CLASSICAL ECONOMIC SOCIOLOGY

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CLASSICAL ECONOMIC SOCIOLOGY
The usual suspects were the founding fathers of
economic sociology Marx, Durkheim, Weber but
we should also include economists Alfred
Marshall, Thorstein Veblen, Vilfredo Pareto,
Joseph Schumpeter, ...
Why should we bother to study the economic
sociologies of the classical era (1890-1920s)?
Apart from a sociology-of-knowledge perspective,
are those classical writings relevant for
economic sociology in its 1980s-present
revival? What classical concepts, theories, and
debates remain useful sources for guiding
contemporary research and theory construction
efforts?
For this week, well rely on contemporary
commentaries about the classical economic
sociologists, knowing that a fuller understanding
appreciation depends on immersing oneself in
those original literatures.
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Marshalls Economic Sociology
Alfred Marshalls (1842-1924) Principles of
Political Economy (1890) integrated theories of
marginal utility, supply-and-demand, and
production costs into a comprehensive
neoclassical account of micro-economics.

• Marshall also contributed to economic sociology
  (Aspers 1999)
• Preferences (wants) are generated by production
  activities
• A theory of action where the prime motive
  money is socially related to the (believed)
  preferences of other actors (cf. Weber)
• Organization knowledge as 4th factor of
  production used to satisfy wants (w/ land, labor,
  capital) customs, training (human capital), firm
  management, industries, economies, societies

Marshall identified industrial districts (e.g.,
Third Italy), geographic embeddedness of skilled
workers in which a socially formed industrial
atmosphere prevails In districts in which
manufactures have long been domiciled, a habit of
responsibility, of carefulness and promptitude in
handling expensive machinery and materials
becomes the common property of all The mysteries
of industry become no mysteries but are as it
were in the air, and children learn many of them
unconsciously. (Principles of Economics)
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The Leisure of a Theoried Class?
Minnesotan Thorstein Veblen (1857-1929) coined
the terms conspicuous consumption pecuniary
emulation - flaunting wealth to signal status.
Veblens satiric Theory of the Leisure Class
(1899) analyzed how culture, not utility, shapes
economic choices. Societies still reflect tribal
divisions of labor, where higher-status groups
monopolize mental jobs relegate menial labor to
inferiors. Silverware, bling, opera, Lexuses
all exemplify conspicuous consumption wasting
money to display ones higher status.
A Veblenian ceremonial / instrumental dichotomy
stratifies societies by status ("invidious
distinctions"), that run against instrumental
aspects of the economy. The ceremonial harks
backward toward tribal legends but the
instrumental orients forward to the technological
control over future outcomes.
The Theory of Business Enterprise (1904) is
Veblens cultural alternative to neoclassical
marginalist production. Ceremony reinforces
prejudices and advantages that sustain reward
the current power structure. Instrumental
decisions, which creating benefits based on
scientific and technocratic criteria (e.g.,
engineers), inevitably subvert the ancient tribal
culture.
Wanna join her tribe?
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Self-Regulation, Not Self-Interest
David Émile Durkheims (1858-1917) project was to
explain how social facts enable modern societies
to become integrated rather than anomic.
Division of Labor in Society (1893), his doctoral
thesis, argued ? Differentiation of labor
creates complex interdependencies ?
Self-interest run amok into economic anomie
wrecks society ? Strong collective consciousness
norms can regulate behaviors ? Legal systems
evolve from punition to regulation by contract
In Durkheims functionalism, the organic
solidarity of modern society replaces the
mechanical solidarity of primitive tribes.
Harmonious functioning of industrial nations
requires creation of occupational corporations
associations of professions crafts whose
participants thrive in a warmth that quickens or
gives fresh life to each individual, which makes
him disposed to empathize, causing selfishness to
melt away (Durkheim 1893).
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On Your Marx
Karl Marx (1818-1883) proposed a
political-economy theory of social change in
Communist Manifesto (w. Friedrich Engels) and Das
Kapital.
Societies evolved historically from Ancient to
Feudalism, Capitalism, future Socialism, ending
in a Communist Utopia. Marxs dialectical
materialism theory viewed class struggle as the
engine of change. During Victorian-era
capitalism, the bourgeoisie oppresses the working
class (proletariat), which will organize
overthrow capitalism in a violent revolution.
A societal superstructure of culture laws is
built on the economic base, whose rate of change
is driven by technological innovation (windmills
vs steam engines). In capitalist mode of
production, economic means of production change
rapidly, but the social relations of production
lag behind. Mismatched superstructure base
generate disruption and conflict thus, modes of
production plant the seeds of their own
destruction.
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Among these dark Satanic Mills.
Marxs economic analysis rested on the labor
theory of value, in which a commoditys price is
equated to the labor necessary to produce it.
Marx assumed that only actual producers created
value, not property owners.

• Capitalists underpay workers, thus extracting
  surplus value in the form of profit (labor
  exploitation).
• However, capitalist competition leads to a
  steadily falling rate of profit, so exploitation
  ratchets even higher.
• Result is working class immiserization as wage
  rates become inadequate to reproduce decent
  living standards.

Passing along a rough bank, among stakes and
washing-lines, one penetrates into this chaos of
small one-storied, one-roomed huts, in most of
which there is no artificial floor kitchen,
living and sleeping-room all in one. In such a
hole, scarcely five feet long by six broad, I
found two beds - and such bedsteads and beds! -
which, with a staircase and chimney-place,
exactly filled the room. ... Everywhere before
the doors refuse and offal that any sort of
pavement lay underneath could not be seen but
only felt, here and there, with the feet. This
whole collection of cattle-sheds for human beings
was surrounded on two sides by houses and a
factory, and on the third by the river, and
besides the narrow stair up the bank, a narrow
doorway alone led out into another almost equally
ill-built, ill-kept labyrinth of dwellings.... .
Engels, The Condition of the
Working-Class in England in 1844
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From Ruling Class to Revolution
Marxs political theory was much sketchier. As
the proletariats class consciousness develops,
it transforms from a Klasse an sich to Klasse für
sich. Then ensues violent revolutionary overthrow
of the capitalist ruling class, installing common
property ownership a classless society.
The executive of the modern state is but a
committee for managing the common affairs of the
whole bourgeoisie. Marx Engels (1848)
The Communist Manifesto
Apogee of Marxism was What Is to Be Done?,
Vladimir Lenins theory that a vanguard party
must organize the proletariat, lead a violent
revolution, and establish a global communist
system. Eventually, the communist state will
wither-away. Did Lenin and his Soviet heirs
succeed in practicing what Karl Marx preached?
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Circulating Elites
Vilfredo Pareto (1848-1923) contributed to
economic sociology concepts of comparative income
distribution analysis and indifference curves.
Paretos optimum the optimal allocation of
resources occurs when no actors subjective
utility can be made better off while keeping all
others as well off as they were before
reallocation. This principle is often invoked
to evaluate the fairness of a social-welfare or
income-redistribution policy proposal.
Pareto (as well as Gaetano Mosca and Roberto
Michels) developed a political elite theory to
discredit Marxs two-class conflict model of
change. Lions rule by force of personality,
foxes by artful persuasion, but the apathetic
masses are unfit to participate via democratic
government. The circulation of elites occurs
because each type elite has inherent weaknesses
while the lions act forcefully, they lack
imagination although the foxes are cunning, they
fail to act coercively. Benito Mussolini heard
Pareto lecture and later appointed him to a
ministry in his Italian fascist regime.
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Max Weber, Professor of Economics
Max Weber (1864-1920) taught economics at
Freiburg until a nervous breakdown turned him
into a private scholar who developed sociology.
His Outline may be viewed either as a very
positive project (Swedberg 1999) or as narrow
and static (Peukert 2004). Weber accepted
neoclassical marginal utility theory, drew from
the German Historical School and its Austrian
School challengers. Grundriss depicted economic
action as rational and goal-directed its purpose
is to satisfy an actors needs by external means.
Webers economic sociology sought an interpretive
understanding (Verstehen) of social action, its
subjective meaning to actors. Economic action is
interest-driven behavior oriented to utility and
to others behavior. Four ideal types of
action ? Traditional action unthinking
behavior guided by custom habit ? Affective
action emotional and sentimental motives for
action ? Value action (Wertrational) oriented
to goals maybe not rationally chosen, but pursued
by rational means religions are major sources of
value rationality ? Goal action (Zweckrational)
oriented to achieve a goal that is rationally
chosen economic actions can be assumed
goal-rational until shown otherwise
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The Protestant Ethic
Webers classic essay was part of larger project
on the effects of religious ethics on economic
life, including religions of China, India,
ancient Israel.
Ascetic Protestantism stressed rational and
innovative religious practices. Interest in
salvation exemplifies value rationality.
Calvinists believed that salvation was
predestined, and cannot be changed through good
deeds. High ethical and pure moral conduct, but
also prosperity, proves ones elected status
within the believer community.
John Knox
John Calvin
Weber argued that the theologies of certain
Protestant sects encouraged a rational pursuit of
worldly activities that were infused with
positive spiritual and moral meanings. While
desiring to achieve religious salvation, the
Protestant adherent eventually comes to believe
that secular work, carried out in a methodical
manner, represents a means to salvation
(Swedberg 200313). Thus, secular goal-rational
economic action was a by-product of the
value-rational religious doctrines which fostered
planning self-denial.
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and the Spirit of Capitalism
Why did a rational capitalism form arise in the
West, then diffuse globally?
The Spirit of Capitalism is a set of ideas and
habits for rationally pursuing economic gain.
Although present outside Western cultures,
heroic entrepreneurs alone could not create a
new economic system. In order that a manner of
life well adapted to the peculiarities of
capitalism could come to dominate others, it had
to originate somewhere, and not in isolated
individuals alone, but as a way of life common to
whole groups of man.
Factors contributing to a progressive
disenchantment of the Western world included
pursuits of mathematics and science,
jurisprudence, governmental administration. By
the time Weber wrote, capitalism had outgrown its
religious origins, leaving only the rational
economic pursuit of wealth.
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Max Webers typology of capitalism, according to
Richard Swedberg (2003).
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Class, Status, and Party
Weber attacked Marxs class conflict model,
proposing three bases of stratification with
unequal consequences for a groups life chances
? Social class - based on economically determined
relationship in various markets (owner, employee,
creditor, debtor, rentier, etc.) ? Status class
- based on noneconomic qualities such as honor,
prestige, religion, ethnicity, race ? Party
class - affiliations in the political domain
But parties live in a house of power. Their
action is oriented toward the acquisition of
social power, toward influencing a communal
action no matter what its content may be. ...
Parties also differ according to whether or not
the community is stratified by status or by
class. Above all else, they vary according to
the structure of domination within the community.
For their leaders normally deal with the
conquest of a community. (Wirtschaft und
Gesellschaft)
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Weberian Power is Relational
Power in is inherently the property of a
relationship between actors. Webers two famous
definitions explicitly asserted that power
(Macht) is not identical to the resources held by
an actor, but occurs during situated interactions
involving actors who may have potentially
opposing conflicting interests and goals.
Power is the probability that one actor within
a social relationship will be in a position to
carry out his own will despite resistance,
regardless of the basis on which that probability
rests. (1947152) We understand by power the
chance of a man or a number of men to realize
their own will in a social action even against
the resistance of others who are participating in
the action. (1968962)
Some power is based on force (coercion). But, if
actors willingly assent or consent to obey
anothers commands, power becomes legitimate
authority (Herrschaft), which may be based on
actors traditional, charismatic, or
rational-legal beliefs in the rightness of their
relationship.
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(De)volution of Authority
Weberian typology of forms of legitimate
authority reflects his concept of social
evolution trending inexorably to disenchantment
rationalization.

• Traditional customary domination by clan
  chiefs, patrimonial patriarchs
• Charismatic domination by leaders with divine
  or supra-human personality
• Rational-legal domination by rules applied by
  officers of bureaucracies

Traditional charismatic forms evolve (when a
charismatic leaders successors must routinize
his authority), toward domination by
rational-legal authorities in the bureaucracies
that increasingly pervade all modern states and
societies.
Webers metaphor for the rationalized modern
economy is an iron cage (stahlhartes Gehäuse)
The Puritan wanted to work in a calling we are
forced to do so. the care for external goods
should only lie on the shoulders of the saint
like a light cloak, which can be thrown aside at
any moment. But fate decreed that the cloak
should become an iron cage. No one knows who
will live in this cage in the future, or whether
at the end of this tremendous development
entirely new prophets will arise, or there will
be a great rebirth of old ideas and ideals or, if
neither, mechanized petrification embellished
with a sort of convulsive self-importance. For
of the last men of this cultural development, it
might well be truly said Specialists without
spirit, sensualists without heart this nullity
imagines it has obtained a level of civilization
never before achieved.
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Schumpterian Socioeconomics
Joseph Schumpeter (1883-1950) bridged the
classical-modern eras in economic sociology, one
of the few economists conversant with our field.
An Austrian friend of Weber, Schumpeter proposed
a different explanation for the origins of modern
capitalism (Brouwer 2002). The entrepreneur is
the key economic actor, whose risk-taking
innovation breaks up the circular flows in a
stable economy, and triggers the development of a
qualitatively new economic system.
What we are about to consider is that kind of
change arising from within the system which so
displaces its equilibrium point that the new one
cannot be reached from the old one by
infinitesimal steps. Add successively as many
mail coaches as you please, you will never get a
railway thereby. Theorie der wirtschaftlichen
Entwicklung (1912)
Social change occurs because the entrepreneurs
wealth status fade over successive generations.
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Creative Destruction
In Capitalism, Socialism, and Democracy (1942),
Schumpeter saw socialism triumphing over
capitalism, but for non-Marxist reasons.
Creative destruction is the process of
industrial mutation that incessantly
revolutionizes the economic structure from
within, incessantly destroying the old one,
incessantly creating a new one.
Competence-destroying inventions computers,
Internet, biotech, inventory-management systems
kill off old industries give birth to new ones.
? Hostile intellectuals are further
de-legitimating mid-20th century capitalisms
already weak and damaged institutional
structures. ? As economic growth slowed, huge
monopolistic corporations are taking over the RD
investment function of entrepreneurial families.
? Socialism will succeed, not by violent
revolution, but as electoral trends filling more
parliamentary seats with social democratic
parties.
Marx Schumpeter were false prophets of doomed
capitalism why?
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Discussion Quex
1. Weber depicts market price as a function of
both interest struggles between exchanging actors
and competitive struggles between sellers
buyers. How/Is his explanation more sociological
than the neoclassical market-price model? 2.
How/Do the Weberian social action types provide a
more comprehensive account of decision-making
than rational choice theory? Give some
examples. 3. Peukert (p. 1007) says uncertainty
and agency are missing from Webers economics.
How might an interpretive understanding model
incorporate those concepts to produce a better
explanation of irrational modern financial
markets? 4. How/Do Schumpeters Webers
explanations differ on the sources of savings and
investment that helped develop rational market
capitalism? Is Schumpeters entrepreneur a
Weberian charismatic leader for the investment
bankers? 5. How did Knight use uncertainty to
infer that profit expectations hold the key to
investment? Is Brouwer right that 1990s
dot.com bubble reflected this process? 6. What
are some alternative explanations to Webers
Protestant Ethic thesis in explaining the Wests
spectacular rise in the global economy since 17th
century? 7. Does Marx or Weber offer more useful
concepts of class, status, and power? 9. In what
ways was Marshall an economic sociologist? Could
his neoclassical credentials help to make todays
economists more receptive to sociological ideas?