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The general problem of how to conceptualize and explain the relations of the economy to wider contexts of human behavior has been one of the main themes of major theorists in the sociological tradition. In the classical phase of the tradition, Marx, Weber, and Durkheim each treated the problem. In the writings of Marx, what has been called the base–super structure model rests upon the concept of a mode of production that includes social relations of production and forces of production, corresponding approximately to economy and technology, respectively. Social classes consist of persons who occupy the same position in the social relations of production, such as lord and serf in the feudal mode of production and capitalist and wage laborer in the capitalist mode of production. The dominant class employs its power advantage to shape a superstructure consisting of non economic institutions along with a dominant ideology reflecting the interests of the ruling class. This model is associated with a theory of social change, as in The Communist Manifesto, in which Marx and Engels analyze the historical dynamics of the rise and fall of capitalism in terms of revolutionary change involving conflicts among aristocrats, who represent the declining feudal mode of production, and the bourgeoisie, who in ushering in the capitalist mode of production are also giving birth to their own ‘‘gravediggers,’’ the class of wage laborers.
One implication of this analysis is that cultural phenomena are reflections of economic and political interests, whether in support of the status quo or antagonistic to it. In the writings of Weber, however, we find cultural orientations playing not just a reflective role relative to the economy. In The Protestant Ethic and the Spirit of Capitalism (1904), unintended consequences of religious ideas arising out of the Protestant Reformation are hypothesized to have been an important factor in the rise of modern rational capitalism in the West. Calvinists were motivated by their religious ideas to seek economic success in the world and yet to maintain an ascetic lifestyle, a combination quite favorable to the formation of a bourgeois class. Eventually, however, as some of the religious spokesmen of the time feared, the religious element of the ethic was undermined by its very success in stimulating material gain. The result is the culture of modern rational capitalism, which no longer has or needs a religious meaning. In this and other studies, Weber set out a wide ranging sociology of the economy that included, in particular, complex and historically variable relationships between culture and economy. For Weber, the emergence of modern rational capitalism is only one instance of a wider historical process in which other institutional forms of rational social organization developed, especially bureaucracy. Indeed, he emphasizes that the modern capitalist enterprise, no less than the modern state, is a bureaucratic structure within which all action is organized in terms of norms of efficiency.
Durkheim made another type of theoretical contribution pertaining to economy and society. In one of his major works, The Division of Labor in Society (1893), he produced a new type of analysis of the division of labor. More than a century earlier, Adam Smith, in his treatise The Wealth of Nations (1776), had demonstrated the economic function of the division of labor in terms of gains in productivity. By contrast, Durkheim traces out its social function in the sense of social integration. He argues that simpler societies with little division of labor are held together mainly by the similarity of sentiments and ideas of their members, while complex societies with an extensive division of labor are held together by an organic form of solidarity, i.e., by the effects of the extensive interdependence of the differentiated members. Thus, in a somewhat oversimplified statement, we can say that just as Weber’s study illuminated the relation between the economy and its cultural environment, Durkheim’s study illuminated the relation between the economy and what the later social theorist Talcott Parsons called ‘‘the societal community,’’ a system of social relationships among individuals and groups.
The approach that Parsons took was to place the economy in its larger setting of human action and society in such a way as to delineate its various environments and how they con strained and enabled economic action. This approach is grounded in an action frame of reference and in a methodology of functional analysis. Any system of action has four functional problems: adaptation to its environment (A), definition and attainment of its goals (G), the integration of action elements (I), and the maintenance of meanings that are presupposed in the various actions (L). This AGIL scheme is applied recursively starting from the most general level of human action in which there is a non action (biophysical) environment. Behavioral systems, personality systems, social systems, and cultural systems respectively arise as solutions to the AGIL problems at this general action level. In particular, a social system has a structure that consists of institutionalized normative culture, e.g., the definition of rights and obligations.
From this analytical standpoint, the biophysical environment of the action system as a whole includes the living bodies of the members of the social system and the nature of the habitat in which they are collectively embedded. Thus the social system’s adaptation problem – which we may denote IA – is one of gaining some degree of institutionalized control of these environmental states. For instance, human bodies have their own functional imperatives, such as adequate food, water, and shelter. The habitat may enable but also con strain how these needs can be satisfied. Thus, provision of these primary needs in the given biophysical environment and of other needs of personalities that arise in and through action processes within a cultural tradition constitutes a functional imperative of the social system to which its economy is the ongoing institutional solution, perhaps quite inadequate from a normative point of view in the sense that what prevails may be a condition of widespread hunger and/or alienation.
As a subsystem of the social system, the structure of the economy is defined in terms of differentiated institutionalized normative culture in the sense of socially sanctioned rights pertaining to ownership, contract, employment, and the like. The actions of the members of the social system also may be analyzed, not only in terms of how the social system ‘‘solves’’ its adaptation (IA) problem but also in terms of how it produces some solution to its political (IG) problem, its social integrative (II) problem, and what Parsons later called its ‘‘fiduciary’’ (IL) problem of maintaining social value commitments.
Parsons and Smelser in their volume Economy and Society (1956) treat each of these problems and solutions in terms of their system model, so that a social system includes an economy, but also three other functional subsystems, namely a polity, a social community, and a fiduciary system, respectively, which form the social environment of the economy. Its wider action environment consists of behavioral, personality, and cultural systems. Parsons and Smelser also attempt to delineate the nature of intra economic processes in terms of the AGIL scheme as applied to the economy as a system with its own four functional problems, e.g., adaptation of its social environment with its political, social integrative, and fiduciary features. Concretely, these features may include, for instance, a weak or strong state, a weak or strong legal tradition, and an educational system that provides more or less appropriate skills and motivation for participation in productive activities. That these variable features profoundly constrain and/or enable productive economic activity is illustrated by the contemporary difficulties of establishing a market economy in a social environment in which there is an unstable polity, little by way of enforceable laws protecting private property, and an educational system that discourages individual initiative.
Functional analysis has certain conceptual implications. Parsons and Smelser (1956: 14) note, for instance, that ‘‘the whole society is in one sense part of the economy, in that all of its units, individual and collective, participate in the economy. . . . But no concrete unit participates only in the economy. Hence, no concrete unit is ‘purely economic.’’’ This is best illustrated by reference to collective units. Schools (fiduciary specialists) participate in the economy as purchasers of needed facilities, services, and supplies. In a capitalist system, firms (economic specialists) participate in the fiduciary system that reproduces capitalist values simply by hiring workers, making profits, distributing dividends, and the like, all of which contribute to retention of value orientations supportive of capitalism. As Weber noted, modern capitalism no longer requires religion for the reproduction of the culture of capitalism. It should be noted, however, that financial scandals involving corporations are dysfunctional in terms of the fiduciary function, undermining faith in the virtues of capitalism.
Many of the interactions in a differentiated social system are functionally specialized exchanges of various sorts and, in the aggregate, produce market or market like phenomena. For instance, the labor market connects the economy to the fiduciary system in that the latter produces actors who can take positions in some context of production that enables them to enact the corresponding roles in relation to others. At the micro level, two people may engage in an exchange process, one of whom is in a representative role for a firm while the other may be connected to a household as one of its employed members and whose income performs a significant function in the context of that social subsystem of the system under analysis. At the macro level, this is but one exchange among numerous others that together form what Parsons and Smelser call an ‘‘interchange system,’’ which connects the economy and the fiduciary system.
Since the Parsons–Smelser model is abstractly general, it can have applications at various levels. As one example, consider the social system of the world, ‘‘world society.’’ Its polity is a fractured one, consisting of numerous sovereign states with competing claims and incessant outbursts of violent conflicts. Its social integration is proceeding rapidly, however, via the impact of increasingly faster and more efficient modes of communication as well as the formation of collectivities that transcend nation state boundaries. In this context, there is the world economy with its increasing globalization of production and consumption as well as numerous markets still enclosed within more local sectors of the world society. This world society is embedded in a world system of human action that includes cultural systems such as value systems, religions, ideologies, and sciences. World fiduciary processes in the form of education, for instance, reproduce particularistic values associated with national or other identities but also, although not uniformly, other more universalistic values that are incompletely realized in world institutions such as the United Nations. Globalization, in large part driven by economic actions, is a historical process that has increasingly come under analysis by sociologists as they interpret the world economy as embedded in a larger system of action that includes world culture, world polity, and so on.
Although the model proposed by Parsons and Smelser is of considerable value in addressing the question of how the economy relates to its environments, issues relating to lack of clarity and rigor in the formulation of the model have limited its usefulness to other analysts of economy and society. Perhaps for this reason, the tradition of economic sociology went into a kind of hibernation for about two decades before being revived in the mid 1980s. At about that time, a number of research programs that involve both theory and empirical investigations were initiated. Taken together, these programs have been called ‘‘the new economic sociology’’ by Granovetter (1985) in an influential article that stimulated the rebirth of the field.
The key theme of this new economic sociology is the analysis of economic phenomena in terms of social structure and culture, treating economic action as embedded in a wider con text of social and cultural relationships. Al though the formulation is similar to that of Parsons and Smelser, the newly reborn field emphasizes the empirical application of more recent sociological ideas such as social network and social capital and also intersects cultural sociology, another major field of sociological investigation. Very importantly, the field now includes a relatively large number of empirical investigators in contrast to the small number of earlier analysts. Hence a summary statement of the state of sociological research on economy and society is difficult to make in a very fluid and rapidly growing field. Swedberg (2003) sets out a rare effort in this direction and also has co edited a handbook (Smelser & Swedberg 2003). Chapters in the latter point to the way in which recent work has added rich empirical detail to the relationships between the economy and its social environments, for instance politi cal and educational institutions.
A brief indication of the sort of theory and research characteristic of the new economic sociology can be communicated by reference to investigations that emphasize social structural elements, especially those relating to the concepts of social network and social capital.
A social network is a population of actors – individual or collective – that are in some mode of connection with one another which mediates the form and content of their interaction. Actors may be dependent upon certain others for resources or they may trust certain others, among other types of connections. For instance, in application to an economy, one theory pertains to the argument that there are advantages to actors in certain positions within net works. A network may consist of a series of largely disconnected components except for certain relations that connect actors in distinct components. Such a network has ‘‘structural holes’’ – sectors with many absent relations. Actors whose relations form a bridge between otherwise disconnected components have certain competitive advantages in terms of information and control. It has been shown that they ‘‘enjoy higher rates of return on their investments because they know about, have a hand in, and exercise control over, more rewarding opportunities’’ (Burt 1992: 46). In another example of a social structural approach to economic phenomena, Baker (1984) analyzes stock options trading on the floor of a major securities exchange in the US, showing how price volatility is a function of network variables.
The economic concept of capital includes physical and financial resources employed in productive activities. Economists have extended this concept in referring to educational training as ‘‘human capital,’’ consisting of resources in the form of learned skills and the like. Sociologists have made use of a still further extension of the concept in analyzing the benefits of ‘‘social capital,’’ whereby social relationships function as resources that actors can employ to attain their ends. Like much else in social life, this particular form of capital is a byproduct of social relations formed for other reasons. For instance, among members of a certain occupation, a social club may be formed in order for the members to enjoy convivial activities, but at a later time, when some of the members become unemployed, the club may function as an informal employment service (Coleman 1990).
The extended concept of capital also plays a major role in the field theory of Pierre Bourdieu (1986), whose studies intersect economic and cultural sociology. A field may be defined as a competitive social space of positions characterized in terms of the total volume and relative composition of various forms of capital. While economic theory postulates consumers who make rational choices based on given preferences or tastes, field theory pro vides a conceptual basis for representing the heterogeneous social structural basis for such tastes, treating them as modes by which actors make distinctions (e.g., in the clothing or cars that they can afford to purchase) which in turn serve to distinguish them from other actors. In a somewhat similar mode in terms of investigating meanings and functions of economic phenomena from a wider perspective, Zelizer (1994) has emphasized that the social meaning of money extends beyond its function as a medium of exchange in the economy.
Comparing the new economic sociology to ‘‘the old’’ in the sense of the systems model of Parsons and Smelser, a major contrast is that Parsons and Smelser aimed to integrate socio logical theory and economic theory by embed ding economic concepts and mechanisms within a unified framework consisting of the general theory of action and an accompanying methodology of functional analysis. For instance, they attempt to ‘‘find a place’’ within the AGIL scheme for the factors of production set out by economic theorists. Labor, for instance, is a value commitment to work – with a variable cultural work ethic, following up Weber’s ideas in this regard – that is acquired in the fiduciary system (in this instance in households) and enters the economy through an interchange process rooted in exchange processes regulated by an institution which, in market societies, is the employment contract. In a similar mode, but not always clearly or convincingly, it is argued that through interchange processes, capital enters the economy from the polity and organizing (entrepreneurial) activity enters it from the social integrative system. The fourth factor of production, traditionally ‘‘land’’ in economics, is somewhat vaguely treated in terms of facilities that are ‘‘givens’’ for the shorter term economic processes. Similarly, the various types of markets and other processes (e.g., investment) treated in economic theory are ‘‘located’’ in terms of the AGIL scheme.
By contrast, the new economic sociology largely disavows any attempted integration of theory of the two disciplines and, in fact, the research often is initiated in a polemical mode as opposing some assumptions made in economic theory. However, in both its old and its new form, the sociology of the economy is characterized by the application of sociological concepts and theories to analyze economic phenomena. In some instances, the concepts relate closely to some traditional economic concept such as capital. In other instances, the concepts have no linkage to traditional economic ideas. This is especially true of network concepts such as structural holes and bridges. In either case, the sociological analysis – whether in older forms or the new forms – tends to differ from economic analysis. The reason for this is that sociology, as a discipline, is concerned above all with patterns of social relations arising out of and shaping social interaction. It is this shared perspective that sociologists have employed in the analysis of the economy in relation to society.
- Baker, W. (1984) The Social Structure of a National Securities Market. American Journal of Sociology 89(4): 775 811.
- Bourdieu, P. (1984) Distinction: A Social Critique of the Judgment of Taste. Harvard University Press, Cambridge, MA.
- Burt, R. S. (1992) Structural Holes: The Social Structure of Competition. Harvard University Press, Cambridge, MA.
- Coleman, J. S. (1990) Foundations of Social Theory. Harvard University Press, Cambridge, MA.
- Granovetter, M. (1985) Economic Action and Social Structure: The Problem of Embeddedness. Amer ican Journal of Sociology 91: 481 510.
- Parsons, T. & Smelser, N. J. (1956) Economy and Society. Free Press, New York.
- Smelser, N. & Swedberg, R. (Eds.) (2003) Handbook of Economic Sociology, 2nd edn. Russell Sage Foundation and Princeton University Press, Princeton.
- Swedberg, R. (2003) Principles of Economic Sociology. Princeton University Press, Princeton.
- Zelizer, V. (1994) The Social Meaning of Money. Basic Books, New York.