Encyclopediaof Sociology

Second Edition

Encyclopediaof Sociology

Second Edition

Edgar F. BorgattaEditor-in-Chief

University of Washington, Seattle

Rhonda J. V. MontgomeryManaging Editor

University of Kansas, Lawrence

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EECOLOGYSee Demography; Environmental Equity; Envi-ronmental Sociology; Human Ecology and Envi-ronmental Analysis.

ECONOMIC DETERMINISMNOTE: Although the following article has not been revised forthis edition of the Encyclopedia, the substantive coverage iscurrently appropriate. The editors have provided a list ofrecent works at the end of the article to facilitate research andexploration of the topic.

Economic determinism refers to a kind ofcausality in which an economic variable x causes acondition of behavior y. This statement of directcausality contains very little actual economic deter-minism. But in stating that economic condition x isthe most determining factor in causing behavior y,we have a model for economic determinism that isquite common in economics and sociology. Thismodel appears in Weber’s (1979) Economy andSociety; in his discussion of domination he states:

Nor does domination utilize in every caseeconomic power for its foundation and mainte-nance. But in the vast majority of cases, andindeed in the most important ones, this is justwhat happens in one way or another and oftento such an extent that the mode of applyingeconomic means for the purpose of maintain-ing domination, in turn exercises a determin-ing influence on the structure of domina-tion. (p. 942)

The same model of economic determinismappears in Louis Althusser’s (1970) For Marx, wherethe social formation has multiple determinants,but ‘‘the economy is determinant in the last in-stance’’ (p. 113). Neither model has the economicas a monocausal determinant of society, but eco-nomic categories, such as the economic market forWeber, clearly are part of a central structuringdetermination for society.

This model predates both Weber and Althusserand has its origins in eighteenth-century free mar-ket liberalism. In The Federalist Papers, James Madi-son assumes economic interests as the chief moti-vation of the people. In The Wealth of Nations, forAdam Smith it is ‘‘that in commercial society everyman thus lives by exchanging, or becomes in somemeasure, a merchant’’ (1976, p. 26). For Smithpeople are buyers and sellers involved in produc-tion and consumption, and human behavior is anunending series of economic exchanges. Individu-als pursue their own self-interest in rational ways,and their own self-interest consists of profit, whichis regulated by competition in a predominantlyself-regulating free market. In the pursuit of eco-nomic self-interest the individual promotes thesocial good, ‘‘led by an invisible hand to promotean end which was no part of his intention’’ (p. 477).In Smith’s model an individual’s pursuit of eco-nomic profit automatically structures the good forall of society.

Smith assumes an economic person who isalways acting to optimize economic advantages.People here are determined by economic motives,that is, to increase profits and decrease losses.

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Modern neoclassical economists, such as MiltonFriedman and Gary Becker, have continued thetradition of Adam Smith. For them the only limita-tion on the free market model is the amount ofinformation to which a rational actor has access.Since information is not perfect, mistakes canoccur. But in the pursuit of profit a rational actorlearns even from mistakes; mistakes therefore in-crease the amount of information that a rationalactor acquires, thus increasing the chances of mak-ing correct choices in the future. Thus, the freemarket not only structures human behavior butdetermines the inevitability that these actors, inrationally pursuing profit, will acquire the infor-mation needed to produce profits continuouslyfor themselves and to mold—even if unintention-ally—the social good.

The model of economic determinism offerssociology an easily quantifiable object, a phenome-non that can be subjected to scientific procedures—observed, measured, tested, and verified. As apositivist social science, sociology requires atranshistorical and universal phenomenon such asthe physical sciences have, and economic deter-minism provides it in economic concepts such asthe market, money, the circulation of capital, andso forth. It allows sociologists to speak the lan-guage of science and to reduce all social phenome-na to mathematical formulas.

All positivist social sciences use mathematicalrepresentations of social reality to understand so-ciety, and economic determinism is but one at-tempt at creating a scientific sociology. Still, themodel has offered sociology a formula that pos-sesses broad powers for explaining social factorsand avoids problems of indeterminate multiplecauses. This is what science traditionally means bylawfulness. These lawlike social categories are rep-resentations of social reality and provide a frame-work in which the aggregate behavior of individu-als can be structured in terms of economic interests.This behavior is patterned and can be studied andsubjected to scientific procedures. Thus, the mod-el of economic determinism informs sociologicalanalysis and research.

Exchange theory provides an example of apositivist methodology that is based on the modelof economic determinism. In exchange theory,economic exchange is the determinant principleof behavior. George C. Homans, the originator of

this form of analysis, combines this economicmodel with a behaviorist psychology, but the eco-nomic is the determining structure. In Social Be-havior: Its Elementary Forms, Homans states, ‘‘Hu-man behavior as a function of its payoff: in amountand kind it depends on the amount and kind ofreward and punishment it fetches’’ (1961, p. 13).Human relations have been reduced to the ex-change and circulation of commodities. Homansassumes that a social actor is an economic personexisting in a free market where individuals makerational choices to maximize profits and reducecosts. This is stated partly in the language ofbehavioral psychology, but the conditions of eco-nomic exchange are dominant. Thus, Homanssounds more like Adam Smith than like B. F.Skinner when he writes ‘‘we define psychic profitsas rewards less costs, and we argue that no ex-change continues unless both parties are making aprofit’’ (1961, p. 61).

This model allows Homans to analyze indi-viduals who live in a group, make numerous ra-tional choices, and yet live a stable, patterned life.Individuals calculating their possibilities and mak-ing rational choices are led by something likeSmith’s ‘‘invisible hand’’ to maintain group life in‘‘practical equilibrium.’’

Homans believed that his analysis was a value-neutral attempt to expand the scope of a scientifi-cally valid sociology of human behavior. But, whileexchanges are an important aspect of human in-teraction, the reduction of all human behavior toelementary exchanges is problematic. Homans hasuniversalized the relations of individuals in thecapitalist marketplace, relations that are historical-ly specific and not the basis of a universal psycholo-gy of human behavior. Homans’s exchange theoryis a conservative sociological theory in which pecu-niary relations structure human behavior.

Another form of sociological analysis that usesthe model of economic determinism is Marxistsociology. In Weber’s The Protestant Ethic and theSpirit of Capitalism, Marx’s analysis is called a ‘‘one-sided materialistic’’ interpretation (1958, p. 183).Marx provides evidence for Weber’s contentionwhen he argues that the economic base deter-mines the ideological superstructure. In the pref-ace to A Contribution to the Critique of PoliticalEconomy, Marx writes that ‘‘the totality of theserelations of production constitutes the economic

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structure of society, the real foundation, on whicharises a legal and political superstructure and towhich correspond definite forms of social con-sciousness’’ (1970, p. 20). This famous passage,containing what is known as the base-superstruc-ture model, became the hallmark statement foreconomic determinist Marxists from the SecondInternational (Marxist Workers Congress) in 1889to the present.

But Marx himself was not an economicdeterminist, even though many of his followerswere. Marx theorized about a world in whichhuman relations were subsumed under capitalistrelations of production. His central concern wasrevolutionary change, which depended on the for-mation of a revolutionary class that could wagewar against the dominant classes. But for Marx,class was determined not by economic conditionsalone but by community and cultural conditions aswell. Thus, he writes in The Eighteenth Brumaire ofLouis Bonaparte on whether ‘‘small holding peas-ants’’ are or are not a class:

In so far as millions of families live undereconomic conditions of existence that separatetheir mode of life, their interests and theirculture from those of other classes and putthem in hostile opposition to the latter, theyform a class. In so far as there is merelyinterconnection among these small holdingpeasants, and the identity of their interestsbegets no community, no national bond and nopolitical organization among them, they do notform a class. (Marx 1963, p. 124)

This is not ‘‘economics in the last instance’’but a multivalent fitting together of a series ofnecessary conditions. Economic conditions areinsufficient, and class formation and class struggledo not occur unless community occurs as well.

Later Marxists differ from Marx on a numberof issues. First, many understand the base-super-structure model as a determinant condition ofclass. That is, class depends exclusively on theeconomic base for its formation. For Marx, howev-er, it was an insufficient condition and a ‘‘mo-ment’’ in his analysis of capitalism. Furthermore,economic determinist Marxists view class struggleas a secondary phenomenon, even though it isimportant. Finally, many Marxists have critiquedMarx’s concept of class for its inability to predictrevolutionary change with scientific accuracy. Erik

Olin Wright, for instance, calls Marx’s concept ofclass ‘‘vague’’ and ‘‘random’’; it is much too relativ-istic for use as a neat, lawlike scientific formula. Inhis important book Classes, Wright preserves theMarxian tradition of the Second International andattempts to erect a positivist Marxist sociologywhose propositions can be empirically verified. Itis upon the base-superstructure model that Wrightbuilds this science. As in exchange theory, Wright’smodel suggests that in capitalism rational actorsmake rational choices in pursuing their economicadvantages. But Wright also attempts to build ascientific base for an analysis of class struggle, andin Classes he provides the causal link betweencapitalist exploitation and the actions of individu-als in society. He does this by demonstrating thatclass structure is determined by property rela-tions, a central determinant in modern society:

Class structure is of pervasive importance incontemporary social life. The control oversociety’s productive assets determines the funda-mental material interests of actors and heavilyshapes the capacities of both individuals andcollectivities to pursue their interests. The factthat a substantial portion of the populationmay be relatively comfortable materially doesnot negate the fact that their capacities andinterests remain bound up with propertyrelations and the associated processes ofexploitation. (Wright 1985, pp. 285–286)

Economic factors are crucial for understand-ing the social world. But society is not reducible toeconomic determinants; it is too complex to bereduced to a set of economic propositions, or anysingle determinant set of propositions, that implyunilinear causality. Still, economic determinism isseductive because it offers a theory that has broadexplanatory powers, is easily quantifiable, and canbe reduced to simple mathematical formulas. Thus,it is not surprising to see it continue and expand,seemingly unaware of its limitations. For instance,George Gilder writes in Wealth and Poverty, ‘‘Theman’s earnings, unlike the woman’s, will deter-mine not only his standard of living but also hispossibilities for marriage and children—whetherhe can be a sexual man’’ (1981, p. 109). Thereduction of sex and marriage to economic deter-minants is highly problematic, both as science andas common sense. Yet generalizations about sociallife wholly based on economic causes persist, un-der the names of both science and myth. One can

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restate Max Weber’s warning against monocausaltheories in the social sciences:

But it is, of course, not my aim to substitute fora one-sided materialistic an equally one-sidedspiritualistic causal interpretation of cultureand of history. Each is equally possible, buteach if it does not serve as the preparation, butas the conclusion of an investigation accom-plishes equally little in the interest of historicaltruth. (1958, p. 183)

(SEE ALSO: Capitalism; Economic Sociology; Marxist Sociology)

REFERENCES

Albritton, Robert 1995 ‘‘Political Economy in the Mak-ing: A Response.’’ Rethinking Marxism 8:125–129.

Aronowitz, Stanley 1988 Science as Power: Discourse andIdeology in Modern Society. Minneapolis: University ofMinnesota Press.

Dahms, Harry F. 1997 ‘‘Theory in Weberian Marxism:Patterns of Critical Social Theory in Lukacs andHabermas.’’ Sociological Theory 15:181–214.

Feenberg, Andrew 1992 ‘‘Subversive Rationalization:Technology, Power, and Democracy.’’ Inquiry 35:3–4.

Gilder, George 1982 Wealth and Poverty. New York: Bantam.

Hodgson, Geoffrey M. 1995 ‘‘Varieties of Capitalismfrom the Perspectives of Veblen and Marx.’’ Journalof Economic Issues 29:575–584.

Kennedy, Paul M., Andrew Levine, Elliott Sober, andErik-Olin Wright 1987 The Rise and Fall of the GreatPowers: Economic Change and Military Conflict from1500 to 2000. New York: Random House.

Homans, George C. 1961 Social Behavior: Its ElementaryForms. New York: Harcourt, Brace, and World.

Marx, Karl (1859) 1970 A Contribution to the Critique ofPolitical Economy.

——— (1852) 1963 The Eighteenth Brumaire of LouisBonaparte. New York: International.

Rammert, Werner 1997 ‘‘New Rules of SociologicalMethod: Rethinking Technology Studies.’’ British Jour-nal of Sociology 48:171–191.

Resnick, Stephen A., and Richard D. Wolff 1987 Knowl-edge and Class: A Marxian Critique of Political Economy.Chicago: University of Chicago Press.

Sherman, Howard J. 1998. ‘‘Critique of the Critique:Analysis of Hodgson on Marx on Evolution.’’ Reviewof Social Economy 56:47–58.

Smith, Adam 1976 An Inquiry into the Nature and Causesof the Wealth of Nations. Chicago: University of Chica-go Press.

Weber, Max (1947) 1979 Economy and Society: An Outlineof Interpretive Sociology. Guenther Roth and ClausWittich, eds. and trans. Berkeley: University of Cali-fornia Press.

Wright Erik, O., Andrew Levine, and Elliott Sober 1992Reconstructing Marxism: Essays on Explanation and theTheory of History. New York: Verso.

——— 1994 ‘‘Historical Materialism: Theory and Meth-odology.’’ Science and Society 58:53–60.

——— (1904–1905) 1958 The Protestant Ethic and theSpirit of Capitalism. New York: Scribners.

Wright, Erik Olin 1985 Classes. London: Verso.

WILLIAM DIFAZIO

ECONOMIC DEVELOPMENTSee Industrialization in Less-Developed Coun-tries, Modernization Theory; Rural Sociology .

ECONOMIC INSTITUTIONSThe analysis of economic institutions is central tothe work of the classical figures of sociology-Marx,Weber, and Durkheim. These thinkers did notrecognize a boundary line between sociologicalinquiry and economic inquiry; on the contrary,their efforts to make sense of the development ofmarket capitalism led them to intensive analysis ofmarket processes. Unfortunately, this thrust ofsociological inquiry was largely abandoned by soci-ologists between World War I and the late 1960s.This was particularly true in the United States,where sociologists generally deferred to econo-mists’ claims of an exclusive mandate to studyeconomic processes.

To be sure, there were a number of importantintellectual figures during this period whose workintegrated sociological and economic inquiry, butthese individuals were rarely housed in sociologydepartments. Such economists as Thorstein Veblen,Joseph Schumpeter, and John Kenneth Galbraithhave been retroactively recognized as sociologists.Similarly, the largely self-educated Hungarian schol-ar Karl Polanyi ([1944] 1957, 1971) is now ac-knowledged to have made seminal contributions

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to the sociological analysis of economic institu-tions. Yet scholars working in the sociologicalmainstream either ignored economic topics ortended to incorporate the perspectives of neoclassicaleconomics.

Since the late 1960s, however, the lines ofinquiry pioneered by the classical writers havebeen revitalized. Sociologists working in a numberof different intellectual traditions and on diverseempirical topics have developed sophisticatedanalyses of economic processes (Swedberg 1987).No longer content to defer to the expertise ofprofessional economists, many of these writershave developed powerful critiques of the work ofneoclassical economists (Zukin and DiMaggio 1990).

Although this body of work explores a rangeof different economic institutions, much of it canbe understood through its analysis of the way thatmarkets work. (Analyses of other economic insti-tutions, such as the division of labor, money, andcorporate organizations, are presented elsewherein this encyclopedia.) In particular, an emergenteconomic sociological conception of market proc-esses can usefully be contrasted with the concep-tion of the market that is implicit in most econom-ic writings.

THE ORGANIZATION OF MARKETS

Neoclassical economists tend to assume an idealmarket situation that allows changes in prices toequilibrate supply and demand. In this ideal mar-ket situation, there are multiple buyers and sellerswhose transactions are fundamentally impersonal;information on the product and the price are theonly relevant variables shaping the action of mar-ket participants. Contemporary economists recog-nize that this ideal market situation requires abasic symmetry in the information available tobuyers and sellers. When there are significantdifferences in information, it is likely that theresulting price will diverge from the price thatwould effectively equilibrate supply and demand.Nevertheless, contemporary microeconomics restson the assumption that most markets approximatethe ideal situation, including information symme-try (Thurow 1983)

The sociological view of markets is fundamen-tally different. It stresses the embeddedness ofbehavior within markets, the central role of imita-tion in structuring markets, and the importance ofblocked exchanges. The concept of embeddednesschallenges the idea that impersonality is an impor-tant feature of actual market situations. While theindividual actor in economic theory is a rationalactor who is able to disregard his or her social tiesin the market situation, the sociological actor isseen as embedded in a network of social relationsat the time that he or she engages in markettransactions. This embeddedness means that awide range of social ties exert continuing influ-ence over how the actor will both make and re-spond to price signals (Polanyi [1944] 1957;Granovetter 1985).

This view has two elements. First, the individu-al actor is decisively influenced by social ties. Forexample, a consumer might choose not to dobusiness with retailers belonging to a stigmatizedethnic group, even when their prices are lower,because members of the consumer’s ethnic groupgenuinely believe that the products of the othergroup will be inferior or that contact with thestigmatized group will jeopardize one’s social posi-tion. The economists’ argument that such an indi-vidual has a ‘‘taste for discrimination’’ does notadequately capture a reality in which discriminato-ry behavior often occurs with very little reflectionbecause beliefs are deeply rooted. Second, theindividual actor’s dependence on social ties isnecessary in order for him or her to accomplish agiven economic goal. As Granovetter (1985) haspointed out, a purchasing officer at a corporationmight well do business with a particular supplierregardless of price considerations because oflongstanding ties to that individual. These tiesprovide assurance that the delivery will occur in atimely fashion and the merchandise will meetestablished quality standards. In other words, so-cial bonds can provide protection against the un-certainties and risks that are always involved intransactions.

The standard economic view of markets tendsto ignore these uncertainties; it is generally as-sumed that individuals will automatically obey the

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rules that make transactions possible. As OliverWilliamson (1975) has noted, this represents aprofound inconsistency in economic analysis. Whileindividuals are assumed to be self-interested, theyare also expected to avoid guile and deception. Inthe real world, however, every transaction involvesthe risk that one party is deliberately cheating theother, and the more ‘‘impersonal’’ the transaction-that is, the less one party knows about the other-the greater the risk becomes.

This is one of the reasons that actual marketstend to develop structures and rules designed toconstrain and to embed individual behavior. Al-though commodity markets and stock marketsmost closely resemble the pure markets of eco-nomic theory, in which rapid price changes serveto balance supply and demand, these markets tendto evolve complex social structures. At one level,such markets appear to be completely impersonal,in that there is no contact between buyers andsellers. On another level, however, the actual trans-actions are handled by a community of brokerswho are well known to each other and who areexpected to follow a particular etiquette for man-aging transactions. This structure has evolved toprovide protection against unknown brokers whomight prove unreliable and to assure that knownbrokers will be discouraged from cheating theircolleagues and clients (Adler and Adler 1984;Baker 1984a; Burk 1988).

The central point, however, is that the particu-lar ways in which market behaviors are embeddedhave real and significant consequences. On theone hand, embeddedness allows market processesto go forward by diminishing the opportunities forguile and deceit. On the other hand, embeddednessassures that factors besides price will influence thebehavior of market participants, so it can no long-er be assumed that price will automatically equili-brate supply and demand.

One of the main implications of the conceptof embeddedness is that actual markets will becharacterized by imitative behavior. Economistsassume that each economic actor will calculate hisor her preference schedule independently of allother actors. In the sociological view, however,

actors are continually making their choices inreference to the behavior of others. In decidingthe price to be asked for a particular commodity, amarket participant will set it in comparison withthe prices of competitors (White 1981). This is oneof the key reasons that in actual markets there isoften less price competition than would be sug-gested either by economic theory or by consider-able differences across firms in the costs ofproduction.

This role of imitation plays a particularly im-portant role in financial panics and bubbles. Pan-ics occur when many holders of a particular kindof asset rush to convert their holdings to cash,leading to precipitous price declines. Bubbles oc-cur when enthusiasm for a particular asset drivesprices far higher than can be justified by expectedreturns (Kindleberger 1978). Economists have trou-ble explaining the behavior of individuals in mostpanics or bubbles because rational actors withcomplete information would not engage in suchirrational behavior; they would understand thatthe underlying value of an asset is not likely tochange so dramatically in a short period of time.However, actual individuals have limited informa-tion, and they cope with uncertainty by observingthe behavior of their friends and neighbors. Suchobservation makes them quite susceptible to thecollective enthusiasms of panics and bubbles.

The threat of panics is another reason thatfinancial markets develop institutional structuresto embed individual behavior. The New York StockExchange, for example, has an elaborate system ofspecialist firms who have the responsibility tosmooth out the market for particular stocks. Suchfirms are expected to be purchasers of last resortin situations where there are too many sellers of astock (Baker 1984b). The idea is that such actionshould help to reduce the likelihood of panic.While such an institutional arrangement divergesfrom the economists’ conception of a self-regulat-ing market, it makes sense in the context of imita-tive behavior.

Furthermore, in their emphasis on the virtuesof markets, neoclassical economists often suggesta vision of society as a giant bazaar in which

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everything is for sale. Sociologists, in contrast, aremore likely to recognize that the viability of mar-kets depends upon a wide variety of restrictionsthat block certain types of exchanges. Blockedexchanges are transactions that are in violation ofthe law or of widely shared ethical standards (Walzer1983). Instances of blocked exchange includeprohibitions on the resale of stolen merchandise,laws that prevent government officials from sellingtheir services to the highest bidder, and thecriminalization of prostitution and the purchaseof certain drugs.

More subtle blocked exchanges play an impor-tant role in structuring the economy. Lawyers arenot allowed to switch sides in the middle of a civilsuit in response to an offer of a higher fee by theother side. Accountants are not supposed to pro-duce a more favorable audit in response to ahigher fee (Block 1990). Loan officers at a bank areprohibited from approving loans in exchange forside payments from the applicant. The membersof a corporate board of directors are supposed toplace their fiduciary responsibility to the share-holders ahead of their self-interest in contemplat-ing offers to buy out the firm. In a word, there is acomplicated and sometimes shifting boundary be-tween legitimate and illegitimate transactions incontemporary economies.

The importance of blocked exchanges shedsfurther doubt on arguments that markets canregulate themselves without governmental inter-ference (Polanyi [1944] 1957). The construction ofany particular market involves rules as to whatkinds of exchange are open and what kinds areblocked, but the incentives to violate these rulesare often quite substantial. At the same time, theincentives for market participants to police eachother are often lacking. Hence, there is often noalternative to a governmental role in policing theboundary between legitimate and illegitimate ex-changes. Moreover, debates about social policy areoften framed in a language of individual rights thatis profoundly insensitive to the importance andpervasiveness of blocked exchanges. For example,when a woman serving as a surrogate mother inexchange for a fee decides she wants to keep thebaby, the issue is often debated in terms of con-tract law. The more fundamental issue, however, is

whether the society believes that the rental ofwombs is a legitimate or illegitimate transaction(Rothman 1989).

VARIETIES OF MARKET SYSTEMS

A second important dimension of contemporarysociological work on economic institutions em-phasizes the significant variations in the ways inwhich different market societies are institutionallyorganized. Against the common assumption thatmarket societies will converge toward the sameinstitutional arrangements, this work has used thecomparative method to highlight significant anddurable institutional differences. Out of this hascome a rich body of literature on the wide varietyof different ‘‘capitalisms’’ that can coexist at aparticular moment in time. While there are avariety of typologies, this work has tended toidentify an East Asian model, a Rhinish model thatdraws heavily on Germany and France, a socialdemocratic model associated particularly with Swe-den and Norway, and the Anglo-American model(Couch and Streeck 1997; Hollingsworth and Boyer1997; Orru et al. 1997). While researchers haveidentified a wide variety of differences in econom-ic institutions, much of this work has focused onexamining differences in labor markets, capitalmarkets, and in the markets for innovation.

The study of labor-market institutions encom-passes variations in how the labor force acquiresbasic and advanced skills; variations in how socialwelfare provides citizens with income in the eventof sickness, disability, unemployment, retirement,and other contingencies; variations in the rightsand responsibilities that employees have in theworkplace; and variations in the mechanisms formatching employees with job vacancies (Rogersand Streeck 1995; Wever and Turner 1995). Thepoint is not simply that different countries arelocated on different points of a continuum interms of variables such as union density or welfaregenerosity. It is rather that some of these variablestend to be grouped together, so that one canidentify ideal typical complexes of institutionsthrough which societies distribute some of thecosts and benefits of economic growth. For exam-ple, studies by Dore (1997) and Streeck (1997)

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have sought to show how Japanese and Germansystems of industrial relations both differ dramati-cally from the Anglo-American model and work intandem with other specific institutional features ofthose societies to create significant economic ad-vantages for Japanese and German firms.

Comparative work on capital markets has gen-erally contrasted the stock market-centered systemin the United States and the United Kingdom withthe bank-centered systems that have prevailed inJapan and in Continental Europe (Mizruchi andStearns 1994; Zysman 1983). In the former firmsrely primarily on stock and bond issues in imper-sonal markets to raise the funds required forexpansion, while in the latter firms are more reli-ant on long-term loans from banks. This differ-ence has important implications for corporategovernance, for the size of the debt burden oncorporations, for the time horizons of corporateexecutives, and for the openness of the economyto new entrepreneurial initiatives.

Finally, studies of the market for innovationhave identified distinct varieties of what someanalysts have called national innovation systems(Amable et al. 1997). This encompasses the re-search efforts of scientists and engineers, initiativesby government agencies to foster innovation, andthe entrepreneurial activities of both public andprivate firms. The ways in which these elementsare brought together vary significantly both interms of the division of labor between the publicsector and the private sector and the way thatinteractions between them are organized. Sinceinnovation clearly weighs heavily in internationaleconomic success, some analysts have begun toexamine the specific institutional features of na-tions that have been most effective in fosteringsuccessful innovation (Evans 1995).

This effort to identify different institutionaltypes of capitalism has occurred during the sameperiod in which the countries of Eastern Europeand the former Soviet Union have been making atransition from state socialism to capitalism. Whilesome Western advisers acted as though the Anglo-American model was the only relevant model forformer socialist countries to emulate, the process

of transition had the effect of deepening the aware-ness of the institutional variations among capitalistsocieties (Stark and Bruszt 1998). Hungary, forexample, had to make a set of decision as to howmuch weight to give the stock market in corporategovernance and in capital allocation. This, in turn,generated increasing interest in studies showingthe important differences in the relative role ofstock markets and banks in different marketsocieties.

THE SCOPE OF MARKETS

A third important dimension of contemporarysociological work on economic institutions is aconcern with the geographical scope of markets.Much of the sociological tradition has been orient-ed to the study of national societies or of subnationalunits. But an understanding of the scope of inter-national markets calls that approach into ques-tion. Markets for raw materials, finished products,services, capital, and labor cross national bounda-ries and exert extraordinary influence over allaspects of social life (Swedberg 1987).

The most ambitious effort to date to chartthe importance of these international markets hasbeen the world-system theory of ImmanuelWallerstein (1974a, 1974b, 1980, 1989). Instead ofusing national societies as the basic unit of analy-sis, Wallerstein has sought to shift sociologicalanalysis to the level of the capitalist world-system.For Wallerstein, this system is comprised of aworld market and a competitive state system ofdivided sovereignties. Any analysis of patterns with-in a particular national society must begin bylocating that society within the larger capitalistworld-system. A nation’s location at the core, theperiphery, or the semiperiphery of the capitalistworld-system can be expected to shape the natureof its economic and political institutions.

The existence of a single unified world marketis central to Wallerstein’s argument. Each nationthat is part of the capitalist world-system muststruggle for relative advantage in that market, andthis has implications for both social relations with-in nations and for the political-military relationsamong nations. Moreover, it is a central part of

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Wallerstein’s project to detail the process by whichvarious regions of the world have been incorporat-ed into this unified world-system. The capitalistworld-system began as a purely European phe-nomenon, but through colonization and the pene-tration of Western influence, this system becameglobal. Regions that were once external to thesystem were progressively incorporated as periph-eral areas that produced raw materials. Later-arriving nations such as the United States, Canada,and Japan moved to the semiperiphery and then tothe core.

The contributions of Wallerstein and his fol-lowers have been extremely important in showingthe systematic ways in which international marketsshape developments within societies. The study oflabor markets within the world-system, for exam-ple, has been particularly fruitful in making senseof international migrations-the massive movementsof people across national boundaries-that loom solarge in understanding both core and peripheralsocieties (Portes and Walton 1981).

Wallerstein’s work, however, is vulnerable tocriticism because it sometimes implies that there isa single unified world market for commodities, forlabor, and for capital that operates quite similarlyto the markets of economic theory. Critics havesuggested that Wallerstein devotes too little atten-tion to analyzing the specific institutional struc-tures of global markets and that his work has notgiven sufficient weight to the institutional varia-tions among capitalist societies. The response tothe criticism is that the homogenizing logic of aglobal capitalist system will work itself out overtime and will ultimately eliminate much of thevariety in institutional forms.

Toward the end of the 1990s, debate over thisprecise issue has become increasingly important.The attention of a growing number of scholars isfocused on the interactions between the varietiesof market institutions at the national level and thedynamics of a global capitalist system. Particularlyin discussions of ‘‘globalization’’ (see article in thisencyclopedia), scholars ask whether there are-asWallerstein suggests-powerful structural forces op-erating at the global level that are systematically

forcing all market societies to adopt Anglo-Ameri-can economic institutions. One British scholarposed the question polemically by asking if therewere a new type of Gresham’s Law in which ‘‘badcapitalisms were driving out good’’ (Gray 1999).

One set of events that intensified interest inthis question were the deep problems of the Japa-nese economy during the 1990s and the Asianeconomic crisis that began in Thailand in July of1997 and spread to Malaysia, Indonesia, SouthKorea, and ultimately to Russia and Brazil. Enthu-siasm for an East Asian model of capitalism wasconsiderably dampened by the severity of Japan’slong-term problems, by South Korea’s overnighttransition from success story to severe financialcrisis, and by doubts that the model could facilitatesustainable growth in poorer countries such asThailand and Indonesia. At the same time, thecrisis heightened awareness that the institutions ofglobal capitalism, especially the International Mone-tary Fund, were exerting powerful pressures onEast Asian countries to align themselves more fullywith Anglo-American ways of organizing their eco-nomic institutions. Most specifically, in the after-math of the crisis, there were pressures on nationsto shift from bank-centered finance to stock mar-ket-centered finance (Wade and Veneroso 1998).

Finally, the Asian crisis also drew attention tothe power of what one observer has labeled the‘‘electronic herd’’ (Friedman 1999)-the global net-work of traders in markets for bonds, equities,foreign exchange, and more exotic financial in-struments. When significant numbers of thesetraders decide that a particular economy on anycontinent is being poorly managed, they have thecapacity to precipitate a major financial crisis justby taking positions in the market that assume adepreciation of the value of the country’s financialassets and currency (Block 1996). To be sure, thispower is not yet universal; China and Vietnamhave been able to insulate themselves from thesepressures by maintaining controls on capital move-ments, and Hong Kong and Malaysia were success-ful in foiling the speculative strategies of the trad-ers. Nevertheless, the power wielded by thesetraders is further evidence that the global marketmight be able to force steadily greater homogeni-zation in economic institutions and practices acrossnations.

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These same concerns extend to the more de-veloped economies of Western Europe. Scholarshave argued that the rapid movement of capitalacross national boundaries has fundamentally weak-ened the social democratic model as an alternativeway of organizing market societies (Scharpf 1991).And others have begun to wonder aloud as to howlong the German model can resist the pressures toabandon its particular institutions for organizinglabor markets and capital markets (Gray 1999;Streeck 1997). Developments such as the cross-border merger between Daimler-Benz and Chrys-ler might portend German accommodation to theAnglo-American model.

The question of whether the global economywill increasingly converge to a single type of capi-talism based on the Anglo-American model orwhether there will be continuing diversity of theinstitutional forms of market societies is far frombeing resolved. The outcome will depend on eco-nomic and political developments over the nextfew decades. However, if there is convergence, theresults are likely to be highly unstable unless thereis significant progress in increasing the regulatorycapacities of global economic institutions. If onestarts from neoclassical economic premises, onecan imagine that a self-regulating global economywith relatively weak international institutions couldbe viable. However, a sociological view of marketsevokes deep skepticism about the stability of sucha system (Polanyi [1944] 1957). Just as sustainedeconomic activity within nations requires bothembeddedness of markets to minimize guile anddeceit and enforcement of blocked exchanges, soan increasingly integrated global economy hassimilar needs. Moreover, since globalization tendsto weaken regulatory mechanisms at the nationallevel, the need for effective enforcement at theglobal level becomes more acute.

The Asian economic crisis of 1997 and 1998revealed that the International Monetary Fundlacks the resources and the capacity to containinternational financial panics. Moreover, since theglobal economy lacks an effective ‘‘lender of lastresort,’’ a financial panic could lead to a cascade offailures by large financial institutions on an enor-mous scale. But even when the need to expand

global economic regulation is recognized, the po-litical obstacles to the strengthening of interna-tional financial and regulatory institutions are enor-mous. Most national governments are extremelyreluctant to cede sovereignty to international agen-cies. Since the same processes of globalization thatincrease the need for global regulation have al-ready eroded the powers of national governments,political leaders are reluctant to limit their ownauthority even further. At the same time, while theUnited States has thrown its political and econom-ic weight behind the forces of globalization, do-mestic political opposition in the United States tostrengthened international agencies continues tobe formidable. Hence, it appears unlikely that theglobalized economy will soon have the regulatoryinstitutions that it needs to function effectively.

(SEE ALSO: Corporate Organizations; Division of Labor;Economic Sociology; Money; Transnational Corporations)

REFERENCES

Adler, Patricia, and Peter Adler, eds. 1984 The SocialDynamics of Financial Markets. Greenwich, Conn.:JAI Press.

Amable, Bruno, Rémi Barré, and Robert Boyer 1997‘‘Diversity, Coherence, and Transformations of In-novation Systems.’’ In Rémi Barré, Michael Gibbons,Sir John Maddox, Ben Martin, Pierre Papon et al.,eds., Science in Tomorrow’s Europe. Paris: EconomicaInternational.

Baker, Wayne 1984a ‘‘The Social Structure of a NationalSecurities Market.’’ American Journal of Sociology89:775–811.

——— 1984b ‘‘Floor Trading and Crowd Dynamics.’’ InPatricia Adler and Peter Adler, eds., The Social Dy-namics of Financial Markets. Greenwich, Conn.: JAI Press.

Block, Fred 1990 Postindustrial Possibilities: A Critique ofEconomic Discourse. Berkeley: University of Califor-nia Press.

——— 1996 ‘‘Controlling Global Finance.’’ World PolicyJournal (Fall): 24–34.

Burk, James 1988 Values in the Marketplace: The AmericanStock Market Under Federal Securities Law. New York:Walter de Gruyter.

Couch, Colin, and Wolfgang Streeck, eds. 1997 PoliticalEconomy of Modern Capitalism: Mapping Convergenceand Diversity. Thousand Oaks, Calif.: Sage.

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Dore, Ronald 1997 ‘‘The Distinctiveness of Japan’’ InColin Crouch and Wolfgang Streeck, eds., PoliticalEconomy of Modern Capitalism: Mapping Convergenceand Diversity. Thousand Oaks, Calif.: Sage.

Evans, Peter 1995 Embedded Autonomy: States and Indus-trial Transformation. Princeton, N.J.: Princeton Uni-versity Press.

Friedman, Thomas 1999 The Lexus and the Olive TreeNew York: Farrar, Straus & Giroux.

Granovetter, Mark 1985 ‘‘Economic Action and SocialStructure: The Problem of Embeddedness.’’ Ameri-can Journal of Sociology 91:481–510.

Gray, John 1999 False Dawn: The Delusions of GlobalCapitalism New York: New Press.

Hollingsworth, J. Rogers, and Robert Boyer 1997 Con-temporary Capitalism: The Embeddedness of Institutions.New York: Cambridge University Press.

Kindleberger, Charles P. 1978 Manias, Panics, and Crash-es. New York: Basic Books.

Mizruchi, Mark S., and Linda Brewster Stearns 1994‘‘Money, Banking, and Financial Markets.’’ In Neil J.Smelser and Richard Swedberg, eds., The Handbookof Economic Sociology. Princeton, N.J.: Princeton Uni-versity Press.

Orru, Marco, Nicole Woolsey Biggart, and Gary G.Hamilton 1997 The Economic Organization of EastAsian Capitalism. Thousand Oaks, Calif.: Sage.

Polanyi, Karl (1944) 1957 The Great Transformation.Boston: Beacon Press.

——— 1971 Primitive, Archaic and Modern Economies.Boston: Beacon Press.

Portes, Alejandro, and John Walton 1981 Labor, Class,and the International System. New York: Academic Press.

Rogers, Joel, and Wolfgang Streeck, eds. 1995 WorksCouncils: Consultation, Representation and Cooperationin Industrial Relations. Chicago: University of Chica-go Press.

Rothman, Barbara Katz 1989 Recreating Motherhood:Ideology and Technology in a Patriarchal Society. NewYork: Norton.

Scharpf, Fritz 1991 Crisis and Choice in European SocialDemocracy, trans. Ruth Crowley and Fred Thompson.Ithaca, N.Y.: Cornell University Press.

Stark, Davis and Laszlo Bruszt 1998 Postsocialist Path-ways: Transforming Politics and Property in East CentralEurope. Cambridge, U.K.: Cambridge University Press.

Streeck, Wolfgang 1997 ‘‘German Capitalism: Does itExist? Can it Survive?’’ In Colin Couch and WolfgangStreeck, eds., Political Economy of Modern Capitalism:Mapping Convergence and Diversity. Thousand Oaks,Calif.: Sage.

Swedberg, Richard 1987 ‘‘Economic Sociology: Pastand Present.’’ Current Sociology 35:1–221.

Thurow, Lester 1983 Dangerous Currents: The State ofEconomics. New York: Random House.

Wade, Robert, and Frank Venoroso 1998 ‘‘The AsianCrisis: The High Debt Model Versus the Wall Street–Treasury–IMF Complex.’’ New Left Review 228 (March–April): 3–25.

Wallerstein, Immanuel 1974a The Modern World-System,I: Capitalist Agriculture and the Origins of the EuropeanWorld-Economy in the Sixteenth Century. New York:Academic Press.

——— 1974b ‘‘The Rise and Future Demise of theCapitalist World-System: Concepts for ComparativeAnalysis.’’ Comparative Studies in Society and History16:387–415.

——— 1980 The Modern World-System, II: Mercantilismand the Consolidation of the European World-Economy.New York: Academic Press.

——— 1989 The Modern World-System, III: The Second Eraof Great Expansion of the Capitalist World-Economy,1730–1840s. New York: Academic Press.

Walzer, Michael 1983 Spheres of Justice: A Defense ofPluralism and Equality. New York: Basic Books.

Wever, Kirsen S., and Lowell Turner, eds. 1995 TheComparative Political Economy of Industrial Relations.Madison, Wis.: Industrial Relations ResearchAssociation.

White, Harrison 1981 ‘‘Where Do Markets Come from?’’American Journal of Sociology 87:517–547.

Williamson, Oliver 1975 Markets and Hierarchies: Analy-sis and Antitrust Implications. New York: Free Press.

Zukin, Sharon, and Paul DiMaggio 1990 Structures ofCapital: The Social Organization of the Economy. NewYork: Cambridge University Press.

Zysman, John 1983 Governments, Markets, and Growth:Financial Systems and the Politics of Industrial Change.Ithaca, N.Y.: Cornell University Press.

FRED BLOCK

ECONOMIC SOCIOLOGYEconomic sociology constitutes its own distinctsubfield in sociology and can be briefly defined as

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the sociological analysis of economic phenomena. Eco-nomic sociology has a rich intellectual traditionand traces its roots to the founding fathers ofsociology, especially to Max Weber and his Econo-my and Society (see Swedberg 1998). It should benoted that not only sociologists but also econo-mists have made important contributions to eco-nomic sociology. This is particularly true for to-day’s economic sociology, which is the result ofworks not only by sociologists (such as MarkGranovetter and Harrison White) but also by econo-mists (such as Gary Becker and Oliver Williamson).

To define economic sociology as ‘‘the sociologi-cal analysis of economic phenomena’’ may seembland and even tautological. It is therefore impor-tant to stress that it entails a definite conception ofwhat topics may be studied by sociologists; that itimplies a certain division of labor between econo-mists and sociologists; and that it also has directconsequences for how the relationship betweeneconomic theory and sociology is conceived. Thatthis is the case becomes very clear if we contrastthis definition with two other ones that are com-monly used: (1) that economic sociology primarilydeals with a particular dimension of economicphenomena, namely their social dimension; and(2) that economic sociology is the study of so-cial structures and organizations in the economy.That economic sociology deals with economic phe-nomena in general (our definition) means thatit addresses issues not only at the periphery ofthe economy (such as, say, the influence of relig-ious values on the economy or of ethnicity onentrepreneurship) but also at its core (such as theway markets operate or investment decisions aremade). Sociological theory here emerges as eitheran alternative to economic theory or as a directchallenge to it. To look at the social dimension ofeconomic phenomena (the first alternative defini-tion) means, on the other hand, that sociologistsonly look at a limited number of economic issues,usually those that are left over once the economistshave finished with their analyses. Economists may,for example, decide with the help of standardeconomic theory what salaries and prices are likein a certain industry, while sociologists, by lookingat a factory or a work group as a social system, may

then add some additional information. Economictheory is not challenged by this type of economicsociology, since it only deals with those topics forwhich there is no economic theory. That economicsociology focuses on social structures or on organi-zations in the economy (the second alternativedefinition) means that a purely economic analysismay be regarded as economic sociology as long asit deals with certain topics. Why a firm rather thanthe market is used for a specific type of transactionmay, for example, be explained by the fact thattransaction costs are higher in this specific case inthe market. This type of economic sociology isclose to economic theory and basically dispenseswith traditional sociology (although not necessari-ly with rational choice sociology; see, e.g., Cole-man 1990).

These three ways of looking at economic soci-ology all have their followers. The one whichemphasizes that the sociological perspective inprinciple can be applied to all types of economicphenomena is, however, the one that has beenused most frequently throughout the history ofeconomic sociology. That this is the case will be-come clear from the following brief overview ofthe field. That the two other definitions—econom-ic sociology as the analysis of the social dimensionof economic phenomena, and economic sociologyas the study of social structures and organizationsin the economy—also have their adherents willbecome obvious as well.

Since the mid-1980s economic sociology hasbeen going through something of a renaissance inthe sociological profession, not only in the UnitedStates but also in other countries. The advent ofwhat is usually referred to as ‘‘new economicsociology’’ represents one of the most dynamicareas in contemporary sociology. Before the mid-1980s three separate attempts had been made tocreate a vigorous economic sociology, and some-thing needs to be said about these. The first at-tempt was made in the early twentieth century by agroup of German scholars of whom Max Weber isthe most important. The second attempt was madeduring the same time period by Emile Durkheimand his followers in France. And the third attemptwas made by some American sociologists, such as

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Talcott Parsons and Neil Smelser, in the 1950s. Afew words shall be said about each of these at-tempts before we discuss the contemporary situation.

HISTORICAL ATTEMPTS AT ECONOMICSOCIOLOGY

The first significant attempt to create a solid eco-nomic sociology was made in Germany during theperiod 1890–1930 by a group of scholars who wereall trained in economics. The three key figureswere Max Weber, Werner Sombart, and JosephSchumpeter. A major reason that economic soci-ology developed so forcefully in German-speakingacademia was probably its strong tradition of his-torical economics. There was also the fact thattoward the end of the nineteenth century Gustavvon Schmoller, the leader of the historical schoolof economics, became embroiled in a bitter aca-demic fight with Carl Menger, one of the foundersof marginal utility analysis. By the time Weber andSombart became active, German economics hadbeen polarized into two camps through the so-called battle of the methods, or the Methodenstreit:one that was overly theoretical and one that wasoverly historical. The idea of ‘‘economic sociolo-gy’’ was conceived by both Sombart and Weber asan attempt to get out of this dead end and tofunction as a kind of bridge between economichistory and economic theory. Economic sociologyshould be analytical in nature, but historicallygrounded. While Sombart, however, wanted eco-nomic sociology to totally replace economic theo-ry, Weber thought differently. In his mind, a healthyscience of economics (Weber used the termSozialoekonomie, or ‘‘social economics’’) should bebroad and simultaneously draw on economic theo-ry, economic history, and economic sociology (We-ber 1949). Schumpeter basically shared Weber’sopinion, although economic theory would alwaysrank higher in his mind than in Weber’s. The ideaof such a broad-based social economics, however,never caught on.

Weber, Sombart, and Schumpeter all made aseries of first-rate contributions to economic soci-ology. For one thing, all of them produced majorstudies of capitalism: Weber ([1921-22] 1978) in

Economy and Society; Sombart ([1902] 1987) in Dermoderne Kapitalismus; and Schumpeter ([1942] 1976)in Capitalism, Socialism and Democracy. Weber em-phasized that capitalism was becoming increasing-ly rationalized; Sombart was particularly interest-ed in looking at the different historical stages ofcapitalism; and Schumpeter argued that moderncapitalism was digging its own grave and was soonto be replaced by socialism. These visions of capi-talism still dominate our thinking and are there-fore of great interest. And so are many of theshorter studies by Weber, Sombart, and Schumpeter,such as Sombart’s ([1906] 1976) study of whythere is no socialism in the United States, Weber’s([1904–5] 1930) analysis of the relationship be-tween Protestantism and the spirit of capitalism,and Schumpeter’s ([1919] 1954, [1918] 1971) twosuperb articles on imperialism and the tax state.

A special mention must also be made of GeorgSimmel’s ([1907] 1990) The Philosophy of Money.This work contains an ingenious analysis of moneythat ranges from philosophy to sociology. No gen-eral theory of money is developed, but the authortakes on a series of interesting topics, includingcredit, checks, and small change. Simmel shouldnot only be credited with having made a seriousattempt to develop a sociological approach ofmoney; he was also the first sociologist to realizewhat an important role trust plays in economic life.

The only one to make a sustained effort to laya theoretical foundation for economic sociology,however, was Max Weber. He did this in a chapterof Economy and Society (Weber [1921–22] 1978)entitled ‘‘Sociological Categories of Economic Ac-tion.’’ When Weber lectured on this chapter to hisstudents, they found his analysis abstract and dry.He therefore decided to give a lecture course ineconomic history to supplement his theoreticalideas. This course became what is today known asGeneral Economic History (Weber [1923] 1981), andit should be read together with Economy and Society.In the latter work Weber carefully constructs thevarious analytical categories that are needed ineconomic sociology. He starts with ‘‘the conceptof economic action’’ and ends with macroeconomicphenomena, such as ‘‘market economies andplanned economies.’’ He also defines and dis-cusses such basic concepts as trade, money, and

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the market—all from a sociological perspective. Atvarious points in his discussion Weber carefullyunderlines when economic theory and economicsociology differ. It is, for example, imperative foreconomic sociologists to use the concept of eco-nomic power in their analyses, while this plays norole in marginal utility theory. In economic theoryit is assumed that consumers are price givers, buteconomic sociology assumes that they are pricetakers. In economic theory it is usually assumedthat prices are simply the result of demand andsupply, while in economic sociology it is necessaryto look at the strength of the various social groupsin order to understand the unfolding of the ‘‘pricestruggle.’’ Finally, in economic sociology econom-ic action must in principle be oriented to thebehavior of others. Economists exclusively studyrational economic action, Weber concludes, whilesociologists have a much broader focus.

During about the same time that Weber,Sombart, and Schumpeter were active in Germa-ny, a similar, though independent, effort to createan economic sociology was made in France. Thekey figures here are Emile Durkheim, Marcel Mauss,and François Simiand. All three felt that sinceeconomic theory is not a social theory (in the sensethat it does not assign analytical priority to societyas opposed to the individual), it should be re-placed by a sociological approach to the economyor, more precisely, by economic sociology. In thisthey echoed Auguste Comte’s critique in the early1800s of economic theorists for ignoring the factthat the economy is part of society and that, as aconsequence, there is no need for a separate eco-nomic theory (Swedberg 1987). The two mostimportant studies in the French school of econom-ic sociology are The Division of Labor in Society byDurkheim ([1893] 1964) and The Gift by MarcelMauss ([1925] 1969) (see also Simiand 1932). Thelatter work not only covers gift-giving but alsocontains a series of brilliant remarks on credit,interest, and consumption. In The Division of Laborin Society Durkheim raises the question of how tobring about solidarity in industrial society. Hisanswer, which is further elaborated in other works(see especially Durkheim [1928] 1962, [1950] 1983),is that no society in which the economic element

predominates can survive. Economic life has to berestrained by a moral element; without a commonmorality, all persons would be at war with oneanother.

Both German and French economic sociologypetered out in the 1930s. At around this timeEuropean sociology was exhausting itself, whileU.S. sociology was in ascendency. Among the mul-tiple subfields that appeared at that time, severalare of interest to economic sociology, such asindustrial sociology, the sociology of professions,and stratification theory. None of these, however,dealt with core economic problems or with eco-nomic theory. Instead there was a firm division oflabor in U.S. social science at this time betweeneconomists, who only studied economic topics,and sociologists, who only studied social topics. Inthe 1950s, however, some sociologists decided tochallenge this division of labor, and their effortshave become known as the ‘‘economy and societyapproach,’’ so called both because two works withthis title now appeared (Moore 1955; Parsons andSmelser 1956) and because a conscious effort wasmade to bring closer together two bodies of thoughtin the social sciences—economics and sociology—that most social scientists felt should be kept sepa-rate (see also Polanyi et al. 1957). Talcott Parsonsand Neil Smelser (1956) argued, for example, thatthe economy is part of society or, in their termi-nology, ‘‘the economic sub-system’’ is part of ‘‘thesocial system.’’ In this sense they assigned a certainpriority to society and implicitly to sociology. Onthe other hand, they also felt that economic theorywas essentially correct—even if it needed to becomplemented by a sociological approach. Thisdual position also informs the first textbook as wellas the first reader in economic sociology—bothproduced by Smelser (1963, 1965).

NEW ECONOMIC SOCIOLOGY

During the late 1960s and the 1970s little of inter-est happened in economic sociology. Since themid-1980s, however, there has been a sharp in-crease of interest in this topic, and a new type ofeconomic sociology has come into being (seeFriedland and Robertson 1990; Granovetter 1990;

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Zukin and DiMaggio 1990). Not only sociologistsbut also economists have contributed to this devel-opment. Since the mid-1970s mainstream econo-mists have become increasingly interested in therole of social structures and organizations in theeconomy. This has led to a movement usuallyreferred to as ‘‘new institutional economics’’ (e.g.,Eggertsson 1990). Sources of inspiration for thisnew institutionalism include transaction cost econo-mics, agency–principal theory, and game theory.Gary Becker (1976), for example, has convincedmany economists that social phenomena can beanalyzed with the help of the economist’s tools;Kenneth Arrow has written about the role oforganizations in the economy; Thomas Schelling(1960) has used game theory to develop a scienceof ‘‘interdependent decision’’; and Oliver Williamson(1975) has popularized the concept of transactioncosts through his best-selling Markets and Hierar-chies (see also Coase 1937; Swedberg 1990). ThreeNobel Prizes have also been awarded to econo-mists who in one way or another focus on thesocial aspects of the economy: R.H. Coase (1991),Gary Becker (1992), and Douglass North (1993).As a result of these and other events, mainstreameconomists today are interested not only in tradi-tional issues relating to price formation but also ineconomic institutions and how these change. Thelast time this happened in the United States was inthe early twentieth century, when Americaninstitutionalism was born (see, e.g., Commmons1924; Gruchy 1947; Veblen [1899] 1973). Thereexists, however, an important difference betweenthe old form of institutionalism and new institu-tional economics. While Thorstein Veblen and hiscontemporaries tried to analyze economic institu-tions with the help of an approach that was veryclose to that of sociology, Becker and other cur-rent theorists claim that the reason economic insti-tutions work the way they do can be analyzed withthe help of the economist’s traditional tools (effi-ciency, rational choice, etc.). This approach hasbeen severely criticized by some sociologists onthe grounds that it simplifies and distorts theanalysis (e.g., Etzioni 1988; Granovetter 1985).

Since the mid-1980s, as already mentioned,there has been a major revival of economic soci-ology, and what is usually referred to as ‘‘new

economic sociology’’ has come into being. Thedate of birth of this movement is usually set to1985, since that year a highly influential article,which was to create much interest in economicsociology, was published. This was Mark Granovetter’s‘‘Economic Action and Social Structure: The Prob-lem of Embeddedness,’’ published in The AmericanJournal of Sociology. The very same year, it can beadded, Granovetter introduced the notion of ‘‘neweconomic sociology’’ in a brief paper at the annualmeeting of the American Sociological Association.In his 1985 article on embeddedness, Granovettersharply attacked the attempts by economists toexplain the functioning of social institutions andaccused them of simplicity. Just as economistshave a tendency to ignore social relations throughan ‘‘undersocialized concept of man,’’ Granovettersaid, some sociologists view the individual as areflex of the social structure, and they consequent-ly have an ‘‘oversocialized concept of man.’’ Theproper way to proceed, Granovetter suggested, isto tread a middle way between these two oppo-sites, and this can best be done by assuming thatindividual actions are always ‘‘embedded’’ in so-cial networks.

Granovetter’s article has been followed by aminor avalanche of writings in economic sociolo-gy, and there exist good reasons for arguing thatnew economic sociology today constitutes a minorschool of its own. A large number of articles andquite a few monographs have been produced; acouple of introductory readers can be found onthe market; and in the mid-1990s a huge Handbookof Economic Sociology was published (Smelser andSwedberg 1994). Other signs that a certain institu-tionalization of economic sociology has taken placeis that a section in economic sociology has beenorganized at the American Sociological Associa-tion, which has also published a volume with courseoutlines and similar teaching materials (Green andMyhre 1996).

Before saying something about the concretestudies that have been produced since the mid-1980s, it should be pointed out that new economicsociology is primarily a creation of North Ameri-can sociologists. In Europe and elsewhere in theworld there also exists an interest in economic

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sociology, but it tends to manifest itself in a lesscohesive form than in the United States, and it isnot held together through recurring conferencesand the like. This is especially true for Europe.Most of the major European sociologists havewritten on economic topics in some work or an-other, but this is rarely perceived as an interest ineconomic sociology (e.g., Boltanski 1987; Bourdieu1986; Luhmann 1988). There also exist articlesand monographs by European sociologists whoidentify themselves as economic sociologists—but,to repeat, these tend not to be much noticed, sincethey are not held together by a strong and self-conscious tradition (e.g., Beckert 1997; Dodd 1994;Gislain and Steiner 1995). Finally, quite a bit ofeconomic sociology has also been produced underthe auspices of the section on economy and societywithin the International Sociological Association(e.g., Martinelli and Smelser 1990).

New economic sociology has advanced theunderstanding of economic phenomena in a num-ber of ways, and it has especially been successful inanalyzing the following three topics: (1) the rolethat networks play in the economy, (2) the way thatculture and values influence the economy, and (3)what causes firms to be organized the way they are.Something will be said about each of these topics,but before doing so it should be noted that someinteresting advances have also been made in manyother areas, such as consumption, finance, and therole of gender in the economy (e.g., Abolafia 1996;Biggart 1989; Warde 1997). Finally, social capital isa topic that has attracted attention from sociolo-gists as well as from political scientists and econo-mists (e.g., Bourdieu 1986a; Coleman 1988; for anoverview, see Woolcock 1998).

Network Analyses. Network analyses are of-ten empirical in nature and sophisticated in theirmethodology, and this is also true for networkstudies in economic sociology. This latter type ofstudies made its first appeareance in the 1970s,something which Granovetter’s well-known Get-ting a Job (1974) is a reminder of. The same is truefor studies of interlocks, that is, studies of the kindof links that emerge when some individual is amember of more than one corporate board. Inter-lock studies became popular with Marxist sociolo-gists, who felt that they had found a way to docu-ment how the ruling class controls corporations

(e.g., Mintz and Schwartz 1985). A more subtleversion of this argument can be found in MichaelUseem’s The Inner Circle (1984), based on inter-views with chief executive officers (CEOs), whosemain point is that CEOs who are members ofseveral boards have a better overview of the econo-my, something that enables them to better defendtheir interests.

The simplistic type of interlock studies havebeen severely critized, primarily on the groundsthat it is unclear what the consequences are of thefact that two or more corporations are connectedthrough interlocks. In one interesting study, it wasalso argued that if for some reason a link betweentwo corporations was severed, it would have to bereconstituted relatively soon if this type of linkindeed is as important as is often claimed. Thisstudy showed that only a minority of so-calledbroken ties were actually re-created (Palmer 1983;see also the discussion in Stearns and Mizruchi1986). As of today, the opinion of many economicsociologists is that interlock studies can be quitevaluable, but only on condition that they are com-plemented with other material, such as historicalstudies, interviews, and the like.

A few words must be said about Granovetter’sGetting a Job (1974), since it represents a particular-ly fine example of what an empirically sophisticat-ed and theoretically interesting study in economicsociology can look like. As Granovetter notes inthe second edition of this work from 1995, hisstudy has inspired quite a bit of research since itsoriginal publication in the 1970s. The main thrustof the study is to challenge the notion of main-stream economics that social relations can be ab-stracted from an analysis of how people get jobs.Through network data he had collected in a Bos-ton suburb, Granovetter succeeded in showingthat information about openings in the job markettravels through social networks, and the morenetworks you belong to, the more likely you are tofind this type of information. Having a few veryclose and helpful friends is not as effective in termsof getting information as being linked to manydifferent networks (‘‘the strength of weak ties’’). Acorollary of this thesis, Granovetter shows, is thatpeople who have had several jobs are more likely

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to find a new position when they become unem-ployed than those who have had only one employer.

Since the mid-1980s network studies have be-come very popular in economic sociology, and anumber of advances have been made (see thestudies cited in Powell and Smith-Doerr 1994).Several new topics have also been added to therepertoire, including industrial regions and ethnicentrepreneurship. A special mention should bemade of Ronald Burt’s Structural Holes (1992), inwhich competition and entrepreneurship are ana-lyzed from a network perspective. Burt’s study iscentered around the argument that when an actoris the one and only link between two networks, heor she is in a good position to exploit this situation(tertius gaudens, or ‘‘the third who benefits,’’ inSimmel’s terminology). Granovetter (1994) hasalso suggested that the network approach can beused to study so-called business groups, that is, thekind of social formations that are made up ofcorporations that are bound together in someformal or informal way and that display a certainamount of solidarity. The applicability of the no-tion of business groups to the Korean chaebol or tothe Japanese keiretsu is obvious, but it also appearsthat business groups exist in most Western countries.

The Influence of Culture and Values. A feweconomic sociologists have approached the studyof the economy from a different perspective andemphasize the way that culture and values influ-ence economic phenomena. The two most promi-nent contributors to this type of economic sociolo-gy are Paul DiMaggio (1994) and Viviana Zelizer(1979, 1985, 1994); the studies they have producedare of two kinds—general theoretical statementsand empirical studies of a historical and qualitativecharacter. Zelizer (1988) has sharply critiqued whatshe sees as an attempt in much of current econom-ic sociology to eliminate values and to reduceeverything to networks. Economic sociology, sheargues, needs to introduce culture and values intothe analysis, while simultaneously paying attentionto the social structure.

Zelizer has also produced three empirical stud-ies in which she attempts to show the impact ofculture and values on economic phenomena. In

the first of these, Zelizer (1979) looks at the devel-opment of the life insurance industry in the Unit-ed States, showing how difficult it was to getpeople to accept that an individual’s life can beevaluated in purely monetary terms. In her secondstudy, Zelizer (1985) looks at the same develop-ment but, so to speak, in reverse—namely, howsomething that had an economic value at one timein history can turn into something that has asacred value at another. In the nineteenth century,as she shows, children were often seen as having aneconomic value, while today they have an exclu-sively emotional value. In her latest study, Zelizer(1994) looks at money, arguing that people usuallydistinguish between different types of money. Mon-ey—and this is the main point—is not some kindof homogeneous, asocial medium, as economistsclaim, but is social to its very core. Pin money, forexample, differs from the kind of money that is setaside for ordinary expenses; and when money isgiven away as a gift, an effort is usually made todisguise its nature as money.

Organization Theory. For a number of rea-sons there exists a clear affinity between organiza-tion theory and economic sociology. One reasonfor this, no doubt, is that sociologists of organiza-tion often analyze economic organizations; anoth-er is that organization theory was to incorporatemuch of industrial sociology when this field disap-peared in the 1970s. And, finally, roughly duringthe 1990s, business schools often hired sociolo-gists to teach organization theory. Three schoolsor perspectives in organization theory have beenof much importance to economic sociology: re-source dependency, population ecology, and newinstitutionalism.

The basic idea of resource dependency is thatan organization is dependent on resources in itsenvironment to survive. This perspective, as espe-cially Ronald Burt has shown, can be of some helpin understanding how the economy works. At thecenter of Burt’s work on resource dependency ishis concept of structural autonomy, or the ideathat a corporation has more room to maneuverthe fewer competitors it has and the more suppli-ers and the more customers there are. That acorporation has more power if it is in a monopoly

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position is clear; from this it follows that suppliersas well as customers are less powerful the morecompetitors they have. If Corporation A, for ex-ample, has only one supplier and one customer,both of these can wield quite a bit of power overCorporation A. Using a huge input–output dataset for U.S. industry, Burt has also shown that theidea of structural autonomy has some support inempirical reality; in brief, the more structurallyautonomous a corporation is, the more likely it isthat profits will increase (Burt 1983).

Population ecology, as opposed to resourcedependency, uses as its unit of analysis not thesingle corporation but whole populations of or-ganizations. That these populations go throughfairly distinct phases of growth and decline hasbeen shown through a number of empirical stud-ies, many of which are highly relevant to economicsociology since the organizations being studiedare often economic organizations. Population ecolo-gy also looks at competition between organiza-tions and the processes through which new organi-zational forms become accepted. The fact thatpopulation ecology typically looks at large popula-tions of organizations means that relatively high-powered statistical methods are used. There is,however, little theoretical renewal going on inpopulation ecology, and unless this changes, thisperspective risks being exhausted in a few years.

A considerably higher degree of flexibility andcreativity characterizes new institutionalism, orthe kind of organization theory that has emergedaround the work of John Meyer (e.g., Meyer andRowan 1977; cf. DiMaggio and Powell 1991). Afundamental thesis in this approach is that ration-ality is often only a thin veneer and that organiza-tions usually look the way they do for other thanrational reasons. There also exist more or lessdistinct models for what a certain type of organiza-tion should look like, and these models are typi-cally diffused through imitation. Since newinstitutionalism has such a flexible core, it can beused to analyze a variety of topics, in contrast topopulation ecology, which is considerably morelimited in scope.

Two studies that illustrate this flexibility areNeil Fligstein’s The Transformation of Corporate Con-trol (1990) and Frank Dobbin’s Forging Industrial

Policy (1994). The former is a study of the hugeAmerican corporation since the end of the nine-teenth century that challenges several of AlfredChandler’s theses. According to Fligstein, U.S.corporations have created different concepts ofcontrol during different periods of time; by con-trol, he means the general strategy that corpora-tions follow for surviving and making money.While cartels, for example, represented a com-mon strategy around the turn of the century in theUnited States, they were later replaced by verticalintegration, the idea of conglomerates, and otherconcepts of control. Fligstein also shows not onlythat the famous multidivisional form was a re-sponse to the economic environment, as Chandlerclaimed, but also that it was diffused throughimitation.

Fligstein, as opposed to Chandler, also pointsout that the state influences the way corporationsoperate and the way they decide on a certainconcept of control. Dobbin makes a similar pointin Forging Industrial Policy (1994), but the emphasisin this study is primarily on regulatory or industri-al policy cultures. Drawing on empirical materialof a historical character from France, England,and the United States in the nineteenth century,Dobbin shows how each of these countries devel-oped different regulatory and industrial policycultures, and in particular how they treated rail-roads in different ways. The state, for example,was actively involved in the railroad business inFrance but played a more passive role in Englandand the United States. Dobbin argues convincinglythat there exists no single best way of doing thingsin the economy, as mainstream economists seemto think; what may seem natural and rational to doin one country does not seem so in another.

New economic sociology has also made someinteresting progress in the analysis of the market.The reason this topic has attracted quite a bit ofattention among sociologists is that the theory ofthe market constitutes the very heart of main-stream economics; and to challenge mainstreameconomics one first and foremost has to challengeits theory of the market. Of the empirical studiesthat sociologists have produced, the most innova-tive may well be Mitchell Abolafia’s Making Mar-kets (1996) (see also Uzzi 1996). Abolafia has inves-tigated three important markets on Wall Street

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(bonds, stocks, and futures markets) through par-ticipant observation; in particular, he has looked atthe way that these are regulated. His major conclu-sion is that markets are social constructions andthat regulation is related to ‘‘cycles of opportu-nism.’’ When the existing regulation of a market ismild, opportunistic actors will take advantage ofthis fact, which will lead to a tightening of therules; when regulation has been strong and effec-tive for some time, demands are likely to be raisedthat milder rules should be introduced.

While most empirical studies of the markethave focused on some aspect of the market ratherthan on its core, there do exist a few theoreticalattempts by sociologists to explain the very natureof the market. Two of these are particularly inter-esting, namely, the analyses of Harrison White(1981) and of Neil Fligstein (1996). White’s argu-ment, which takes its departure in the typicalproduction market with only a handful of actors,can be summarized in the following way: When afew actors produce similar products at similarprices, they may, by watching one another, cometo realize that they make up a market and alsobehave according to this perception. More pre-cisely, it is by watching the terms-of-trade schedulethat this process takes place; and as long as theproducers feel that they fit into this schedule, themarket will continue to exist. By modeling hisargument about the terms-of-trade schedule, Whiteis also able to show under which theoretical condi-tions a market can come into being and when itwill unravel.

While only a few attempts have been made towork directly with White’s so-called W(y)-model,its general impact has been large in new economicsociology, especially through White’s argumentthat a market comes into being when actors orienttheir behavior to one another in a rolelike manner.The most suggestive of the studies that have beeninfluenced in a general way by the W(y)-model isFligstein’s theory of markets. Like White, Fligsteinuses the typical production market as his point ofdeparture, but the emphasis in his theory is quitedifferent. Market actors, according to Fligstein,fear competition, since this makes it hard to pre-dict what will happen, and they therefore attempt

to introduce stability into the market. This can bedone in different ways, and for empirical illustra-tion Fligstein draws on his study of the evolution ofthe huge American corporation (Fligstein 1990).In certain situations, competition can nonethelessbe very strong, but this is usually accompanied byattempts to stabilize the market. As examples ofthis, Fligstein mentions the situation when a newmarket is coming into being, when a major innova-tion is introduced into an already existing market,and when some major social disturbance takes place.

POSSIBLE FUTURE DIRECTIONS

If one were to summarize the situation in econom-ic sociology at the end of the twentieth century, itcould be said that economic sociology, which playedsuch an important role in the classic works ofsociology, has once again come alive. New andprovocative studies have been produced, and asteadily growing number of sociologists are be-coming interested in economic sociology. If oneadds to this that mainstream economists are in-creasingly realizing the importance of institutionsin the economy, it may well be the case thateconomic sociology will become one of the mostinteresting fields in sociology during the twenty-first century.

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