karl Marx, a towering figure in nineteenth- works in economic sociology—by economists as century thought, even though he was active before well as sociologists—were also produced during the birth of modern sociology. the period in between. A major thread in the tra- dition of economic sociology is that investigation Karl Marx must combine the analysis of economic interests with Karl Marx (1818–1883) was obsessed with the an analysis of social relations. role of the economy in society and developed a theory according to which the economy deter- mined society’s general evolution. What drives Classical Economic Sociology and Its Predecessors people in their everyday lives, Marx also argued, The first use of the term economic sociology seems are material interests, and these also determine the to have been in 1879, when it appears in a work by structures and processes in society. While Marx British economist W. Stanley Jevons ([1879] wanted to develop a strictly scientific approach to 1965). The term was taken over by the sociologists society, his ideas were equally infused by his polit- and appears, for example, in the works of Durk- ical desire to change the world (e.g., [1843] 1978, heim and Weber during the years 1890–1920 (so- 145). The end result was what we know as “Marx- ciologie économique, Wirtschaftssoziologie). It is also ism”—a mixture of and political during these decades that classical economic soci- statements, welded into a single doctrine. ology is born, as exemplified by such works as The For a variety of reasons much of Marxism is er- Division of Labor in Society (1893) by Durkheim, roneous or not relevant to economic sociology. It The Philosophy of Money (1900) by Simmel, and is far too tendentious and dogmatic to be adopted Economy and Society (produced 1908–20) by as a whole. The task that confronts economic soci- Weber. These classics of economic sociology are ology today is to extract those aspects of Marxism remarkable for the following characteristics. First, that are useful. In doing so, it is useful to follow Weber and others shared the sense that they were the suggestion of Schumpeter, and distinguish be- pioneers, building up a type of analysis that had tween Marx as a sociologist, Marx as an economist, not existed before. Second, they focused on the and Marx as a revolutionary (Schumpeter [1942] most fundamental questions of the field: What is 1994, 1–58). We now turn to a preliminary effort the role of the economy in society? How does the to pull out the relevant ingredients for economic sociological analysis of the economy differ from sociology. that of the economists? What is an economic Marx’s point of departure is labor and produc- action? To this should be added that the classical tion. People have to work in order to live, and this figures were preoccupied with understanding capi- fact is universal (Marx [1867] 1906, 50). Material talism and its impact on society—“the great trans- interests are correspondingly universal. Labor is formation” that it had brought about. social rather than individual in nature, since people In hindsight it is clear that several works pub- have to cooperate in order to produce. Marx se- lished before the 1890–1920 period in one way or verely criticized economists for their use of the iso- another prefigure some of the insights of econom- lated individual; and he himself sometimes spoke ic sociology. Important reflections on, for example, of “social individuals” (e.g., [1857–58] 1973, 84– the role of trade can be found in The Spirit of the 85). The most important interests are also of a col- Laws by Montesquieu, as well as a pioneer compar- lective nature—what Marx calls “class interests.” ative analysis of the role of various economic phe- These interests will, however, only be effective if nomena in republics, monarchies, and despotic people become aware that they belong to a certain states (Montesquieu [1748] 1989). The role of class (“class for itself,” as opposed to “class in it- labor in society is emphasized in the work of Saint- self”; Marx [1852] 1950, 109). Simon (1760–1825), who also helped to popular- Marx severely criticized Adam Smith’s idea that ize the term industrialism (cf. Saint-Simon 1964). individual interests merge and further the general That the work of Alexis de Tocqueville (1805– interest of society (“the invisible hand”). Rather, 1859) is full of sharp, sociological observations is according to Marx, classes typically oppress and 8 Smelser/Swedberg

fight each other with such ferocity that history is as were relevant topics for understanding the rise of if written with “letters of blood and fire” ([1867] capitalism: the emergence of private property in 1906, 786). Bourgeois society is no exception on land and of property in the firm (as opposed to in- this score since it encourages “the most violent, dividual property). Those works, in combination mean and malignant passions of the human heart, with a commissioned study of rural workers, the Furies of private interest” ([1867] 1906, 15). earned him a position in economics (“political In various works Marx traced the history of the economy and finance”) in the early 1890s. In this class struggle, from early times into the future. In capacity he taught economics but published main- a famous formulation from the 1850s, Marx states ly in economic history and in policy questions. that at a certain stage the “relations of production” Weber wrote, for example, voluminously on the enter into conflict with “the forces of production,” new stock exchange legislation. with and passage to a new “mode of Toward the end of the 1890s Weber fell ill, and production” as a result ([1859] 1970, 21). In for the next 20 years he worked as a private schol- Capital Marx writes that he has laid bare “the eco- ar. In these years he produced his most celebrated nomic law of motion of modern society” and that study, The Protestant Ethic and the Spirit of Capi- this law works “with iron necessity towards in- talism (1904–5), as well as studies of the econom- evitable results” of revolutionary change ([1867] ic ethics of the world religions. In 1908 Weber 1906, 13–14). accepted a position as chief editor of a giant hand- A positive feature of Marx’s approach is his in- book of economics. From the very beginning sight into the extent to which people have been Weber set aside the topic of “economy and socie- willing to fight for their material interests through- ty” for himself. The work that today is known as out history. He also contributed to understanding Economy and Society consists of a mixture of mate- how large groups of people, with similar economic rial that Weber had approved for publication and interests, under certain circumstances can unite and of manuscripts found after his death (see, e.g., realize their interests. On the negative side, Marx Mommsen 2000). In 1919–20 Weber also taught grossly underestimated the role in economic life of a course in economic history, which, pieced to- interests other than the economic ones. His notion gether a few years later on the basis of students’ that economic interests in the last hand always de- notes, was published posthumously as General termine the rest of society is also impossible to de- Economic History. Though primarily a work in eco- fend; “social structures, types and attitudes are nomic history, it contains much interesting materi- coins that do not readily melt,” to cite a famous al for the economic sociologist. quote from Schumpeter ([1942] 1994, 12). Much of what Weber wrote in economic sociol- ogy can be found in Collected Essays in the Sociolo- gy of Religion (1920–21) and Economy and Society Among the classics in economic sociology Max (1922). The former contains a revised version The Weber (1864–1920) occupies a unique place. He Protestant Ethic, “The Protestant Sects and the proceeded furthest toward developing a distinct Spirit of Capitalism” (1904–5; revised 1920) and economic sociology, laying its theoretical founda- voluminous writings on the economic ethics of the tion and carrying out empirical studies (Swedberg Chinese, Indian, and Judaic world religions and a 1998). The fact that he had worked as a professor few other texts (for the latter see Weber [1920] of economics was no doubt helpful in these efforts 1958, [1915] 1946a, [1915] 1946b). According to build bridges between economics and sociology. to Weber, the material in Collected Essays concerns Also helpful was the major research task that occu- mainly the sociology of religion but is also of in- pied Weber throughout his career, which was eco- terest to economic sociology. nomic as well as social in nature: to understand the The most influential study is The Protestant origin of modern capitalism. Weber drew heavily Ethic. This work is centered around Weber’s gen- on the theoretical work on interests of his time and eral preoccupation with the articulation of ideal extended that line of work by making it more and material interests and ideas. The believer in as- sociological. cetic Protestantism is driven by a desire to be saved Weber’s academic training was broad in nature, (a religious interest) and acts accordingly. For var- and its main emphasis was on law, with the history ious paradoxical reasons the individual eventually of law as his specialty. His two dissertations—one comes to believe that secular work, carried out in a on medieval trading corporations (lex mercatoria) methodical manner, represents a means to salva- and the other on the sale of land in early Rome— tion—and when this happens, religious interest is Introduction 9 combined with economic interest. The result of not only by economic interest but also by tradition this combination is a release of a tremendous force, and emotions; furthermore, it is always oriented to which shattered the traditional and antieconomic some actor(s). hold of religion over people and introduced a If one disregards single actions, Weber says, and mentality favorable to capitalist activity. The thesis instead focuses on empirical uniformities, it is pos- in The Protestant Ethic has led to an enormous de- sible to distinguish three different types: those in- bate, with many scholars—probably a majority— spired by “convention,” by “custom” (including arguing against Weber (for an introduction to this “habit”), and by “interest” ([1922] 1978, 29–36). debate, see especially Marshall 1982). Most uniform types of action presumably consist While he was writing The Protestant Ethic Weber of a mixture of all three. Actions that are “deter- published an essay, “ ‘Objectivity’ in Social Science mined by interest” are defined by Weber as instru- and Social Policy,” that summarized his theoretical mental in nature and oriented to identical expecta- views on economic sociology. In this work he ar- tions. An example would be the modern market, gued that the science of economics should be where each actor is instrumentally rational and broad and umbrella-like (Sozialökonomik; Weber counts on everybody else to be so as well. [1904] 1949, 64–65). It should include not only Weber emphasized that interests are always sub- economic theory but also economic history and jectively perceived; no “objective” interests exist economic sociology. Weber also proposes that eco- beyond the individual actor. In a typical sentence nomic analysis should cover not only “economic Weber speaks of “[the] interests of the actors as phenomena” but also “economically relevant phe- they themselves are aware of them” ([1922] 1978, nomena” and “economically conditioned phenom- 30). He also notes that when several individuals ena” (64–65). Economic phenomena consist of behave in an instrumental manner in relation to economic norms and institutions, often deliberate- their individual interests, the typical result is col- ly created for economic ends—for example, banks lective patterns of behavior that are considerably and stock exchanges. Economically relevant phe- more stable than those driven by norms imposed nomena are noneconomic phenomena that under by an authority. It is, for example, very difficult to certain circumstances may have an impact on eco- make people do something economic that goes nomic phenomena, as in the case of ascetic Protes- against the individual’s interest. tantism. Economically conditioned phenomena are A sketch of Weber’s economic sociology in those that to some extent are influenced by eco- Economy and Society yields the following main nomic phenomena. The type of religion that a points. Economic actions of two actors who are group feels affinity for is, for example, partly de- oriented to one another constitute an economic pendent on the kind of work that its members do. relationship. These relationships can take various While economic theory can only handle pure eco- expressions, including conflict, competition, and nomic phenomena (in their rational version), eco- power. If two or more actors are held together by nomic history and economic sociology can deal a sense of belonging, their relationship is “com- with all three categories of phenomena. munal”; and if they are held together by interest, A somewhat different approach, both to eco- “associative” (Weber [1922] 1978, 38–43). Eco- nomic sociology and to interests, can be found in nomic relationships (as all social relationships) can Economy and Society. The first chapter of this work also be open or closed. Property represents a spe- contains a general sociological analysis. Two con- cial form of closed economic relationship. cepts are important building blocks: “social ac- Economic organizations constitute another im- tion” and “order” (Ordnung). In the former, “ac- portant form of closed economic relationships. tion,” defined as behavior invested with meaning, Some of these organizations are purely economic, is qualified as “social” if it is oriented to some while others have some subordinate economic other actor. An “order” is roughly equivalent to an goals or have as their main task the regulation of institution, and it comes into being when social ac- economic affairs. A trade union is an example. tions are repeated over a period, regarded as ob- Weber attaches great importance to the role in cap- jective, and surrounded by various sanctions. italism of the firm, which he sees as the locus of en- Economists study pure economic action, which is trepreneurial activity and as a revolutionary force. action exclusively driven by economic interests (or A market, like many other economic phenome- “desire for utilities,” in Weber’s formulation; na, is centered around a conflict of interests—in [1922] 1978, 63). Economic sociologists, howev- this case between sellers and buyers (Weber [1922] er, study social economic action, which is driven 1978, 635–40). A market involves both exchange 10 Smelser/Swedberg and competition. Competitors must first fight out From being predominantly repressive in nature, who will be the final seller and the final buyer and having its center in penal law, it now becomes (“competition struggle”); and only when this restitutive and has its center in contractual law. In struggle has been settled is the scene set for the ex- discussing the contract, Durkheim also described change itself (“exchange struggle”). Only rational as an illusion the belief, held by Herbert Spencer, capitalism is centered around the modern type of that a society can function if all individuals simply market (Weber [1922] 1978, 164–66). In so- follow their private interests and contract accord- called political capitalism the key to profit making ingly (Durkheim [1893] 1984, 152). Spencer also is rather the state or the political power that grants misunderstood the very nature of the contractual some favor, supplies protection, or the like. Tradi- relationship. A contract does not work in situations tional commercial capitalism consists of small-scale where self-interest rules supreme, but only where trading, in money or merchandise. Rational capi- there is a moral or regulative element. “The con- talism has emerged only in the West. tract is not sufficient by itself, but is only possible because of the regulation of contracts, which is so- Émile Durkheim cial in origin” (Durkheim [1893] 1984, 162). As compared to Weber, Émile Durkheim (1858– A major concern in The Division of Labor in 1917) knew less economics, wrote less about eco- Society is that the recent economic advances in nomic topics, and in general made less of a contri- France may destroy society by letting loose indi- bution to economic sociology (e.g., Steiner 2004). vidual greed to erode its moral fiber. This prob- While none of his major studies can be termed a lematic is often cast in terms of the private versus work in economic sociology, all of them nonethe- the general interest, as when Durkheim notes that less touch on economic topics (see also Durkheim “subordination of the particular to the general in- [1950] 1983). Durkheim also strongly supported terest is the very well-spring of all moral activity” the project of developing a sociologie économique by ([1893] 1984, xliii). Unless the state or some encouraging some of his students to specialize in other agency that articulates the general interest this area and by routinely including a section on steps in to regulate economic life, the result will be economic sociology in his journal L’année soci- “economic anomie,” a topic that Durkheim dis- ologique. At one point he gave the following defi- cusses in Suicide ([1897] 1951, 246ff., 259). Peo- nition of economic sociology: ple need rules and norms in their economic life, and they react negatively to anarchic situations. Finally there are the economic institutions: institu- In many of Durkheim’s works, one finds a sharp tions relating to the production of wealth (serfdom, critique of economists; and it was Durkheim’s con- tenant farming, corporate organization, production in viction in general that if economics was ever to be- factories, in mills, at home, and so on), institutions re- come scientific, it would have to become a branch lating to exchange (commercial organization, mar- of sociology. He attacked the idea of homo eco- kets, stock exchanges, and so on), institutions relating nomicus on the ground that it is impossible to sep- to distribution (rent, interest, salaries, and so on). arate out the economic element and disregard the They form the subject matter of economic sociology. rest of social life ([1888] 1978a, 49–50). The point (Durkheim [1909] 1978b, 80) is not that economists used an analytical or abstract Durkheim’s first major work, The Division of approach, Durkheim emphasized, but that they Labor in Society (1893), has most direct relevance had selected the wrong abstractions (1887, 39). for economic sociology. Its core consists of the ar- Durkheim also attacked the nonempirical tenden- gument that social structure changes as society de- cy of economics and the idea that one can figure velops from its undifferentiated state, in primor- out how the economy works through “a simple dial times, to a stage characterized by a complex logical analysis” ([1895] 1964, 24). Durkheim re- division of labor, in modern times. Economists, ferred to this as “the ideological tendency of eco- Durkheim notes, view the division of labor exclu- nomics” ([1895] 1964, 25). sively as an economic phenomenon, and its gains Durkheim’s recipe for a harmonious industrial in terms of efficiency. What he added was a socio- society is as follows: each industry should be orga- logical dimension of the division of labor—how it nized into a number of corporations, in which the helps to integrate society by coordinating special- individuals will thrive because of the solidarity and ized activities. warmth that comes from being a member of a As part of society’s evolution to a more ad- group ([1893] 1984, lii). He was well aware of the vanced division of labor, the legal system changes. rule that interest plays in economic life, and in The Introduction 11

Elementary Forms of Religious Life he stresses that tors, competition rather implies parallel efforts, a “the principal incentive to economic activity has al- circumstance in which society can benefit from the ways been the private interest” ([1912] 1965, actions of both the actors. Instead of destroying 390). This does not mean that economic life is your opponent, as in a conflict, in competition you purely self-interested and devoid of morality: “We try to do what your competitor does—but better. remain [in our economic affairs] in relation with Philosophy of Money (1900), Simmel’s second others; the habits, ideas and tendencies which ed- major sociological work, has always enjoyed a ucation has impressed upon us and which ordinar- mixed reputation. Durkheim disapproved of it for ily preside over our relations can never be totally its mix of genres, and according to Weber econo- absent” (390). But even if this is the case, the so- mists detested Simmel’s way of dealing with eco- cial element has another source other than the nomic topics (e.g., Frisby 1978; Durkheim ([1902] economy and will eventually be worn down if not 1980; Weber 1972). Simmel does mix philosophi- renewed. cal reflections with sociological observations in an idiosyncratic manner, but Philosophy of Money has Georg Simmel nonetheless much to give if it is read in its own Simmel’s works typically lack references to eco- frame. Simmel’s main point is that money and nomics as such. Simmel (1858–1918), like Durk- modernity belong together; in today’s society heim, usually viewed economic phenomena within there does not exist one exclusive set of dominant some larger, noneconomic setting. Nonetheless, values but rather a sense that everything is relative his work still has relevance for economic sociology. (cf. Poggi 1993). Simmel’s work also contains a Much of Simmel’s most important study, Sozi- myriad of insightful sociological reflections on the ologie (1908), focuses on the analysis of interests. connections of money with authority, emotions, He suggested what a sociological interest analysis trust, and other phenomena. The value of money, should look like and why it is indispensable to so- Simmel observed, typically extends only as far as ciology. Two of his general propositions are that the authority that guarantees it (“the economic interests drive people to form social relations, and circle”; [1907] 1978, 179ff.). Money is also sur- that it is only through these social relations that in- rounded by various “economically important sen- terests can be expressed: timents,” such as “hope and fear, desire and anxi- ety” ([1907] 1978, 171). And without trust, Sociation is the form (realized in innumerable differ- Simmel argues, society could simply not exist; and ent ways) in which individuals grow together into a “in the same way, money transactions would col- unity and within which their interests are realized. lapse without trust” (179). In relation to money, And it is on the basis of their interests—sensuous or trust consists of two elements. First, because some- ideal, momentary or lasting, conscious or uncon- thing has happened before—for example, that peo- scious, causal or teleological—that individuals form ple accept a certain type of money—it is likely to such units. (Simmel [1908] 1971, 24) be repeated. Another part of trust, which has no Another key proposition is that economic inter- basis in experience and which can be seen as a non- ests, like other interests, can take a number of dif- rational belief, Simmel calls “quasi-religious faith,” ferent social expressions (26). noting that it is present not only in money but also Soziologie also contains a number of suggestive in credit. analyses of economic phenomena, among them competition. In a chapter on the role of the num- After the Classics ber of actors in social life, Simmel suggests that competition can take the form of tertius gaudens Despite its foundation in the classics, economic (“the third who benefits”). In this situation, which sociology declined after 1920 and would not re- involves three actors, actor A turns to advantage turn to full vigor before the 1980s. Exactly why the fact that actors B and C are competing for A’s this happened is still not clear. One reason is prob- favor—to buy something, to sell something, or the ably that neither Weber nor Simmel had any disci- like. Competition is consequently not seen as ples. Durkheim did, however, and the study of something that only concerns the competitors (ac- Marcel Mauss, The Gift (1925), should be singled tors B and C); it is in addition related to actor A, out. It rests on the argument that a gift typically the target of the competition. Simmel also distin- implies an obligation to reciprocate and should not guishes competition from conflict. While a conflict be mistaken for a one-way act of generosity. The typically means a confrontation between two ac- Gift also contains a number of interesting observa- 12 Smelser/Swedberg tions on credit, the concept of interest, and the peter defines economic sociology as the study of emergence of homo economicus. Evenually, how- institutions, within which economic behavior takes ever, Durkheimian economic sociology declined. place (e.g., 1954, 21). Despite the slowing in economic sociology dur- Schumpeter produced three studies in sociology. ing the years 1920–80, there were several note- The first is an article on social classes that is of in- worthy developments, especially the theoretical terest because of his distinction between econo- works of Joseph Schumpeter, Karl Polanyi, and mists’ and sociologists’ use of the concept of class. Talcott Parsons (for contributions by other sociol- While for the former, he argues, class is a formal ogists during this period, see Swedberg 1987, category, for the latter it refers to a living reality. 42–62). All three produced their most important The second study is an article about the nature of works while in the United States, but had roots in imperialism that can be compared to the equiva- European social thought. lent theories of Hobson, Lenin, and others. Schumpeter’s basic idea is that imperialism is pre- Joseph Schumpeter capitalistic and deeply irrational and emotional in We preface our notes on Schumpeter (1883– nature—essentially an expression for warrior na- 1950), an economist, by noting some contribu- tions of their need to constantly conquer new areas tions by economists more generally to economic or fall back and lose their power. The third study is sociology. One example is Alfred Marshall (1842– perhaps the most interesting one from the view- 1924), whose analyses of such topics as industries, point of contemporary economic sociology, “The markets, and preference formation often are pro- Crisis of the Tax State” (1918). Schumpeter char- foundly sociological in nature (Marshall [1920] acterizes this article as a study in “fiscal sociology” 1961, 1919; cf. Aspers 1999). Vilfredo Pareto (Finanzsoziologie); its main thesis is that the fi- (1848–1923) is famous for his sociological analy- nances of a state represent a privileged position ses of rentiers versus speculators, business cycles, from which to approach the behavior of the state. and much more (Pareto [1916] 1963; cf. Aspers As a motto Schumpeter cites the famous line of 2001a). The work of Thorstein Veblen (1857– Rudolf Goldscheid: “The budget is the skeleton 1929) sometimes appeared in sociological jour- of the state stripped of all misleading ideology nals, and his analyses include such topics as con- (Schumpeter [1918] 1991, 100). sumer behavior (“conspicuous consumption”), Schumpeter did not regard Capitalism, Social- why industrialization in England slowed down ism, and Democracy (1942) as a work in sociology, (“the penalty of taking the lead”), and the short- but its main thesis is nonetheless sociological in na- comings of neoclassical economics (Veblen [1899] ture: the motor of capitalism is intact but its insti- 1973, [1915] 1966, [1919] 1990; cf. Tillman tutional structure is weak and damaged, making it 1992). Final mention should also be made of likely that socialism will soon replace it. On this Werner Sombart (1863–1941), who wrote on the point Schumpeter was evidently wrong. His analy- history of capitalism, on “the economic temper of sis of the forces that are undermining capitalism our time,” and on the need for a “verstehende eco- may seem idiosyncratic at times. Nonetheless, nomics” (1902–27, 1930, 1935). Schumpeter should be given credit for suggesting The contributions of Schumpeter are especially that the behavior of intellectuals, the structure of noteworthy (see, e.g., Swedberg 1991b). His life the modern family, and so on, do affect capitalism. spanned two periods in modern economics—the Of special importance are his insights about eco- period around the turn of the century, when mod- nomic change or, as Schumpeter phrased it with ern economics was born, and the period of a few his usual stylistic flair, “creative destruction.” decades later when it was mathematized and se- Entrepreneurship is at the heart of Schumpeter’s cured its place as “mainstream.” Schumpeter simi- treatment of economic change (1912, chap. 2; larly spanned two distinct periods in sociology— 1934, chap. 2; 2003). He himself saw his theory of from Max Weber in the first decade of the 20th entrepreneurship as falling in economic theory, century through Talcott Parsons in the 1930s and more precisely as an attempt to create a new and 1940s. Schumpeter is also unique among econo- more dynamic type of economic theory. Nonethe- mists for trying to create a place for economic so- less, many of his ideas on entrepreneurship are so- ciology next to economic theory. In this last effort ciological in nature. His central idea—that entre- Schumpeter was clearly inspired by Weber and, like preneurship consists of an attempt to put together the latter, referred to this type of broad economics a new combination of already existing elements— as Sozialökonomik, or “social economics.” Schum- can be read sociologically, as can his idea that the Introduction 13 main enemy of the entrepreneur is the people who ed Process” ([1957] 1971). Polanyi criticized eco- resist innovations. nomic theory for being essentially “formal”—a kind of logic focused on choice, the means-end re- Karl Polanyi lationship, and the alleged scarcity of things that Trained in law, Polanyi (1886–1964) later people want. There is also “the economistic falla- taught himself Austrian economics as well as eco- cy,” or the tendency in economics to equate the nomic history and economic anthropology. economy with its market form ([1944] 1957, 270). Though he was interdisciplinary in approach, his To the formal concept of economics Polanyi coun- main specialty was economic history, with an em- terposes a “substantive” concept, grounded in re- phasis on nineteenth-century England and prein- ality and not in logic. “The substantive meaning of dustrial economies. economic derives from man’s dependence for his Polanyi’s most famous work is The Great Trans- living upon nature and his fellows” ([1957] 1971b, formation (1944), conceived and written during 243). While the notion of economic interest is di- World War II (e.g., Block 2001, 2003). Its main rectly linked to “the livelihood of man” in sub- thesis is that a revolutionary attempt was made in stantive economics, it is only an artificial construc- nineteenth-century England to introduce a totally tion in formal economics (Polanyi 1977). new, market-centered type of society. No outside The most famous concept associated with authority was needed; everything was automatical- Polanyi’s work is “embeddedness,” which, howev- ly to be decided by the market (“the self-regulating er, he used in a way different from its contempo- market”). In the 1840s and 1850s a series of laws rary use. According to the current use, an eco- was introduced to turn this project into reality, nomic action is in principle always “embedded” in turning land and labor into common commodities. some form of social structure. According to Polanyi, Even the value of money was taken away from the economic actions become destructive when they political authorities and handed over to the mar- are “disembedded,” or not governed by social or ket. According to Polanyi, this type of proceeding noneconomic authorities. The real problem with could only lead to a catastrophe. When the nega- capitalism is that instead of society deciding about tive effects of the market reforms became obvious the economy, it is the economy that decides about in the second half of the nineteenth century, society: “instead of the economic system being Polanyi continues, countermeasures were set in to embedded in social relationships, these relation- rectify them (“the double movement”). These ships were now embedded in the economic sys- measures, however, only further unbalanced socie- tem” ([1947] 1982, 70). ty; and developments such as fascism in the twen- Another set of conceptual tools for economic so- tieth century were the ultimate results of the ill- ciology is Polanyi’s “forms of integration.” His fated attempt in mid-nineteenth-century England general argument is that rational self-interest is too to turn everything over to the market. unstable to constitute the foundation for society; Polanyi also cast his analysis in terms of interests an economy must be able to provide people with and argued that in all societies, before the nine- material sustenance on a continuous basis. There teenth century, the general interests of groups and are three forms of integration, or ways to stabilize societies (“social interests”) had been more impor- the economy and provide it with unity. These are tant than the money interest of the individual reciprocity, which takes place within symmetrical (“economic interest”). “An all too narrow concep- groups, such as families, kinship groups, and neigh- tion of interest,” Polanyi emphasizes, “must in ef- borhoods; redistribution, in which goods are allo- fect lead to a warped vision of social and political cated from a center in the community, such as the history, and no purely monetary definition of in- state; and exchange, in which goods are distributed terest can leave room for that vital need for social via price-making markets (Polanyi [1957] 1971b). protection” ([1944] 1957, 154). In each economy, Polanyi specifies, there is usually The theoretical part of The Great Transforma- a mixture of these three forms. One of them can be tion is centered around Polanyi’s concepts of “em- dominant, while the others are subordinate. beddedness” and “principles of behavior” (later changed to “forms of integration”). The fullest Talcott Parsons elaboration of this line of work is to be found in Talcott Parsons (1902–79) was educated as an Trade and Market in the Early Empires (Polanyi, economist in the institutionalist tradition and Arensberg, and Pearson [1957] 1971), and espe- taught economics for several years before he cially in Polanyi’s essay “The Economy as Institut- switched to sociology in the 1930s. At this time he 14 Smelser/Swedberg developed the notion that while economics deals works inspired in one way or another by the Marx- with the means-end relationship of social action, ist tradition—and its general revival in the late sociology deals with its values (“the analytical fac- 1960s and the early 1970s—made their appear- tor view”). In the 1950s Parsons recast his ideas on ance in this period. Among these were Marxist the relationship of economics to sociology, in a analyses themselves (e.g., Gorz 1977), dependen- work coauthored with Neil Smelser, Economy and cy theory (Frank 1969; Cardoso and Faletto Society (1956). This work constitutes Parsons’s 1969), world systems theory (Wallerstein 1974), major contribution to economic sociology, but and neo-Marxist analyses of the workplace (Braver- both before and after its publication Parsons pro- man 1974; Burawoy 1979). duced a number of studies relevant to economic In the early 1980s, a few studies suggested a sociology (Camic 1987; Swedberg 1991a). new stirring of interest (e.g., White 1981; Stinch- In The Structure of Social Action (1937) Parsons combe 1983; Baker 1984; Coleman 1985). And launched a forceful attack on utilitarian social with the publication in 1985 of a theoretical essay thought, including the idea that interests represent by Mark Granovetter—“Economic Action and So- an Archimedean point from which to analyze soci- cial Structure: The Problem of Embeddedness”— ety. Interest theorists, Parsons notes, cannot handle the new ideas came into focus. The same year the Hobbesian problem of order; they try to get Granovetter spoke of “new economic sociology”— out of this dilemma by assuming that everybody’s yielding a tangible name. interests harmonize (what Elie Halévy referred to Why economic sociology, after decades of neg- as “the natural identity of interests”; Parsons lect, suddenly would come alive again in the mid- [1937] 1968, 96–97). What is not understood by 1980s is not clear. Several factors may have played the utilitarians is that norms (embodying values) a role, inside and outside sociology. By the early are necessary to integrate society and provide order. 1980s, with the coming to power of Reagan and Interests are always part of society, but a social Thatcher, a new neoliberal ideology had become order cannot be built on them (405). popular, which set the economy—and the econo- In Economy and Society (1956) Parsons and mists—at the very center of things. By the mid- Smelser suggested that both sociology and eco- 1980s economists had also started to redraw the nomics can be understood as part of the general traditional boundary separating economics and so- theory of social systems. The economy is a subsys- ciology, and to make forays into areas that sociolo- tem, which interchanges with the other three sub- gists by tradition saw as their own territory. It is systems (the polity, the integrative subsystem, and also during this period that Gary Becker, Oliver the cultural-motivational subsystem). The concept Williamson, and others came to the attention of of a subsystem is reminiscent of Weber’s notion of sociologists. Likewise, sociologists began to recip- sphere, but while the latter refers only to values, rocate by taking on economic topics. the economic subsystem also has an adaptive func- To some extent this version of what happened tion as well as a distinct institutional structure. It resembles Granovetter’s version in 1985. He asso- may finally be mentioned that Economy and Society ciated “old economic sociology” with the econo- got a negative reception by economists and failed my and society perspective of Parsons, Smelser, to ignite an interest in economic sociology among and Wilbert E. Moore, and with industrial sociol- sociologists. Smelser’s attempt to consolidate eco- ogy—two approaches, he said, that had been full nomic sociology in the next decade helped fix of life in the 1960s but then “suddenly died out” economic sociology as a subfield in the minds of (Granovetter 1985b, 3). Parsons’s attempt to ne- scholars and in the curricula of colleges and uni- gotiate a truce between economics and sociology versities, but did not spawn distinct new lines of re- had also been replaced by a more militant tone. search (see especially Smelser 1963, 1965, 1976). According to Granovetter, new economic sociolo- gy “attacks neoclassical arguments in fundamental ways,” and it wants to take on key economic top- THE CURRENT REVIVAL OF ECONOMIC ics, rather than focus on peripheral ones. SOCIOLOGY (1980S–) Since the mid-1980s new economic sociology has carved out a position for itself in U.S. sociolo- Despite the efforts of Parsons and Smelser in the gy. It is well represented at a number of universi- mid-1950s and the 1960s to revive economic soci- ties. Courses are routinely offered in sociology de- ology, it attracted little attention, and by the 1970s partments. A section in the American Sociological the field was somewhat stagnant. A number of Association has been formed. A number of high- Introduction 15 quality monographs have been produced, such as by “the mobilization of resources for collective ac- The Transformation of Corporate Control (1990) tion” (Granovetter 1992, 6). by Neil Fligstein, Structural Holes (1992) by Ronald Granovetter’s argument on embeddedness has Burt, and The Social Meaning of Money (1994) by been widely discussed and sometimes criticized. An Viviana Zelizer. These three works draw on the in- attempt to elaborate it can be found in the work of sights of organization theory, networks theory, and Brian Uzzi, who argues that a firm can be “under- cultural sociology, respectively. The subfield has embedded” as well as “overembedded,” and that a also seen the appearance of several anthologies, firm is most successful when it balances between readers, a huge handbook, a textbook, and a gen- arm’s-length market ties and more solid links (Uzzi eral introduction to the field (Zukin and DiMag- 1997). Several other critics have pointed out that gio 1990; Guillén et al. 2002; Dobbin 2003; Gra- Granovetter omits consideration of many aspects of novetter and Swedberg 1992, 2001; Biggart 2002; economic action, including a link to the macroeco- Smelser and Swedberg 1994; Carruthers and Babb nomic level, culture, and politics (e.g. Zukin and 2000; Swedberg 2003). DiMaggio 1990; Zelizer 1988; Nee and Ingram 1998). Zukin and DiMaggio suggest that to reme- dy this lacuna, one should not only talk of “struc- Granovetter on Embeddedness tural embeddedness,” but also of “political,” “cul- While several attempts have been made to pres- tural,” and “cognitive embeddedness.” ent general theories and paradigms in new eco- nomic sociology, the perspective that continues to Contributions Using Structural Sociology and command most conspicuous attention is Gra- Networks novetter’s theory of embeddedness. Since the mid- 1980s Granovetter has added to his argument and Structural sociology has played a crucial role in refined it in various writings that are related to his promoting and adding to network analysis in soci- two major projects since the mid-1980s: a general ology, including economic socioloy. This approach theoretical work in economic sociology entitled is centered around the proposition that the rela- Society and Economy: The Social Construction of tions of persons and positions are crucial to the so- Economic Institutions, and a study (together with cial process (Mullins and Mullins 1973, 251–69). Patrick McGuire [1998]) of the emergence of the Its practitioners often use a mathematical ap- electrical utility industry in the United States. proach, focus on social mechanisms, and avoid re- The most important place in Granovetter’s work gression analysis and similar quantitative methods. where embeddedness is discussed is his 1985 arti- Its most prominent scholars are Harrison White cle, which operated as a catalyst in the emergence and his students, such as Mark Granovetter, Scott of new economic sociology and which is probably Boorman, and Michael Schwartz. White’s work in the most cited article in economic sociology since economic sociology has concerned networks, va- the 1980s. His own definition of embeddedness is cancy chains, and markets. He begins his analysis quite general and states that economic actions are from people’s physical dependence on their sur- “embedded in concrete, ongoing systems of social roundings but notes that interests are soon em- relations” (Granovetter 1985a, 487). Networks bedded in social relations (White 1970, 1981, are central to this concept of embeddedness (491). 1992, 24). An important distinction needs also to be drawn, Network studies have been at the center of the according to Granovetter, between an actor’s im- new economic sociology. Many studies have been mediate connections and the more distant ones— made of the links between corporations and, more what Granovetter elsewhere calls “relational em- generally, within so-called industrial districts beddedness” and “structural embeddedness” (1990, (Ebers 1997; Saxenian 1994). Burt (1992) ana- 98–100; 1992, 34–37). lyzes competition by drawing on Simmel’s idea The most important addition to the 1985 article that you are in a good position if you can play out has been connecting the concept of embeddedness two competitors against one another (tertius gau- to a theory of institutions. Drawing on Berger and dens, or “the third who benefits”). Brian Uzzi’s Luckmann (1967) Granovetter argues that institu- study of embeddedness from 1997 also makes use tions are “congealed networks” (1992, 7). Inter- of networks, as does Granovetter’s essay (1994) on action between people acquires, after some time, business groups. A multitude of other fine studies an objective quality that makes people take it for could be mentioned (see, e.g., Powell and Lisa- granted. Economic institutions are characterized Doerr 1994, this volume). One criticism of the 16 Smelser/Swedberg network approach is that it has ignored the role in plified by Fligstein’s (1990) study of the large cor- economic life of politics and culture (Fligstein poration in the United States. Fligstein notes that 1996, 657). the multidivisional form of organization spread for mimetic reasons—but also because this organiza- tional form made it easier for firms to take advan- Contributions Using Organization Theory tage of new technology and the emerging national New economic sociology has been very success- market. ful in using organization theory to explore a num- ber of important topics, such as the structure of Contributions Using Cultural Sociology firms and the links between corporations and their environments. One fine example is Nicole Woolsey A group of economic sociologists is committed Biggart’s Charismatic Capitalism (1989), which to a cultural approach, and a substantial number deals with a very special type of organization: di- also refer to symbols, meaning structures, and the rect selling organizations, such as Tupperware and like in their studies of the economy. Cultural eco- Mary Kay Cosmetics. Three theoretical approach- nomic sociology owes much to the work of its two es in organization theory have been especially im- most prominent representatives, Viviana Zelizer portant for the development of new economic so- and Paul DiMaggio. In a programmatic statement ciology: resource dependency, population ecology, Zelizer criticized contemporary economic sociolo- and new institutionalism. gy for its tendency to reduce everything to social Resource dependency, as its name suggests, rests relations and networks—“social structural abso- on the postulate that organizations are dependent lutism” (1988, 629). She also rejected the alterna- on their environments to survive. An example of tive of reducing everything in the economy to cul- this approach is work by Burt (1983), who suggests ture (“cultural absolutism”). The goal should be to that three important factors that affect profits are take economic and cultural factors into account. the number of suppliers, competitors, and cus- DiMaggio has been similarly skeptical of a full-scale tomers. The more “structural autonomy” a firm cultural analysis of the economy, but argues that it has, the higher its profits; that is, a firm with many should include a “‘cultural’ component”—but not suppliers, few competitors, and many customers will more (DiMaggio 1994, 27; cf. Zukin and DiMag- be in a position to buy cheaply and sell expensively. gio 1990, 17–18). According to DiMaggio, culture In population ecology the main driving force of can be either “constitutive,” referring to categories, organizations is survival. It has been shown that scripts, and conceptions of agency, or “regulative,” the diffusion of an organizational form typically referring to norms, values, and routines. passes through several distinct stages: a very slow Viviana Zelizer’s work on culture occupies a beginning, then explosive growth, and finally a central position (however, see also Dobbin 1994; slow settling down (e.g., Hannan and Freeman Abolafia 1998). Her first major work (1979) was a 1989). Individual studies of this process in various study of life insurance in the United States, with industries, such as railroads, banks, and telephone special emphasis on the clash between sacred val- companies, fill a void in economic sociology (e.g., ues and economic values. Over time the economic Carroll and Hannan 1995). emphasis came to dominate. Later Zelizer pub- New institutionalism is strongly influenced by lished Pricing the Priceless Child (1985), which de- the ideas of John Meyer and is centered around scribes a similar movement, but this time in re- what may be called cultural and cognitive aspects verse. Children, who in the nineteenth century had of organizations (see Powell and DiMaggio 1991). had an economic value, would in the twentieth Meyer argues that organizations seem much more century increasingly be seen in emotional terms rational than they actually are, and that specific and regarded as “priceless.” In her most recent models for organizing activities may be applied major study (1994), Zelizer argues that money widely—including to circumstances they do not fit. does not constitute a neutral, nonsocial substance, It has been argued that the strength of new insti- but appears in a variety of culturally influenced tutionalism is its exploration of “factors that make shapes (“multiple monies”). actors unlikely to recognize or to act on their in- terests” and its focus on “circumstances that cause Contributions Building a Historical and actors who do recognize and try to act on their in- Comparative Tradition terests to be unable to do so” (DiMaggio 1988, 4–5). The possibility of uniting a more traditional A number of comparative and historical studies, interest analysis with new institutionalism is exem- bringing Max Weber’s monumental works to Introduction 17 mind, have been an ingredient of recent economic ever, Coleman 1994). It should be mentioned, sociology (see Dobbin, chap. 2 in this volume). A however, that in the same year Granovetter’s essay few of the works already mentioned draw on his- on embeddedness appeared, Coleman published a torical material (e.g. Granovetter and McGuire brief article in which he developed the parallel ar- 1998; Zelizer 1979, 1985, 1994). To this list gument that economists have failed to introduce should be added Bruce Carruthers’s study of fi- social relations into their analysis (1985, 85). nance in seventeenth- and eighteenth-century En- The key theoretical chapter in Foundations of So- gland, and several attempts by economic sociolo- cial Theory is entitled “Actors, Resources, Interest, gists to challenge Alfred Chandler’s account of and Control” (chap. 2); it attempts to reconceptu- the rise of the large industrial corporation in the alize interest theory and to make it sociological. United States. Carruthers is interested in showing Coleman’s point of departure is that it is not suffi- that not only do economic interests influence pol- cient to speak of actors and their interests; “re- itics, but also the opposite: “political interests in- sources” and “control” must be considered. Cole- fluence economic action” (1996, 7). Using pri- man argues that if an actor has something of mary material on the trade in shares in the East interest to another, the two will interact and there- India Company in the early 1700s, he establishes by create a social system. In Coleman’s terminolo- that political ambitions clearly influenced the gy, if actor A has control over a resource that is of choices of buyers and sellers. The critique of Chan- interest to actor B, they will interact. dler has similarly emphasized the state’s role in the Foundations, as well as other works by Coleman, emergence of the large industrial corporation. contains a number of analyses of much relevance to Chandler’s key idea—that recent advances in tech- economic sociology. Three subjects of particular nology had made it necessary around the turn of importance are trust, social capital, and the mod- the last century to reorganize the large corporation ern corporation. Trust is conceptualized by Cole- as a multidivisional unit—has also been criticized man in a manner very different from Simmel. (e.g. Fligstein 1990; Roy 1990, 1997; Freeland While the latter emphasized trust as unthinking 1996, 2001). belief, Coleman characterizes trust as a conscious Explicitly comparative studies are fewer in num- bet: you calculate what you can win and lose by ber. One notable work is Forging Industrial Policy: trusting someone. Social capital is any social rela- The United States, Britain, and France in the Rail- tion that can be of help to an individual in realiz- way Age (1994) by Frank Dobbin (see also Evans ing an interest. “The function identified by the 1995). The author argues that industrial policy in concept ‘social capital’ is the value of those aspects these three countries between 1825 and 1900 dif- of social structure to actors, as resources that can fered on important points. In the case of the Unit- be used by the actors to realize their interests” ed States, local self-rule and a weak federal state (Coleman 1990, 305). A firm represents, for ex- meant that railway regulation translated into anti- ample, a form of social capital—even if social capi- monopoly policy and attempts to safeguard private tal is usually the unintended result of some action, initiatives. The tradition of a centralized state in undertaken for a different purpose. Finally, Cole- France inspired strong interference from the au- man emphasizes that once people have created a thorities in the planning and running of the rail- firm to realize their interests, the firm can develop roads. And the tradition of safeguarding elite indi- interests of its own (see especially Coleman 1974). viduals in Britain helped to bring about an To Coleman, the firm is basically a social inven- industrial policy that shielded the small, entrepre- tion, and agency theory is particularly useful for neurial firm. analyzing it.

The Contribution by James Coleman and Bourdieu and Other European Contributions to Interest-Based Sociology Economic Sociology The most radical attempt during the last few New economic sociology is primarily a U.S. phe- decades to develop a sociological interest analysis is nomenon and has only recently begun to spread to that of James Coleman (1926–1995). His efforts Europe. Many of the major European sociologists were initiated in the early 1960s and found final have, however, written on the economy as part of expression in Foundations of Social Theory (1990). their general concern with society. This is not only Coleman’s intention was to use interest as the true of Raymond Aron, Michel Crozier, and Ralf foundation for all of sociology, and initially he paid Dahrendorf, but also of major sociologists with little attention to economic sociology (see, how- notable contemporary influence, such as Niklas 18 Smelser/Swedberg

Luhmann, Jürgen Habermas, and Pierre Bourdieu In economic sociology Bourdieu has also devel- (cf. also Giddens 1973, 1987). Luhmann (1927– oped a general approach; an application of his gen- 1998), for example, has written a number of essays eral sociology, which is centered around the con- on the economy, which, however, have been some- cepts of the field, habitus, and different types of what neglected in the current debate. His consis- capital. In 1997 he published an article entitled tent thesis is that “economic sociology can only “The Economic Field,” which was revised and develop if its approach is overhauled and it sets given the new title of “Principles of an Economic out . . . from the concept of the economy as a sub- Anthropology” a few years later (Bourdieu 1997, system of society” (Luhmann [1970] 1982, 221– 2000a; see chap. 4 in this volume). Since Bourdieu 22; cf. 1988; Beckert 2002, 201–40). Habermas is very critical of Granovetter’s approach—for ig- has written much less on the economy than Luh- noring the structural dimension embodied in the mann and has not shown any interest in economic notion of the field—one may well be justified in sociology. Nonetheless, his general thesis that in speaking about two different approaches in con- modern society the lifeworld of the individual has temporary economic sociology: that of embedded- been uncoupled from the system world, including ness and that of fields. the economic subsystem, has been much discussed According to Bourdieu, the economy can be (e.g. Habermas 1984–87; cf. Sitton 1998; for conceptualized as a field (as can an industry and a knowledge-constitutive interests, see Habermas firm), that is, as a structure of actual and potential [1968] 1971). relations (Bourdieu and Wacquant 1992, 94–120; Of the major European sociologists Pierre Bour- Bourdieu 1997; cf. Fligstein 2001). Each field has dieu (1930–2002) has shown the most interest in its own logic and its own social structure. The the economy, from his studies of Algeria in the structure of a field can also be understood in terms 1950s to a recent work on the housing market in Les of its distribution of capital. Besides financial capi- structures sociales de l’économie (2000b). Bourdieu tal, three other forms of capital are especially im- has also devoted issues of his journal Actes de la portant: social, cultural, and symbolic. Social capi- recherche en sciences sociales to economic topics, such tal is one’s connections of relevance to economic as “social capital” (no. 31, 1980), “the social con- affairs; cultural capital comes from one’s education struction of the economy” (no. 65, 1986), and “the and family background; and symbolic capital has to economy and the economists” (no. 119, 1997). do with various items with a cognitive basis, such Most importantly, however, he has developed an as goodwill and brand loyalty (Bourdieu 1997; for important theoretical alternative to the model of a general account of the different types of capital, embeddedness and its offshoots, namely the idea of see Bourdieu [1983] 1986). The individual actors the economy as a field, with all that this implies. in the economic field bring with them their “eco- Bourdieu’s foremost empirical study of interest nomic habitus” (or “economic predispositions”), to economic sociology—Travail et travailleurs en which relates their future actions to their past ex- Algérie (Work and workers in Algeria; 1963)—can perience. Homo economicus, Bourdieu says, is “a be described as a rich ethnographic study (for a kind of anthropological monster” (1997, 61). shortened version in English, see Bourdieu 1979). Bourdieu’s economic actor does not act in a ra- Some of its strength comes from the author’s jux- tional way but in a reasonable way. taposition of the traditionalistic worldview of the In addition to the three concepts of field, capital, Algerian peasants with the capitalist worldview of and habitus important in Bourdieu’s general soci- modern people. While the peasant in Algeria has ology, there exists a fourth concept that is equally an intensely emotional and nearly mystical rela- important but often ignored: interest, or that which tionship to the land, this is not the case in a socie- drives the actor to participate in a field. “Interest is ty dominated by wage labor and capital. Work is to ‘be there,’ to participate, to admit that the game not directly related to productivity in Algeria; one is worth playing and that the stakes that are creat- tries to keep busy all the time. Institutions such as ed in and through this fact are worth pursuing; it is money and credit are seen in a different light. to recognize the game and to recognize its stakes” Money and exchange are seen as inferior to barter; (1998a, 77; cf. Bourdieu and Wacquant 1992, and credit—which, as opposed to assets, is tied to 115–17). The opposite of interest (or illusio) is in- the person—is resorted to only in rare circum- difference (or ataraxia). Each field has its own in- stances such as personal distress. In Algeria com- terest, even if it masquerades as disinterestedness. mercial ventures are preferred to industrial ones, Bourdieu criticizes the economists’ version of in- since the risk involved is much smaller. terest as ahistorical—“far from being an anthropo- Introduction 19 logical invariant, interest is a historical arbitrary” also add the studies of Frédéric Lebaron on French (Bourdieu and Wacquant 1992, 116). The econo- economists, Emmanuel Lazeaga on work in a law mists are also wrong in thinking that “economic in- firm, and Philippe Steiner on different types of eco- terest” drives everything; “anthropology and com- nomic knowledge (Lebaron 2000; Lazega 2000; parative history show that the properly social magic Steiner 1998, 2001, 2004). There is considerable of institutions can constitute just about anything as research in economic sociology in other European an interest” (Bourdieu and Wacquant 1992, 117). countries as well. Sociology of money and finance The error of assuming that the laws of the eco- has, for example, several skillful practitioners in En- nomic field are applicable to all other fields in soci- gland and Spain (e.g., Dodd 1994; Ingham 1998, ety Bourdieu terms “economism” (1998a, 83). 2004; Izquierdo 2001). An innovative study of in- Bourdieu’s analysis has been discussed in only heritance has just been published in Germany, limited ways in contemporary economic sociology. where the sociology of finance is also very strong Distinction (Bourdieu [1979] 1986), for example, (Beckert, forthcoming; see also Beckert 2002; Knorr has much to say on preference formation and also Cetina and Preda, forthcoming; cf. Zuckerman contains a new approach to consumption. Bour- 1999). Industrial districts are being studied in Italy dieu’s emphasis on economic suffering and his at- (e.g., Trigilia 2001). Finally, Knorr Cetina in Ger- tempt to tie it to the problematic of theodicy is many and Aspers in Sweden have independently of also of much interest (e.g., Bourdieu et al. 1999). one another embarked on the project of applying So is his related effort to discuss the normative as- phenomenology to economic sociology (Knorr pect of economic sociology, for example, in his re- Cetina and Brügger 2002; Aspers 2001b). A few cent little book on “the tyranny of capital” (1998b; general introductions to economic sociology have see also Bourdieu 2002). been published in Europe; there also is a newsletter It would, however, be incorrect to give the im- exclusively devoted to economic sociology in Eu- pression that Bourdieu is the only economic soci- rope (Steiner 1999; Trigilia 2002; see Economic So- ologist of interest in contemporary France. Luc ciology: European Electronic Newsletter, 1999–; see Boltanski and Laurent Thévenot’s work ([1987] http://econsoc.mfipg.de). 1991) on the different ways that an action can be justified or legitimized is of potential relevance to economic sociology (e.g., Stark 2000). Their ideas A CONCLUDING NOTE about the way that people legitimize their actions by referring to different “worlds” of justification Space has constricted our review of both histori- are hard to summarize, and one example will have cal developments and contemporary highlights (the to suffice. A person who works for a firm may jus- latter are amply covered in the chapters that follow). tify his behavior by referring either to efficiency We have seen enough, however, to permit a few, (“the world of the market”) or to loyalty (“the equally brief, evaluative comments on the field of domestic world”)—with very different results economic sociology today, and more particularly on (Boltanski and Thévenot [1987] 1991). Boltanski the relations between economics and sociology. has also criticized the network approach as ideo- What is unique about the situation, as it has de- logical and procapitalistic (Boltanski and Chiapello veloped through the 1990s, is that for the first 1999). In speaking of networks, it must also be time since the nineteenth century, mainstream mentioned that Michel Callon has added to net- economics has begun to analyze economic institu- work theory by arguing that not only individuals tions again. This has already led to a number of in- and organizations, but also objects, can be actors teresting developments within economics proper (e.g., Law and Hassard 1999; cf. Callon 1998). A as well as to a tentative dialogue with sociology machine, for example, can determine what kinds of and other social sciences, such as psychology and actions a machine operator has to perform and also history. It is important that efforts be made, by so- how she is connected to other people in the process ciologists as well as by economists, to deepen this of production. According to another important ar- dialogue since both disciplines are needed to fill gument of Callon, economic theory often fits real- the void created by nearly a century of neglect of ity so well because it has helped to create this real- economic institutions. As an example of coopera- ity in the first place (so-called performivity). tion between the economic and the sociological Outside of the United States, France has become approach that has occurred since the first edition something of a center for innovative economic soci- of the Handbook, we cite the important work of ology, and to the work just mentioned one should Avner Greif (e.g., 1994, forthcoming). 20 Smelser/Swedberg

The “imperialistic” mode, whether in its socio- nomic institutions, we also expect that new ques- logical form or in its economic form, seems un- tions will be raised that cut across the convention- promising as a way of dealing with either econom- al boundaries between economics and sociology. ic behavior or economic institutions (or for that For this reason it is essential that economists as matter, behavior and institutions in general). The well as sociologists be willing to entertain new and complexity of determinants bearing on every kind unfamiliar ideas. An opportunity, such as the cur- of behavior suggests the greater scientific utility of rent one, to pull economics and sociology closer to approaches that are less monolithic. It is true that each other is rare and should not be neglected. “imperialistic” works have greatly stimulated the debate over economy and society. Eventually, how- NOTES ever, this approach becomes counterproductive scientifically, tending to excite territorial battles 1. While this chapter covers much of the same ground as rather than dispassionate inquiry. our chapter in the first edition of the Handbook (“The Soci- ological Perspective on the Economy”), it has been com- Correspondingly, it is, in our opinion, more pletely rewritten and revised for the current edition. We fruitful to pursue the kind of approach to eco- have also introduced a new theme: the need to pay more at- nomic sociology taken by Weber and Schumpeter tention to interests in economic sociology. For helpful com- in their social economics, or Sozialokönomik. Such ments we would like to thank Fred Block, Robyn Dawes, an approach is broad-based and multidisciplinary. Frank Dobbin, and Viviana Zelizer. 2. The field has been called “the sociology of economic Economic sociology, in other words, should have life,” as in Smelser 1976 and in Granovetter and Swedberg its own distinct profile as well as cooperate and co- 1992, 2001; Fred Block’s (1990) preferred term is sociology of exist with economic theory, economic history, and economies. We find little if any difference in denotation be- economic anthropology. We also hope that depart- tween these terms and economic sociology. For convenience we stay with the term that emerged in the classical literature. As a ments of economics will include economic sociol- term for all social science analysis of the economy—economic ogy among their courses and hire economic soci- theory plus economic history, economic sociology, and so ologists, as business schools currently do in the on—we agree with Weber, Schumpeter, and Etzioni (1988) United States. that social economics (Sozialökonomik) is an appropriate term. While the current pluralistic approach has given 3. The term economic sociology has also been used to de- note a rational choice perspective as applied to social behav- economic sociology richness and vitality, the bold- ior in general (see Becker 1990). This usage is, to us, too er, creatively synthesizing efforts of the classics are broad since it encompasses practically all of sociology notably missing. Without that complementary line (minus the analysis of the economy proper). of theorizing, the field of economic sociology— like any area of inquiry that specializes and subspe- REFERENCES cializes—tends to sprawl. Continuing efforts to sharpen the theoretical focus of economic sociolo- Abolafia, Mitchel. 1998. “Markets as Culture: An gy and to work toward synthetic interpretations of Ethnographic Approach.” Pp. 69–85 in The Laws of its findings are essential. the Markets, ed. Michel Callon. Oxford: Blackwell. 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