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Chapter 1: "The Sociological Perspective on the Economy"
from _The Handbook of Economic Sociology_
by Neil J. Smelser and Richard Swedberg

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AS A FIELD of inquiry, economic sociology is an
easily recognized field within the discipline, but
among nonsociologists, including many econo-
mists, its contours are not familiar.<1> We begin,
therefore, by defining the field and distinguishing
it from mainstream economics. Next we lay out
the classical tradition of economic sociology as
found in the works of Marx, Weber, Durkheim,
Schumpeter, Polanyi, and Parsons-Smelser. Fi-
nally, we cite some more recent developments
and topics of concern in economic sociology.

THE DEFINITION OF ECONOMIC SOCIOLOGY

   Economic sociology--to use a term that Weber
and Durkheim introduced<2>--can be defined most
simply as _the sociological perspective applied to eco-
nomic phenomena_. A similar but more elaborate
version is _the application of the frames of reference,
variables, and explanatory models of sociology to
that complex of activities concerned with the pro-
duction, distribution, exchange, and consumption
of scarce goods and services_.<3> One way to make this
definition more specific is to indicate the varia-
bles, models, etc., that the economic sociologist
employs. When Smelser first put forth such a defi-
nition (1963, pp. 27-28; 1976, pp. 37-38), he
mentioned the sociological perspectives of per-
sonal interaction, groups, social structures (insti-
tutions), and social controls (among which sanc-
tions, norms, and values are central). Given recent
developments in sociology as a whole and eco-
nomic sociology in particular, we would specify
that the particular perspectives of social networks,
gender, and cultural context have also become
central in economic sociology (e.g., Granovetter
1985; Zelizer 1989a). In addition, the interna-
tional dimension of economic life has assumed
greater salience among economic sociologists, at
the same time as that dimension has come to pen-
etrate the actual economies of the contemporary
world (Makler, Martinelli, and Smelser 1982).

   Stinchcombe reminds us, finally, that the defi-
nition of economic sociology must invariably also
include the ecological perspective. He puts the
matter in the following way: "From the point of
view of the sociology of economic life, [a] central
point is that _every mode of production is a transac-
tion with nature_. It is therefore simultaneously
determined by what a society is prepared to ex-
tract with its technology from nature and by what
is there in nature" (Stinchcombe 1983, p. 78).
This definition is useful in two ways: it highlights
the fact that an economy is always anchored in na-
ture; it also calls attention to the fact that the
boundary between economy and nature is a _rela-
tional_ one--that is, "what a society _is prepared_ to
extract ... from nature."

   We now turn to a comparison between eco-
nomic sociology and mainstream economics as a
further way of elucidating the characteristics of
the sociological perspective on the economy. This
is a useful exercise only if an important cautionary
note is kept in mind: both bodies of inquiry are
much more complex than any brief comparison
would suggest, so that any general statement al-
most immediately yields an exception or qualifica-
tion. To illustrate:

In economics the classical and neoclassical traditions
have enjoyed a certain dominance--that is why they
might be called "mainstream"--but the basic as-
sumptions of those traditions have been modified
and developed in many directions. In a classical state-
ment, Knight ([1921] 1985, pp. 76-79) made ex-
plicit that neoclassical economics rested on the
premises that actors have complete information and
that information is free. Since that time economics
has developed traditions of analysis based on as-
sumptions of risk and uncertainty (for example,
Sandmo [1971]) and information as a cost (for ex-
ample, Stigler [1961]). In addition, numerous ver-
sions of economic rationality--for example, Simon's
(1982) emphasis on "satisficing" and "bounded ra-
tionality"--have appeared.
   Sociology lacks one dominating tradition. Various soci-
ological approaches and schools differ from and
compete with one another, and this circumstance has
affected economic sociology. For example, Weber
was skeptical about the notion of a social "system,"
whether applied to economy or society, while Par-
sons viewed society as a system and economy as one
of its subsystems. Furthermore, even if all economic
sociologists might accept the definition of economic
sociology we have offered, they focus on different
kinds of economic behavior. Some, following the
hint of Arrow (1990, p. 140) that sociologists and
economists simply ask different questions, leave
many important economic questions--such as price
formation--to the economists and concentrate on
other issues. Others, advancing what is called the
New Economic Sociology (see Granovetter [1990]
for a programmatic statement) argue that sociology
should concentrate on core economic institutions
and problems.

Those caveats recorded, there are nevertheless
several areas in which a comparison between
mainstream economics and economic sociology
will clarify understanding of the specific nature of
the sociological perspective.

A COMPARISON OF ECONOMIC SOCIOLOGY
AND MAINSTREAM ECONOMICS

Table 1 offers a schematic summary of the
major theoretical differences between the two
lines of inquiry, differences that can be elaborated
in the following ways.

   _The concept of the actor_.  To put the matter
without qualification, the analytic starting point
of economics is the individual; the analytic start-
ing points of economic sociology are groups, in-
stitutions, and society. In microeconomics, the
individualistic approach has conspicuous origins
in early British utilitarianism and political econ-
omy. This orientation was elucidated systemati-
cally by the Austrian economist, Carl Menger (see
Ud‚hn 1987), and given the label "methodologi-
cal individualism" by Schumpeter, who explained
that "in the discussion of certain economic trans-
actions you start with the individual" (Schumpe-
ter 1908, p. 90). By contrast, in discussing the in-
dividual, the sociologist focuses on the actor as
socially constructed entity, as "actor-in-interac-
tion," or "actor-in-society." Often, moreover, so-
ciologists take the group and social-structural lev-
els as phenomena _sui generis_, and do not consider
the individual actor as such.

   Methodological individualism is not logically
incompatible with a sociological approach, as the
work of Max Weber indicates. In his introductory
theoretical chapter to _Economy and Society_, he
constructed his whole sociology on the basis of
the actions of individuals. But these actions are of
interest to the sociologist only insofar as they are
_social_ actions, or, in his words, "they take account
of the behavior of other individuals and thereby
are oriented in their course" (Weber [1922]
1978, p. 4). This formulation underscores a sec-
ond difference between microeconomics and eco-
nomic sociology: the former assumes that actors
are not connected to one another; the latter as-
sume that actors are linked with and influenced by
others. As we will indicate, this difference in first
assumptions has implications for how economies
function.

   _The concept of economic action_.  In microeco-
nomics the actor is assumed to have a given and
stable set of preferences and chooses that alterna-
tive line of action which maximizes utility (indi-
vidual) or profit (firm). In economic theory, this
way of acting constitutes economically rational
action. Sociology, by contrast, encompasses sev-
eral possible types of economic action. To illus-
trate from Weber again, economic action can be
either rational, traditional, or speculative-irra-
tional (Weber [1922] 1978, pp. 63-69). It is
noteworthy that, except for residual mention of
"habits" and "rules of thumb," economists give
no place to traditional economic action (which,
arguably, constitutes its most common form; see,
however, Akerlof 1984b and Schlicht 1993).

   A second major difference between microeco-
nomics and economic sociology in this context
has to do with the scope of rational action. The
economist traditionally identifies rational action
with the efficient use of scarce resources. The so-
ciologist's view is, once again, broader. Weber re-
ferred to the conventional maximization of util-
ity, under conditions of scarcity and expressed in
quantitative terms, as "formal rationality." In ad-
dition, however, he identified "substantive ra-
tionality," which refers to allocation within the
guidelines of other principles, such as communal
loyalties or sacred values. A further difference lies
in the fact that economists regard rationality as an
_assumption_, whereas sociologists regard it as a
_variable_ (see Stinchcombe 1986, pp. 5-6). Ac-
cording to the latter view, the actions of some in-
dividuals or groups may be more rational than
others (cf. Akerlof 1990). Along the same lines,
sociologists tend to regard rationality as a phe-
nomenon to be explained, not assumed. Weber
dedicated a great deal of his economic sociology
to specifying the social conditions under which
formal rationality is possible, and Parsons ([1940]
1954) argued that economic rationality was a sys-
tem of norms--not a psychological universal--as-
sociated with specific developmental processes in
the West.

   Another difference emerges in the status of
_meaning_ in economic action. Economists tend to
regard the meaning of economic action as deriv-
able from the relation between given tastes on the
one hand and the prices and quantity of goods
and services on the other. Weber's conceptualiza-
tion has a different flavor: "The definition of eco-
nomic action [in sociology] must ... bring out
the fact that all `economic' processes and objects
are characterized as such entirely by the _meaning_
they have for human action" (Weber [1922] 1978,
p. 64). According to this view, meanings are his-
torically constructed and must be investigated
empirically, and are not simply to be derived from
assumptions and external circumstances.

   Finally, sociologists tend to give a broader and
more salient place to the dimension of _power_ in
economic action. Weber ([1922] 1978, p. 67) in-
sisted that "[it] is essential to include the criterion
of power of control and disposal (_Verf�gungs-
gewalt_) in the sociological concept of economic
action," adding that this applies especially in the
capitalist economy. By contrast, microeconomics
has tended to regard economic action as an ex-
change among equals, and has thus had difficulty
in incorporating the power dimension (Galbraith
1973; 1984). In the tradition of perfect competi-
tion, no buyer or seller has the power to influence
price or output. "The power ... to restrict quan-
tities sold and raise prices is effectively annihilated
when it is divided among a thousand men, just as
a gallon of water is effectively annihilated if it is
spread over a thousand acres" (Stigler 1968, p.
181). It is also true that economists have a long
tradition of analyzing imperfect competition--in
which power to control prices and output is the
core ingredient--and that the concept of "market
power" is often used in labor and industrial eco-
nomics (e.g., Scherer 1990). Still, the economic
conception of power is typically narrower than
the sociologist's notion of economic power,
which includes its exercise in societal--especially
political and class--contexts as well as in the mar-
ket. In a recent study of the power of the U.S.
banking system, for example, Mintz and Schwartz
(1985) analyzed how banks and industries inter-
lock, how certain banks cluster together into
groups, and how banks sometimes intervene in
corporations in order to enforce economic deci-
sions. More generally, sociologists have analyzed
and debated the issue of the extent to which cor-
porate leaders constitute a "power elite" in the
whole of society (e.g., Mills 1956; Dahl 1958;
Domhoff and Dye 1987).

   _Constraints on economic action_.  In main-
stream economics, actions are constrained by
tastes and by the scarcity of resources, including
technology. Once these are known, it is in princi-
ple possible to predict the actor's behavior, since
he or she will always try to maximize utility or
profit in an economic setting. The active influ-
ence of other persons and groups, as well as the
influence of institutional structures, is set to one
side. Knight codified this in the following way:
"Every member of society is to act as an individual
only, in entire independence of all other persons.
To complete his independence he must be free
from social wants, prejudices, preferences, or re-
pulsions, or any values which are not completely
manifested in market dealing. Exchange of fin-
ished goods is the only form of relation between
individuals, or at least there is no other form
which influences economic conduct" (Knight
[1921] 1985, p. 78).

   Sociologists take such influences directly into
account in the analysis of economic action. Other
actors either facilitate, deflect, or constrain indi-
viduals' actions in the market. For example, a
long-standing friendship between a buyer and a
seller may prevent the buyer from deserting the
seller just because an item is sold at a lower price
elsewhere in the market (e.g., Dore 1983). Cul-
tural meanings also affect choices that might oth-
erwise be regarded as "rational." In the United
States, for example, it is difficult to persuade peo-
ple to buy cats and dogs for food, even though
their meat is as nutritious and cheaper than other
kinds (Sahlins 1976, pp. 170-79). In general,
moreover, a person's position in the social struc-
ture conditions his or her economic activity. In an
explication of Merton's concept of social struc-
ture, Stinchcombe (1975) evoked the principle
that structural constraints influence career deci-
sions in ways that run counter to the principle of
economic payoff. For example, for a person who
grows up in a high-crime neighborhood, the
choice between making a career of stealing and
getting a job often has less to do with the compar-
ative utility of these two alternatives than with the
structure of peer groups and gangs in the neigh-
borhood. Stinchcombe generalized this point by
constructing a map, reproduced in figure 1, of the
ranges of interactive influences between actor and
society that affect his or her behaviors.

   _The economy in relation to society_.  The main
foci for the economist are economic exchange,
the market, and the economy. To a large extent,
the remainder of society is regarded as "out
there," beyond where the operative variables of
economic change really matter (see Quirk 1976,
pp. 2-4; Arrow 1990, pp. 138-39). To put the
matter more precisely, economic assumptions
often presuppose stable societal parameters. For
example, the long-standing assumption that eco-
nomic analysis deals with peaceful and lawful
transactions and does not deal with force and
fraud involves some important presuppositions
about the legitimacy and the stability of the state
and legal system. In this way the societal parame-
ters--which would surely affect the economic
process if the political-legal system were to disin-
tegrate--are frozen by assumption, and thus are
omitted from the analysis. In recent times, econo-
mists have turned to the analysis of why institu-
tions rise and persist (New Institutional Econom-
ics) and have varied the effects of institutional
arrangements in experiments (see Eggertsson
1990). Nevertheless, the contrast with economic
sociology remains. The latter line of inquiry, hav-
ing grown as a field within general sociology, has
always regarded the economic process as an or-
ganic part of society, constantly in interaction
with other forces. As a consequence, economic
sociology has usually concentrated on three main
lines of analysis: (1) the sociological analysis of
economic process; (2) the analysis of the connec-
tions and interactions between the economy and
the rest of society; and (3) the study of changes in
the institutional and cultural parameters that con-
stitute the economy's societal context.

   _Goal of analysis_.  As social scientists, both
economists and sociologists have a professional
interest in the systematic explanation of phenom-
ena encompassed by their respective subject-mat-
ters. Within this common interest, however, dif-
ferent emphases emerge. Economists tend to be
critical of descriptions--they have long con-
demned traditional institutional economics for
being too descriptive and atheoretical. Instead
they stress the importance of prediction. "Since
the days of Adam Smith," Blaug (1978, p. 697)
writes, "economics has consisted of the manipula-
tion of a priori assumptions ... in the production
of theories or hypotheses yielding predictions
about events in the real world." Sociologists, by
contrast, offer fewer formal predictions, and often
find sensitive and telling descriptions both inter-
esting in themselves and essential for explanation.
As a result of these differences, sociologists often
criticize economists for generating formal and ab-
stract models and ignoring empirical data, and
economists reproach sociologists for their inca-
pacity to make predictions and their penchant for
"_post factum_ sociological interpretations" (Mer-
ton 1968, pp. 147-49).

   _Methods employed_.  The emphasis on predic-
tion constitutes one reason why mainstream eco-
nomics places such high value on expressing its
hypotheses and models in mathematical form.
Though the advantages of this kind of formal the-
orizing are readily apparent, economists them-
selves have complained that it tends to become an
end in itself. In his presidential address to the
American Economic Association in 1970, Wassily
Leontief criticized his profession's "uncritical en-
thusiasm for mathematical formulation." "Unfor-
tunately," Leontief said, "anyone capable of
learning elementary, or preferably advanced cal-
culus and algebra, and acquiring acquaintance
with the specialized terminology of economics
can set himself up as a theorist" (Leontief 1971,
p. 1). Later he reiterated this criticism, noting
that more than half of the articles in the _American
Economic Review_ consist of mathematical models
that are not related to any data (Leontief 1982, p.
106).

   When economists do turn to empirical data,
they tend to rely mainly on those generated for
them by economic processes themselves (for ex-
ample, aggregated market behavior, stock ex-
change transactions, and official economic statis-
tics gathered by governmental agencies). Sample
surveys are occasionally used, especially in con-
sumption economics; archival data are seldom
consulted, except by economic historians; and
ethnographic work is virtually nonexistent. By
contrast, sociologists rely heavily on a great vari-
ety of methods, including analyses of census data,
independent survey analyses, participant observa-
tion and field work, and the analysis of qualitative
historical and comparative data. In an oversimpli-
fied but telling phrase, Hirsch, Michaels, and
Friedman (1990) characterized the two method-
ological styles as "clean models" for economists
and "dirty hands" for sociologists.

   _Intellectual traditions_.  To a degree that we
consider a matter for regret, economists and soci-
ologists not only rely on different intellectual tra-
ditions that overlap only slightly, but they also re-
gard those traditions differently (Akerlof 1990, p.
64). Evidently influenced by the natural science
model of systematic accumulation of knowledge,
economists have shown less interest than sociolo-
gists in study and exegesis of their classics (with
some notable exceptions such as Adam Smith and
David Ricardo); correspondingly, economics re-
veals a rather sharp distinction between current
economic theory and the history of economic
thought. In sociology these two facets blend
more closely. The classics are very much alive, and
are often required reading in "gatekeeper" theory
courses required of first-year graduate students.

   Despite these differences, and despite the per-
sisting gulf between the traditions of economics
and economic sociology, some evidence of syn-
thesis can be identified over the years. Major the-
orists such as Alfred Marshall, Vilfredo Pareto,
and Talcott Parsons have attempted major theo-
retical syntheses. Certain other figures, notably
Weber and Schumpeter, have excited interest
among both economists and sociologists. In addi-
tion, some economists and sociologists often find
it profitable to collaborate in specific problem
areas, such as poverty. Later in the chapter we will
raise again this key problem of intellectual articu-
lation among economists and sociologists.

THE TRADITION OF ECONOMIC SOCIOLOGY

  If one attempts to establish dates of birth, it
can be asserted with plausibility that the origins of
economic sociology--the term as well as the
idea--are to be found in the works of Weber and
Durkheim around the turn of the century, several
decades after the marginal utility approach was
codified in the works of Menger, Jevons, and
Walras. As is often the case in genealogical exer-
cises of this sort, however, one can find seeds and
protoformations in the writings of earlier think-
ers. As an illustration of this, Karl Polanyi traced
a kind of dialectic between societal and "econ-
omistic" thinking about the economy dating back
to Montesquieu in the middle of the eighteenth
century. His thinking is summarized in table 2.

   One must make special mention of Montes-
quieu and Smith. In the former's _The Spirit of the
Laws_ (1748) one finds a suggestive comparative
analysis of economic phenomena. Smith's _Wealth
of Nations_ (1776) reveals his evident interest in
the role that institutions play in the economy.
Even earlier, in _The Theory of Moral Sentiments_
(1759), Smith had tried to lay a kind of
microfoundation for this kind of analysis. An-
other important figure in the prehistory of eco-
nomic sociology (as we are conceiving it) is Karl
Marx. While his persistent materialism probably
constituted an obstacle to the development of an
independent sociology of economic life, Marx's
ideas are nonetheless central in its evolution, and
for that reason we begin with a brief consider-
ation of his works.

   Karl Marx (1818-1883).  Marx's early work,
the Economic and Philosophical Manuscripts of
1844 ([1844] 1964), holds great interest, espe-
cially the articles entitled "The Power of Money
in Bourgeois Society" and "Estranged Labor." In
the first Marx developed his initial ideas about the
fate of social relations when everything becomes a
commodity--i.e., can be bought and sold for
money. In the second he focused on labor in par-
ticular, emphasizing the distortions of the work
process when labor becomes a commodity. Draw-
ing on Hegel, Marx contrasted the alienation that
a worker necessarily experiences in a society dom-
inated by private property with his or her self-real-
ization through labor in a more humane type of
society. In _The Communist Manifesto_ ([1848]
1978), written a few years later, Marx developed
the essentials of his entire worldview: that history
is propelled by the class struggle; that there exist
only two major classes in capitalist society, bour-
geoisie and proletarians; and that the proletariat
will eventually usher in a classless society by revo-
lutionary means.

   Marx's later work on the economy begins with
_Grundrisse_, a series of notebooks written in
1857-58, and _A Contribution to the Critique of
Political Economy_ (1859). In the former, which
Marx himself referred to as "A Critique of Eco-
nomic Categories," he developed a kind of "soci-
ology of knowledge" analysis of economic theory,
as well as a sociological analysis of money (e.g.,
Marx [1857-58] 1973, pp. 84-111, 156-66). By
1859 he was able to present an overview of his
final system: _A Contribution to the Critique of Po-
litical Economy_. In that work he proclaimed that
the economy constitutes "the real foundation" of
society, and on this foundation--and dependent
on it--"the legal and political superstructure" is
based (Marx [1859] 1970, pp. 20-21). At a cer-
tain stage of development, "the forces of produc-
tion" come into contradiction with "the relations
of production," and the ultimate result of the ac-
companying crisis is a social revolution. In _Capi-
tal_, which Marx regarded as a kind of continua-
tion of _A Contribution to the Critique of Political
Economy_, he presented his most nearly complete
economic analysis: commodities are created
through labor; these are then exchanged for
money; money is turned into capital; capital gen-
erates increasing exploitation, immiseration, and
class conflict. Marx's ambition in this massive
work was to lay bare "the natural laws of capitalist
production," which, he argued, "work with ne-
cessity towards inevitable results" (Marx [1867]
1906, p. 13). In retrospect, it appears that in this
formulation Marx committed the kind of error
that he had accused many bourgeois economists
of committing--namely, reifying a set of eco-
nomic categories and elevating them into more or
less universal laws. At the same time, it is evident
that Marx's work contains a systematic and in
many ways compelling account of the rise and ev-
olution of capitalism, without reference to which
it would be impossible to understand Weber's
_Economy and Society_ or Schumpeter's _Capitalism,
Socialism and Democracy_.

   As is the case with most major social thinkers,
Marx's work has produced an entire literature of
exegesis and controversy. Especially since his
work generated a revolutionary program and be-
came the ideological foundation for regimes in
the Soviet Union, Eastern Europe, and China,
that literature has been fused with ambivalence.
At one moment Weber claimed--prematurely, as
it turned out--that the idea that economic factors
decide the evolution of history was "totally fin-
ished" (Weber [1924] 1984, p. 456). At the same
time, Weber saw Marx as a pioneer in the devel-
opment of the new kind of social economics he
himself was trying to create ([1904] 1949, pp.
63-65), and many commentators on Weber have
stressed his continuing dialogue with Marx. Ac-
cording to Schumpeter ([1942] 1975, pp. 1-58),
most of Marx's economic theses were of little sci-
entific value. Yet Schumpeter also thought that
Marx's idea that capitalism possesses internal dy-
namics that transform itself was a brilliant insight
on which economists could build (Schumpeter
[1937] 1989). In more recent times the influence
of classical Marxism has once again waned. Influ-
ential critics from both the neoconservative "end
of ideology" school (Bell 1960) and the neocriti-
cal school (Marcuse 1964; Habermas 1975) have
proclaimed his class analysis inapplicable to
postindustrial society. Moreover, the collapse of
communist and socialist systems legitimized in
the names of Marx and Lenin in the 1980s and
into the 1990s further discredited Marxian sociol-
ogy, especially in Eastern and Western Europe.
Yet scholars of different stripes still argue that
while many parts of Marx's theory are unaccept-
able, other elements are valuable and enduring
(e.g., Smelser 1973; Elster 1986, pp. 286-99). It
is still premature, as it was in Weber's time, to de-
clare Marx "totally finished."

   _Max Weber (1864-1920)_.  Economic sociol-
ogy as a distinguishable intellectual entity was
created independently about the same time in
Germany and in France. The most important fig-
ure in Germany was Max Weber, though there are
major works by other scholars such as Georg Sim-
mel ([1907] 1978) and Werner Sombart ([1916-
27] 1987; for commentaries, see Klausner 1982
and Frisby 1992). The influences on Weber were
many. Among them was the Historical School of
economics, whose teachings Weber absorbed as a
young student at Heidelberg. When he assumed
his chair in political economy in Freiburg, Weber
referred to himself as one of "the younger mem-
bers of the German Historical School" ([1895]
1980, p. 440); Schumpeter said he belonged to
"the `Youngest' Historical School" (1954, pp.
815-19; see also Hennis 1987). We have already
mentioned the influence of Marx. As a young man
Weber became acquainted with Marx's work, and
recent archival discoveries show that he lectured
on Marx while a professor of economics (Weber
[1898] 1990). The extent of Marx's influence is
much debated. A negative influence is certainly
clear, since Weber polemicized repeatedly against
the idea that only "material interests" (as opposed
to what Weber called "ideal interests") decisively
determine human behavior (e.g., L”with [1932]
1982; Schroeter 1985). Finally, Weber made fre-
quent reference to marginal utility theory, espe-
cially to its Austrian version. According to
Schumpeter (1954, p. 819), Weber had an "al-
most complete ignorance" of formal economic
theory. Still, it is clear that Menger's work influ-
enced Weber's methodology, especially his fa-
mous concept of the ideal type (Tenbruck 1959;
cf. Holton 1989).

   The first period of Weber's work in economic
sociology begins with his dissertation in 1889 and
continues to about 1908-10, when he decided to
address the subject of _Wirtschaftssoziologie_ di-
rectly. The second period covers the succeeding
years. In his early years Weber was a student of
law and later political economy. These perspec-
tives dominated his work, but much economic so-
ciology also appeared. It is seen in Weber's thesis
on medieval trading companies, his studies of the
stock exchange and his voluminous writings on
industrial workers (see Bendix 1960 and K„sler
1988 for summaries).

   Several specific works in Weber's early period
are notable. First are his studies on agricultural
workers in Germany. In tracing their migration
patterns, Weber noted that they were less influ-
enced by considerations of economic gain than by
their desire to be free from the oppressive condi-
tions on the landed estates. What mainly made
them decide to leave was "the magic of _freedom_"
(Weber [1895] 1980, p. 433). Through his stud-
ies of Rome, Weber intervened with full force in
the contemporary debate whether or not capital-
ism had existed in antiquity (e.g., Weber [1896]
1976). By the late 1890s Weber had come close
to the position that we can also find in his last
works, namely that there had existed a fully devel-
oped "political capitalism" in Rome but little "ra-
tional capitalism" (cf. Love 1991). Finally, his
_The Protestant Ethic and the Spirit of Capitalism_
advanced the imaginative thesis that a certain type
of Protestantism had helped create a new eco-
nomic ethic, which in turn helped further the ra-
tional type of capitalism distinctive of the West
([1904-5] 1958). After Protestantism had thus
worked to legitimize rational economic behavior,
secularization diminished the religious element
but not its ultimate effects. Weber regarded this
development as somewhat dismal; he used the fa-
mous term "iron cage" to describe the capitalist
world minus religion. Needless to say, Weber's
thesis has proved controversial over the genera-
tions, and continues to be debated (see Lehmann
and Roth 1993).

   The year 1908 is important in the development
of Weber's economic sociology. In that year he
was asked to edit a giant handbook in econom-
ics--what was to become the _Grundriss der Sozial-
”konomik_ (12 vols., 1914-30; see Winkelmann
1986; Schluchter 1989). Weber's choice of the
term _Sozial”konomik_ is significant; by it he meant
a new type of economics, a broad multidiscipli-
nary field of inquiry that would include economic
theory, economic history, and economic sociol-
ogy. In studying economic phenomena, one has
to draw on all three perspectives and not permit
any one to monopolize. Representatives from
both the Historical School and the Marginal Util-
ity School--which at this time were involved in a
bitter academic debate known as the Battle of the
Methods--were asked to participate in the hand-
book. Weber produced the section on economic
sociology.

   Weber's contribution to _Grundriss der Sozial-
”konomik_ is known to the English-speaking world
as _Economy and Society_, a two-volume study con-
sisting of diverse manuscripts, most of which
Weber neither coordinated nor edited. The eco-
nomic sociology at the core of the work focuses
on the economy itself and on the links between
the economy and other parts of society. As for the
latter, Weber remarked, "The connections be-
tween the economy ... and the social orders
[such as law, politics, and religion] are dealt with
more fully [in this work] than is usually the case.
This is done deliberately so that the autonomy of
these spheres vis-…-vis the economy is made mani-
fest" (1914, p. vii).

   The theoretical groundwork for the analysis of
the economy itself is laid out in chapter 2 of _Econ-
omy and Society_, "Sociological Categories of Eco-
nomic Action." It is a kind of founding document
in economic sociology. It parallels the first chap-
ter in which Weber developed the basic categories
of his general sociology--categories such as "so-
cial action," "social relationships," "organiza-
tions," and "associations." His economic sociol-
ogy begins with "economic action," "economic
organizations," and so on. As we mentioned ear-
lier, what distinguishes the concept of "economic
action" in his economic sociology from that used
in economics is three ingredients: it conceives eco-
nomic action as _social_; it always involves _meaning_;
and it takes _power_ ("_Verf�gungsgewalt_") into ac-
count. These three dimensions are expounded in
chapter 2 of _Economy and Society_. For example,
Weber incorporates the dimension of power as
follows: An exchange is defined as formally free,
but, in addition, it involves a "compromise of in-
terests" (Weber [1922] 1978, p. 72). The market
is an arena for "the struggle of man against man."
Money "is primarily a weapon in this struggle,"
and prices are "the products of conflicts of inter-
est and of compromises" (ibid., p. 108).

   We mention finally Weber's _General Economic
History_. This volume is based on a series of
lectures delivered in 1919-20 in response to stu-
dents who complained of the difficulty of grasp-
ing his sociological approach. The book was as-
sembled from students' notes after Weber's death
and should be read with some caution. Notwith-
standing this caveat, the book is notable in that it
summarizes his economic sociology in an accessi-
ble manner, drawing on historical material
stretching back to antiquity (cf. Collins 1980;
1986). He reiterated his fundamental proposi-
tions that economic sociology--as contrasted
with economic theory--must take both _meaning_
and the _social_ dimension into account. His chap-
ter on "The Evolution of the Capitalist Spirit" is
brilliant. In less than twenty pages Weber summa-
rized his thesis in _The Protestant Ethic_ and out-
lined his theory of the increasing rationalization
of the economy in the West. In addition, he pre-
sented some of his ideas on "the economic ethic
of world religions"--on which he worked furi-
ously during his last years (Weber [1915a] 1946;
[1915b] 1946; see also Weber [1915] 1951;
[1916-17] 1958; [1917-20] 1952). The chapter
also contains a sketch of Weber's answer to a
question that fascinated him, namely, why did ra-
tional capitalism develop in the West and not in
other parts of the world?<4>

   _Emile Durkheim (1858-1917)_.  The economic
sociology of Durkheim is less comprehensive and
systematic than Weber's. At the same time, it is
highly original and deserving of study. Durkheim
was a few years ahead of Weber in seeing the pos-
sibilities of a distinctively economic sociology. In
the mid-1890s he introduced a section on "Socio-
logie ‚conomique" into _Ann‚e sociologique_ (1896-
97, pp. 457-518), and in 1909 he presented a
miniprogram for economic sociology ([1909]
1970, pp. 146-53). In contrast to Weber, Durk-
heim neither studied nor taught economics at the
university level, but absorbed it on his own.
Among the authors he had read were Adam
Smith, John Stuart Mill, Jean-Baptiste Say, and Sis-
monde de Sismondi (e.g., Aimard 1962; see also
Steiner 1992). At an early stage of his life he also
came into contact with the Historical School of
economics in Germany (Assoun 1976; Durkheim
1887). It is doubtful, however, that he knew much
about marginal utility economics. It may finally
be noted that his knowledge of Marx was limited,
and he claimed repeatedly that socialist doctrines
should not be confused with social science.

   Durkheim disliked most of what he read in
economics--no doubt because of his antipathy
toward utilitarianism, individualism, and specula-
tive thought. He stated several times that eco-
nomics should become "a branch of sociology"
(e.g., Durkheim [1888] 1970, p. 103; [1909]
1970, p. 151; for an account of French econo-
mists' attitude to Durkheim, see Letort 1908 and
Steiner 1992). Like Auguste Comte, an impor-
tant influence on him, Durkheim regarded most
economics as pure metaphysics (Comte [1839]
1869, pp. 193-204; Mauduit 1928). Durkheim
excepted the German Historical School from this
condemnation, arguing that it had developed an
empirical and sociological approach to econom-
ics, especially through the concept of _Volks-
wirtschaft_ (which he translated as "social econ-
omy"). But most economists, he believed, took a
different approach to research than the historicists
Schmoller and Wagner. To him, orthodox econo-
mists in France and England only acknowledged
the reality of the individual, which was totally un-
acceptable. Durkheim also accused economists of
creating an "economic world that does not exist"
by relying exclusively on arbitrary assumptions
and logical connections (Durkheim and Fau-
‡onnet 1903, pp. 487-88). He summarized his
polemic as follows

Political economy ... is an abstract and deductive
science which is occupied not so much with observ-
ing reality as with constructing a more or less desir-
able ideal; because the man that the economists talk
about, this systematic egoist, is little but an artificial
man of reason. The man that we know, the real man,
is so much more complex: he belongs to a time and
a country, he lives somewhere, he has a family, a
country, a religious faith and political ideas.
(Durkheim [1888] 1970, p. 85)
  In a more positive vein, Durkheim carried out
several studies of interest to economic sociolo-
gists. The most important of these is _The Division
of Labor in Society_, published in 1893. Its core
polemic is that economists are mistaken in por-
traying the division of labor solely in economic
terms--that is, as a means to create wealth and
further efficiency. For Durkheim, the division of
labor serves a much broader function. It is a prin-
cipal vehicle for creating cohesion and solidarity
in modern society. As the division of labor ad-
vances and roles differentiate from one another,
he argued, people cease to bond together on the
basis of their similarities (_mechanical solidarity_).
Rather, they come to depend on one another be-
cause all have different tasks, and thus need each
other for their well-being (_organic solidarity_). In
advanced societies, duties and rights develop
around the interdependencies that the division of
labor produces and it is these duties and rights--
and not exchange or the market structure--that
hold society together.

   At the same time, Durkheim acknowledged
that the integration bred of differentiation was
imperfect. Reasoning from an often-employed bi-
ological analogy, he regarded society as a series of
organs that must be in constant contact with one
another if "the social body" is to function prop-
erly. When this fails to occur, pathologies due to
lack of regulation (_anomie_) result. Applying this
logic to modern industrial societies, Durkheim ar-
gued that the economy had developed so rap-
idly over the past two centuries that the develop-
ment of the requisite rules and regulations had
not kept pace. In this state of "economic ano-
mie," people and society suffered. Having no firm
guidelines about what to expect or what to do im-
plied, for one thing, that people's desires for
pleasures and consumption became boundless
and impossible to satisfy. "Greed is aroused [and]
nothing can calm it, since its goal is far beyond all
it can attain" (Durkheim [1897] 1951, p. 256).
Advocates of industrial society like Saint-Simon,
Durkheim charged, had no remedy for anomie
since they believed that increased production was
the answer to everything (Durkheim [1895-96]
1962). More generally, the theories of both econ-
omists and socialists were equally hopeless be-
cause both regarded the economy as the most im-
portant aspect of society. In fact, Durkheim was
convinced that that view was an integral part of
the problem: the economy had become the raison
d'ˆtre for the new society. For him _morality_, not
the economy, had to be at the center of society if
it was not to fall apart. Durkheim's own sugges-
tion for improvement was that professional bod-
ies, organized by industry and trade, had to
permeate society and become the basis of true
communities through rituals, feasts, and other
solidarity-enhancing mechanisms.

   Durkheim's contributions to economic sociol-
ogy extend beyond the analyses of integration and
anomie. Among these are his studies of economic
institutions such as exchange and property. In a
characteristic argument, he pointed out that an
exchange implies more than a voluntary arrange-
ment involving free individuals, as economists
conceive it to be. Rather, it entails a whole struc-
ture of norms and regulations that surround it
and make it possible ([1893] 1984, pp. 149-75,
316-22). With respect to property, Durkheim
traced its origins--as he did that of so many other
economic phenomena--to religion. The taboo
that surrounds property, he argued, ultimately re-
sides in the conception in primordial times that all
land belonged to the gods. Land was sacred and
surrounded by a protective normative wall, traces
of which are still to be found in the respect held
for private property (Durkheim [1898-1900]
1983, pp. 121-70). Finally, Durkheim helped to
develop economic sociology through his young
collaborators at the magazine _Ann‚e sociologique_,
encouraging them to do work in this field. The
result was a number of studies on gifts, money,
consumption, and the evolution of salaries in
France (e.g., Mauss [1925] 1969; Simiand 1932,
1934; Halbwachs 1933; see also Bougl‚ 1934,
Cedronio 1987).

   _Joseph Schumpeter (1883-1950)_.  Schumpeter's
work holds particular interest because he stands as
the only leading economist who became deeply
interested in and contributed to economic sociol-
ogy.<5> Many economists have of course discussed
institutions in their works, but none besides
Schumpeter has done so by drawing directly on
the sociological tradition. He was trained in the
Austrian school of Marginal Utility analysis as well
as in the Historical School. As a young student in
Vienna he also familiarized himself with Marxist
as well as sociological thought generally. Though
he never received formal training in sociology
(apart from a course that he audited for Edward
Westermarck in London), Schumpeter neverthe-
less pronounced himself ready to offer courses in
sociology when he received his teaching cer-
tificate as an economics professor in 1908 (Swed-
berg 1991b). In his early career he gave courses in
the history of social science as well as lectures and
seminars in sociology. He attempted to keep
abreast of developments in sociology until around
1930, when he appears to have lost interest.

   As an economist Schumpeter cast his main task
as developing a distinctive _Sozial”konomik_--a
term picked up from Weber, with whom Schum-
peter actually collaborated on several occasions in
the 1910s. Following Weber, Schumpeter meant
by _Sozial”konomik_ a multidisciplinary kind of eco-
nomics that consisted of several fields: (1) eco-
nomic theory, (2) economic history (including
economic anthropology), (3) economic sociol-
ogy, and (4) economic statistics. His main con-
tribution to _Sozial”konomik_ was his discussion of
this new type of overarching economic science in
more detail than Weber. He also attempted to de-
velop some principles for the division of labor
among its constituent fields (1926; 1954, pp. 12-
21). Schumpeter's conception of economic soci-
ology, it should be noted, was a restricted one--at
least in comparison to that of Durkheim and
Weber. For him, economic sociology was to deal
only with the institutional context of the econ-
omy but not with the economy itself:

By "economic sociology" (the German _Wirtschafts-
soziologie_) we denote the description and interpreta-
tion--or "interpretative description"--of economi-
cally relevant institutions, including habits and all
forms of behavior in general, such as government,
property, private enterprise, customary or "rational"
behavior. By "economics"--or, if you prefer, "eco-
nomics proper"--we denote the interpretative de-
scription of the economic mechanisms that play
within any given state of those institutions, such as
market mechanisms. (Schumpeter [1949] 1989, p.
293)

   In his own work, however, Schumpeter found
difficulty in drawing a sharp line between what
belonged to economics and what belonged to
economic sociology. As a result, one of the en-
gaging aspects of his work is that his economics
often came close to being sociology. This is espe-
cially true in the case of his famous theory of eco-
nomic change and the entrepreneur, as first pre-
sented in his _The Theory of Economic Development_
(1911, 2d ed. 1926). His accounts of how the en-
trepreneur tries to break through the wall of tra-
dition and how an innovation slowly spreads
throughout the economy are both situated at that
borderline between economics and sociology.

   Schumpeter's own assessment of his economic
sociology was that it consisted of some chapters in
_Capitalism, Socialism and Democracy_ and three
essays: "The Crisis of the Tax State," "The Soci-
ology of Imperialisms," and "Social Classes in an
Ethnically Homogeneous Environment" (Schum-
peter [1918] 1991; [1919] 1991; [1927] 1991).
The essay that is most relevant at present is the
one on the tax state, with its powerful statement
on the relations between the state and the econ-
omy. He developed a kind of "sociology of fi-
nance" and, within that, proposed a number of
ideas on taxation, fiscal policy, and the like
(see the use of these ideas in O'Connor 1973).
_Capitalism, Socialism and Democracy_ expounds
Schumpeter's famous diagnosis of the capitalist
system and, despite its evident flaws, still makes
fascinating reading. In that work Schumpeter de-
veloped the provocative thesis that capitalism is
slowly undermining its own foundations and will
be replaced by socialism. The reasons for this are
many: the individual entrepreneur disappears,
capitalism does not combat its own enemies vig-
orously enough, and so on. The collapse of social-
ist states in the former Eastern bloc gives pause in
considering the proposition that socialism will re-
place capitalism--we see some signs of the reverse
effect--but as a diagnosis of capitalism itself,
Schumpeter's thesis merits continued reflection.

   Beyond Schumpeter's famous declaration
about the general fate of capitalism--"Can capi-
talism survive? No I do not think it can"--
([1942] 1975, p. 61), _Capitalism, Socialism and
Democracy_ contains a number of additional in-
sights into capitalism. For example, he high-
lighted the importance of "creative destruction"
and, more generally, of the role that change plays
in the capitalist economy. His work also contains
a thoughtful analysis of Marxism, in which he at-
tempted to sort out what is useful and what is not
useful in that work (ibid., pp. 1-58; cf. Botto-
more 1992). Schumpeter's general verdict is that
Marx's economic theories--both his labor theory
of value and his theory of exploitation--are prac-
tically useless. He gave Marx's sociology higher
marks, however, especially his theory of classes
and his views on the impact of the economy on
the development of society. Schumpeter also ad-
mired Marx for the way he emphasized that the
capitalist economy was in a constant process of
transforming itself from within--an insight that
constitutes the central core of Schumpeter's own
work on capitalism.

   Schumpeter's last work, the posthumously
published _History of Economic Analysis_, contains
a great deal of economic sociology as well. In it
we find Schumpeter's most extensive discussion
of his theory of _Sozial”konomik_ (1954, pp. 12-
21). As part of his attempt to write the history of
that theory (as well as the history of formal eco-
nomics) Schumpeter tried to trace the sociologi-
cal ideas of the major economists from Aristotle
onward. And, finally, the _History of Economic
Analysis_ contains a long section on "the sociology
of economics" or how to look at the development
of economic theory in sociology of science terms
(Schumpeter 1954, pp. 33-47).<6>

   _Karl Polanyi (1886-1964)_.  Our knowledge
of Polanyi's early relationship to economics is lim-
ited. We do know that he rejected Marxist eco-
nomics as a young man and that he advocated a
kind of decentralized, socialist economy in a de-
bate with von Mises in the 1920s (e.g., Block and
Somers 1984; Polanyi-Levitt and Mendell 1987;
Polanyi-Levitt 1990). Polanyi himself would later
say that before the mid-1930s, when he discov-
ered English economic history, it was as if he had
been asleep (Polanyi 1977, pp. xiv-xvi). From the
mid-1930s and onward, however, Polanyi de-
voted all of his energy to developing his own vi-
sion of the economy (e.g., Polanyi 1966; 1971;
1977). To judge from his writings and from his
students' comments, Polanyi was familiar with the
works of Marx, Weber, and Karl B�cher as well as
that of some economic historians and economic
anthropologists. In the 1920s Polanyi had also
studied the works of the key figures in the margi-
nalist revolution, especially Menger. In all likeli-
hood, however, Polanyi knew little about the
technical side of modern economics.

   Two major themes dominate Polanyi's writ-
ings: the birth and further development of a mar-
ket-dominated society in the nineteenth and
twentieth centuries, and the relationship of econ-
omy and society in primitive societies. His major
writings on the first appeared in the 1940s and in-
clude "Our Obsolete Market Mentality" and _The
Great Transformation_. In the former Polanyi ar-
gued that the problems of contemporary America
could only be solved if people changed their dom-
inant ways of thinking about the economy
(Polanyi 1971, pp. 59-77). These outmoded
ideas portray the economy--or more precisely,
the market--as the most important part of society
and human beings as driven primarily by material
interests. All this is wrong, Polanyi argued, and
little can be accomplished until it is understood
that the economy has to be subordinated to soci-
ety and people viewed from a holistic and human-
istic perspective.

   In _The Great Transformation_, published dur-
ing World War II, Polanyi expressed many of the
same ideas, but his main emphasis was on the his-
torical evolution of the market mentality. He ar-
gued that fascism has its roots in the attempts to
introduce a market-dominated economy in En-
gland in the early nineteenth century. "In order
to comprehend German fascism, we must revert
to Ricardian England" (Polanyi [1944] 1957, p.
30). More precisely, Polanyi dated the emergence
of the idea of a "self-regulating market" to 1834
when the Poor Law reform was introduced in En-
gland and a totally free labor market was created
for the first time. The immediate reason for intro-
ducing this law, according to Polanyi, was an at-
tempt to undo the destructive consequences of
the Speenhamland Act of 1795, which inhibited
labor mobility by supporting the rural poor and
thus weakening their motivation to seek work
elsewhere. In any event, the legislation of 1834
had a devastating impact on the English working
population. For Polanyi, the very idea of a totally
unregulated labor market was repulsive, and he
considered the market ideology of the British
economists as a kind of evil utopia. A society
dominated by the market principle, he wrote in
words not unlike those of contemporary environ-
mentalists, could not endure:

To allow the market mechanism to be sole director
of the fate of human beings and their natural envi-
ronments, indeed, even of the amount and use of
purchasing power, would result in the demolition of
society.... Robbed of the protective covering of
cultural institutions, human beings would perish
from the effects of social exposure; they would die as
the victims of acute social dislocation through vice,
perversion, crime and starvation. Nature would be
reduced to its elements, neighborhoods and land-
scapes defiled, rivers polluted, military safety jeop-
ardized, the power to produce food and raw materi-
als destroyed. (ibid., p. 73)

Nineteenth-century civilization was indeed cen-
tered around the notion of a self-regulating econ-
omy, separate from the state. In the late nine-
teenth century, Polanyi argued further, people
and political readers reacted to the evils of the
self-regulating market by trying to curb it. How-
ever, countermoves of this time proved both inef-
fective and destabilizing of society--a destabiliza-
tion that contained the seeds of both World War
I and the subsequent rise of fascism.

   At first glance Polanyi's second theme--the re-
lationship of the economy to society in primitive
societies--is of interest only to economic anthro-
pologists. But his vision was to develop a new
conception of the economy that would be valid
for all the social sciences. His major work on this
theme is _Trade and Market in the Early Empires_,
a book edited with colleagues at Columbia in the
mid-1950s. Practically all of Polanyi's conceptual
innovations can be found in the essay entitled
"The Economy as an Instituted Process." Here
we find his famous notion of "embeddedness":
"The human economy ... is embedded and en-
meshed in institutions, economic and noneco-
nomic. The inclusion of the noneconomic is vital.
For religion or government may be as important
to the structure and functioning of the economy
as monetary institutions or the availability of tools
and machines themselves that lighten the toil of
labor" (Polanyi, Arensberg, and Pearson [1957]
1971, p. 250).

   Polanyi and his colleagues also distinguished
between the "formal" and the "substantive"
meanings of the economy. The former, used by
economists, defines the economy in terms of ra-
tional action. For Polanyi, this constituted an ab-
stract and erroneous way of regarding the econ-
omy. From the point of view of the "substantive"
meaning of the economy, the economy is some-
thing that is institutionally visible and centered
around the notion of generating a livelihood.
More concretely, Polanyi and his colleagues de-
veloped a classification of types of economic ac-
tion, each of which can be found in all societies--
"reciprocity," or the exchange among persons
and groups on the basis of mutual obligation; "re-
distribution," or the movement of goods and ser-
vices to a "center" and then outward, as in many
systems of taxation and philanthropy; and "ex-
change," or transactions in the market proper.
One of Polanyi's purposes in advancing this typo-
logy was to demonstrate that the economy should
not be identified with the market ("the economis-
tic fallacy") and that, indeed, the market itself is a
system embedded in society. _Trade and Market
in the Early Empires_, it might be noted, set off a
lively debate between "formalists" and "substan-
tivists" within economic anthropology, a debate
that echoes up to the present (see LeClair and
Schneider 1968; Orlove 1986). Historians have
also discussed and challenged some parts of
Polanyi's work (e.g., North 1977; Silver 1983;
Curtin 1984).

   _Talcott Parsons (1902-1979) and Neil J. Smel-
ser (1930-  )_.  Among modern sociologists Tal-
cott Parsons has made the most significant contri-
bution to economic sociology (see, e.g., Holton
and Turner 1986). As an undergraduate at Am-
herst, Parsons became interested in institutional
economics and defined himself as an institutional-
ist during much of the 1920s (Camic 1991). In
the course of his doctoral studies at Heidelberg in
1925-26, Parsons became familiar with German
historical economics, especially through the
works of Weber and Sombart. As a doctoral can-
didate he majored in economics and sociological
theory, and his thesis adviser was Edgar Salin, an
economist who was close to Max and Alfred
Weber. On returning to the United States, Par-
sons was appointed instructor in economics at
Harvard. During this period he became familiar
with modern neoclassical economics--especially
Alfred Marshall--and audited courses with Frank
Taussig and Schumpeter. In studying Pareto he
became fascinated with the relationship between
economic theory and sociological theory. In 1931
he transferred to the newly created department of
sociology at Harvard, but continued his interest
in economic and sociological theory up to the
point of completing his first major work, _The
Structure of Social Action_ (1937). At this point he
lost contact with economics until 1953, when he
was asked to deliver the Marshall Lectures at
Cambridge ([1953] 1991). These lectures were
the first step in his ultimate collaboration with
Neil Smelser in the writing of _Economy and Soci-
ety_ (1956). Smelser, having read economics at
Oxford, introduced most of the technical eco-
nomic material into that volume. In general,
then, Parsons could be said to have been very fa-
miliar with the theoretical foundations of eco-
nomics, but knew little of and did little within the
technical apparatus of that field.

   Parsons's major work during his institutionalist
years was his dissertation, _Der Kapitalismus bei
Sombart und Max Weber_ (Parsons 1927). His
most important contribution to economic sociol-
ogy in these years, however, was his translation
into English of _The Protestant Ethic and the Spirit
of Capitalism_ (1930). Some years later Parsons
also translated a few chapters of _Economy and So-
ciety_--including chapter 2, on the sociological
categories of economic life--and wrote what re-
mains one of the best introductions to Weber's
economic sociology (Parsons 1947).

   Under the influence of neoclassical economics
at Harvard Parsons quickly lost sympathy for in-
stitutional economics, coming to regard it as
hopelessly antitheoretical. In this "major intellec-
tual turn," as he described it, he took up the anal-
ysis of the relationship between economic and
sociological theory (Parsons 1976, p. 178). This
interest, Parsons later said, constituted "the most
important single thread of continuity in [my
whole] intellectual development" (1981, p. 193).
By 1930 Parsons had worked out a systematic
view of the relations between those two bodies of
thought, and this view came to provide the foun-
dation for _The Structure of Social Action_. Parsons
termed his approach "the analytical factor view."
Its basic theme was that social sciences like eco-
nomics and sociology each focus on different as-
pects of social action. Thus economics deals with
"alternative uses of scarce means to the satisfac-
tion of wants," and sociology investigates "the
role of ultimate common ends and the attitudes
associated with and underlying them" (Parsons
1934, pp. 526-29). This approach has appeared
timid to some subsequent critics (e.g., Grano-
vetter 1990), because it leaves many economic
topics outside the realm of sociological analysis.
His formulation was, however, novel and forceful
at the time. In addition many of his writings of
this early period--especially his essays on
Marshall, Weber, and Pareto (Parsons 1991)--
hold out continued interest, and his critique of
"economic imperialism" (Parsons 1934) reads as
though it was written today.

   Parsons's main contribution to economic soci-
ology came, however, in the 1950s with _Economy
and Society_, conceived and written together with
Neil J. Smelser (for its history, see Smelser 1981).
In many ways this book represents a new stage in
Parsons's attempt to fathom the relations be-
tween sociology and economics. In a break from
the "analytic factor view," economic thought was
now conceptualized as a special case of a general
theory of social systems and the economy is seen
as a subsystem of the social system. The primary
function of the economy, Parsons and Smelser ar-
gued, was to deal with society's problem of adap-
tation to its environment, as conceptualized ac-
cording to Parsons's AGIL scheme (see fig. 2).
The authors also stressed the systematic ex-
changes between the economy and society's other
subsystems. Money wages, for example, were ex-
changed against labor at the boundary between
the economy and the latency (or cultural-motiva-
tional) subsystem. Capital was regarded as an ex-
change between the political and economic sub-
systems, with banks playing an interstitial role. In
_Economy and Society_ Parsons and Smelser also
developed the notion of money as a generalized
medium--a notion later to be extended to the
general analysis of social systems--and applied
the sociological theory of structural differentia-
tion to the development of economic institutions.

   After _Economy and Society_, Parsons lost interest
in economics and turned to other topics. Some
years before his death, however, he began to write
on the role of symbolism in economic affairs. His
intent was to "go a step beyond the analysis of the
economy's place in the society as a whole to con-
sider the broader cultural framework as also of
major importance" (Parsons 1979, p. 436).

   Parsons's work in economic sociology has been
continued by Smelser. His doctoral dissertation,
_Social Change in the Industrial Revolution_ (Smel-
ser 1959) was an attempt to apply the theory of
structural differentiation, in historical detail, to
the evolution of both economic and social ar-
rangements--including child labor laws, trade
unions, and savings banks--during the British in-
dustrial revolution. In 1963 Smelser published
the first expository text in economic sociology,
_The Sociology of Economic Life_ (2d ed., 1976) and
subsequently its first reader (1965). He returned
to issues of economic sociology at periodic inter-
vals (Smelser 1968; 1978; Martinelli and Smelser
1990).

ECONOMIC SOCIOLOGY TODAY

  In the mid-1950s, when Parsons and Smelser
wrote _Economy and Society_, they observed a great
gulf between economics and sociology. "Few per-
sons competent in sociological theory," they
wrote, "have any working knowledge of econom-
ics, and conversely ... few economists have much
knowledge of sociology" (1956, p. xviii). In their
view, there had been little or no progress in the
attempts to relate economic and sociological the-
ory to one another since Weber and Marshall:
"Indeed, we feel that there has been, if anything,
a retrogression rather than an advance in the in-
tervening half century" (1956, p. xvii). To ex-
plain that mutual alienation, Parsons and Smelser
mentioned that economists had become preoccu-
pied with the technical apparatus of economics
and that the theoretical level of sociology was not
advanced. To this might be added that industrial
sociologists in the 1950s also had a tendency to
stay away from larger economic questions, focus-
ing on "plant sociology"--i.e., small group dy-
namics in factories and offices--in isolation from
the rest of the economy (e.g., Lazarsfeld 1959;
Hirsch 1975). Economic sociology also seemed
to fragment into a series of sub-areas, such as in-
dustrial sociology, sociology of consumption, and
sociology of leisure (see, however, the valuable
studies of Roethlisberger and Dickson 1939;
Whyte et al. 1955; Stinchcombe 1959). The
larger picture faded into the background.

   The 1960s and early 1970s witnessed a resur-
gence of neo-Marxist and neo-Weberian influ-
ence, dominated by the class and political dimen-
sions. Nevertheless, the macrosociological stress
clearly reemerged. And within the past ten or
fifteen years, the field of economic sociology has
enjoyed a kind of renaissance, of which this
Handbook stands as major testimony. The sharp
boundary between economics and sociology
seems to be weakening--or, if that assessment is
too optimistic, at least the excursions across the
boundary have become more frequent. This state-
ment applies to both economists and sociologists.
During the past twenty years prominent econo-
mists have made serious efforts to incorporate a
social perspective (e.g., Hirschman 1970; Arrow
1974; Becker 1976; Akerlof 1984a; Solow 1990).
A new school of institutionalism--New Institu-
tional Economics--has appeared and there are
some signs of revival of "old" institutional eco-
nomics (see Hodgson, chap. 3 in this Handbook).
On the sociological side, some sociologists, such
as James Coleman (1990) and Michael Hechter
(1987) have incorporated conceptions of rational
choice and methodological individualism into so-
ciological analysis.

   Tangible institutional evidence of this ferment
is also available. Coleman initiated and edits an
interdisciplinary journal called _Rationality and
Society_ (1989-  ). In 1989 Amitai Etzioni pio-
neered the formation of the Society for the Ad-
vancement of Socio-Economics (SASE), which
brings the social perspective into mainstream eco-
nomics through annual conferences, a journal,
and other publications (e.g., Etzioni 1988; Et-
zioni and Lawrence 1991). The field of economic
sociology itself has witnessed the appearance of
several anthologies on the "New Economic Soci-
ology" as well as a new reader in the sociology of
economic life (Friedland and Robertson 1990;
Zukin and DiMaggio 1990; Granovetter and
Swedberg 1992; Swedberg 1993). The Research
Committee on Economy and Society of the Inter-
national Sociological Association has been among
ISA's most active groups.

   The "sociology of knowledge" that might ex-
plain this resurgence of interest is not very clear.
It is claimed that the oil shocks and the stagflation
of the 1970s shook both the outlook and the con-
fidence of some economists. We mentioned the
revival of Marxism in the 1960s and early 1970s
as another factor. The intellectual consolidation
of feminism in the 1970s and 1980s also intro-
duced and consolidated many dimensions of gen-
der in economic life. Whatever the mix, it is evi-
dent that a number of economists came to the
conclusion that the mainstream of neoclassical
economics was too narrowly defined and decided
to extend it. Mention should first be made of the
development called "behavioral economics," which
has involved numerous modifications of neoclas-
sical conceptions of decision making and has in-
troduced a more empirical note into economic re-
search (e.g., Simon 1987). This effort, however,
has forged links mainly with psychology, and has
attended only slightly to the social dimension.
Evidence of the more sociological side of this ex-
tending process is seen as early as the late 1950s
with the appearance of Gary Becker's _The Eco-
nomics of Discrimination_ (1957) and Anthony
Downs's _An Economic Theory of Democracy_
(1957). It gained momentum in the 1970s, when
the movement got its manifesto--Becker's "The
Economic Approach to Human Behavior"
(1976)--as well as its first textbook (Tullock and
McKenzie 1975). The approach began to work its
way into a number of social sciences, including
demography, sociology, law, political science,
and economic history. By the mid-1970s New In-
stitutional Economics also began to attract atten-
tion, especially through Oliver Williamson's _Mar-
kets and Hierarchies_ (1975). In a survey article in
the mid-1980s, entitled "The Expanding Domain
of Economics," Jack Hirshleifer (1985, p. 53)
ventured the judgment that "economics consti-
tutes the universal grammar of social science" (see
also Stigler 1984; for a critique see Ud‚hn 1991).

   Perhaps it was this territorial overconfidence
among some economists--which was read nega-
tively as a new kind of imperialism--that helped
stimulate sociologists to renew their own interest
in economic phenomena. It is difficult to date the
onset of this renewal, but mention should be
made of Harrison White's (1981) attempts to de-
velop a sociology of markets since the mid-1970s.
One of White's students, Mark Granovetter, sub-
sequently authored a major article reviving a ver-
sion of economic sociology tracing to Polanyi.
The article was called "Economic Action and So-
cial Structure: The Problem of Embeddedness"
(Granovetter 1985). The key concept--embed-
dedness--was inspired by Polanyi and implied a
comparable critique of "disembedded" economic
theory. Also reminiscent of Polanyi, Grano-
vetter criticized economists who attempted to
apply neoclassical economics to noneconomic
areas. Granovetter especially singled out the no-
tion of "efficiency" used in New Institutional
Economics to explain the emergence and struc-
ture of economic institutions: "The main thrust
of the `new institutional economists' is to deflect
the analysis of institutions from sociological, his-
torical, and legal argumentation and show instead
that they arise as the efficient solution to eco-
nomic problems. This mission and the pervasive
functionalism it implies discourage the detailed
analysis of social structure that I argue is the key
to understanding how existing institutions ar-
rived at their present state" (Granovetter 1985, p.
505). Granovetter's critique on this score, it must
be admitted, was quite effective. Nonetheless, it
should be noted that some proponents of New
Institutional Economics have abandoned the em-
phasis on efficiency (e.g., North 1990). Grano-
vetter stressed the importance of networks in the
economy. The economy, he argued, is structurally
"embedded" in networks that affect its working.
This focus on networks was soon to pick up the
label of the New Economic Sociology--a term
also introduced by Granovetter.

   Economic sociology since the 1980s covers
many of the same substantive areas as in the past.
At the same time, there are a number of new di-
rections. With respect to _theoretical approach_, it is
fundamentally eclectic and pluralistic and no sin-
gle theoretical perspective is dominant. The influ-
ence of Weber and Parsons can be seen. We also
mentioned Polanyi's presence. Some are attracted
by his critique of capitalism and of "the econ-
omistic fallacy" of equating the economy with the
market. More important, however, is his concept
of "embeddedness." This idea is often employed
in a loose sense, more or less synonymous with
the notion that the economy is part of a larger in-
stitutional structure. Granovetter, however, uses
it in a more specific way, to mean that economic
action takes place within the networks of social re-
lations that make up the social structure. In crit-
icism, others have argued that economic action is
embedded not only in the social structure but also
in culture (DiMaggio 1990). In this connection,
DiMaggio and Zukin (1990) have attempted to
distinguish between different kinds of embedded-
ness, such as cognitive, cultural, structural, and
political. Needless to say, the concept of embed-
dedness remains in need of greater theoretical
specification.

   In any event, one of the foci of contemporary
work is on _networks_. The approach is a flexible
one, and can be applied to links between individ-
uals, corporations, or even whole industries and
economies (see, e.g., Granovetter 1974; Burt
1983; Mintz and Schwartz 1985; Nohria and Ec-
cles 1992). The networks approach also lends
itself to quantitative analysis and is a valuable de-
vice for demonstrating the actual interconnected-
ness among individuals and organizations in the
economy. There is some ambiguity about the ex-
tent to which networks can be said actually to
constitute the economy. Some analyses seem to
imply this (e.g., Baker 1981), but sometimes the
notion is supplemented by reference to institu-
tional structure. Granovetter, for example, argues
that even though most economic interaction
takes place in networks, economic institutions
develop their own distinct dynamic. Economic
institutions are seen as having originated through
networks, which are then "locked into" a single
institutional pattern (see Granovetter 1992;
forthcoming).

   Another point of evident interest is the sociol-
ogy of _markets_, a central but somewhat elusive
category of economic discourse (Barber 1977).
Contemporary economic sociologists approach
markets mainly as different kinds of social struc-
tures, depending on the focus--labor, financial,
and so on (e.g., Kalleberg and Sorensen 1979;
Adler and Adler 1984). Within this general frame,
attention is paid to the phenomenon of the differ-
ential power of market agents. Capital has a flexi-
bility that labor lacks (e.g., Offe and Wiesenthal
1980); the power dimension infuses the relations
among banks (Mintz and Schwartz 1985); and
firms prefer to be in a position of "structural au-
tonomy," where they can dominate their custom-
ers and suppliers by virtue of having few competi-
tors (Burt 1982). Market processes have also
come into view. In his 1981 study White concen-
trated on a producers' market with few partici-
pants, and concluded that the participating firms
create the market by watching each other and
then act in consequence. Burns and Flam (1987)
have identified an intricate rule system within
which markets operate as complex networks
(Baker 1981).

   Another recent focus of interest has been _corpo-
rations_. One impetus for this has been develop-
ments in organization theory since the 1950s.
Another more specific stimulus has come from the
confrontation with New Institutional Economics,
especially the work of Williamson in _Markets and
Hierarchies_. Some sociologists have questioned
the distinction between markets and corpora-
tions, arguing that a whole range of intermediary
forms can be observed empirically (e.g., Eccles
1981; Stinchcombe 1985). Some sociological
work on corporations has been stimulated by Al-
fred Chandler's work on the rise of the giant cor-
poration. Some sociologists have criticized his
somewhat mechanical emphasis on the role of
technology and markets; others have supple-
mented this criticism by pointing to the central
role played by the state and by power in general
(Perrow 1988; Fligstein 1990). Empirical studies
following the work of John Meyer also raise the
question whether multidivisional firms develop
because they are behaving in a traditional, eco-
nomically rational way--as Chandler argues--or
because some firms imitate other firms in the
hope of becoming successful (Fligstein 1985;
Powell and DiMaggio 1991).

   As indicated, much research in current eco-
nomic sociology emphasizes _gender_. Two central
foci are work in paid employment and household
work. With respect to the former, much research
has been devoted to documenting and explaining
the gender gap in pay and gender segregation of
work (see e.g., England and McCreary 1987; En-
gland 1992). That women continue to do most
household work is well established, but less is un-
derstood about why men remain reluctant to
change their household work behavior even when
their wives are employed full time. Another line of
research deals with the relationship between fe-
male earnings and power in the household. As a
general rule, women who generate earnings in the
market enjoy more power in the household than
their nonemployed counterparts. Little is under-
stood about the dynamics of dividing money
within the household (see Sorensen and McLa-
nahan 1987), even though different gender strat-
egies for dealing with money within the house-
hold--for example, allowances, "pin money,"
joint accounts--have been identified (Zelizer
1989b). The role of women in corporations is an-
other item on the agenda of the increasing vol-
ume of gender studies (e.g., Kanter 1977; Biggart
1989).

   Finally, a few words should be said about the
dimension of _culture_ in contemporary economic
sociology. While the term has proved to be some-
what unmanageable historically, it is nonetheless
argued that the cultural dimension--meaning his-
torically constructed sets of group meaning and
social "scripts"--is present in all varieties of eco-
nomic activity. Programmatic statements, such as
those of Zelizer (1989a), DiMaggio (1990), and
Holton (1992) stress the danger of narrowness of
investigation if culture--in addition to social
structure--is not included in the study of market,
consumption, and workplace interaction. The
works of Bourdieu (1984), Boltanski (1987), and
Zelizer (1983; 1987) all make an explicit attempt
to build the cultural dimension into the analysis
of economic institutions and behavior (see also
DiMaggio chap. 2 in this Handbook).

A CONCLUDING NOTE

  Space has constricted our review of both his-
torical developments and contemporary high-
lights (the latter are amply covered in the chapters
that follow). We have seen enough, however, to
permit a few, equally brief, evaluative comments
on the field of economic sociology today, and
more particularly on the relations between eco-
nomics and sociology:

What is unique about the situation today is that for the
first time since the nineteenth century, mainstream
economics has begun to analyze economic institu-
tions again. This has already led to a number of inter-
esting developments within economics proper as well
as to a tentative dialogue with sociology. It is impor-
tant that efforts be made, by sociologists as well as by
economists, to deepen this dialogue, since both dis-
ciplines are needed to fill the void created by nearly
a century of neglect of economic institutions.
   The "imperialistic" mode, whether in its sociological
form or in its economic form, seems unpromising as
a way of dealing with either economic behavior or
economic institutions (or for that matter, behavior
and institutions in general). The complexity of deter-
minants bearing on every kind of behavior suggests
the greater scientific utility of approaches that are
less monolithic. It is true that "imperialistic" works
have greatly stimulated the debate around economy
and society. Eventually, however, this approach be-
comes counterproductive scientifically, tending to
excite territorial battles rather than dispassionate in-
quiry.
   Correspondingly, it is in our opinion more fruitful to
pursue the kind of approach to economic sociology
taken by Weber and Schumpeter in their social eco-
nomics, or _Sozial”konomik_. Such an approach is
broad-based and multidisciplinary. Economic sociol-
ogy, in other words, should have its own distinct
profile as well as cooperate and coexist with eco-
nomic theory, economic history, and economic an-
thropology.
   While the current pluralistic approach moves along the
right lines, the bolder efforts of the classics in the
area of theoretical synthesis are notably missing.
Without that complementary line of theorizing, the
field of economic sociology--like any area of inquiry
that specializes and subspecializes--tends to sprawl.
Continuing efforts to sharpen the theoretical focus
of economic sociology and to work toward synthetic
interpretations of its findings are essential.
   One of the most promising modes of relating the fields
of economics and sociology remains that which
might be termed "complementary articulation." Of
necessity, any line of disciplined inquiry focuses on
certain operative variables and determinants, and
"freezes" others into parametric assumptions. Often
the territory thus frozen is that very territory that is
problematical from the standpoint of some other line
of social science inquiry. It is this dialogue about the
precise role of operative variables and the conceptual
status of parameters that holds out the best promise
for communication and theoretical development in
both economics and sociology. This strategy appears
much more engaging than the several others we have
identified in this overview--imperialism, polemical
hostility, mutual separation and toleration, or shape-
less eclecticism.
   Given the void after a century's neglect of economic in-
stitutions, we also expect that new questions will be
raised that cut across the conventional boundaries
between economics and sociology. For this reason it
is essential that there exists a willingness, among
economists as well as sociologists, to entertain new
and unfamiliar ideas. An opportunity such as the cur-
rent one is rare and should not be neglected.

NOTES

  1. The authors would like to especially thank G”sta Es-
ping-Andersen, Geoffrey Hodgson, Alejandro Portes, Phi-
lippe Steiner, and Oliver Williamson for helpful comments
on an earlier version of this chapter.

   2. The field has also been called "the sociology of eco-
nomic life," as in Smelser (1976); Fred Block's (1990) pre-
ferred term is "sociology of economies." As far as we are
concerned there is little if any difference in denotation as
between these terms and "economic sociology," so for
convenience we stay with the term that emerged in the clas-
sical literature. As a term for all social science analyses of the
economy--economic theory plus economic history, eco-
nomic sociology, and so on--we agree with Weber, Schum-
peter, and Etzioni (1988) that "social economics" (_Sozial-
”konomik_) is an appropriate term.

   3. The term "economic sociology" has occasionally also
been used to denote a rational choice perspective as applied
to social behavior in general (see Becker [1990]). This
usage is, to us, too broad since it encompasses practically all
of sociology (_minus_ the analysis of the economy proper).

   4. Weber's magnificent trilogy on world religions--The
Religion of China, The Religion of India, and Ancient Ju-
daism--contains a wealth of reflections of interest to
today's economic sociology.

   5. A few words need to be said at this point about
Schumpeter's great contemporary, Vilfredo Pareto (1848-
1923), who was a well-known economist as well as the au-
thor of a massive _Treatise on General Sociology_ ([1916]
1963). Pareto saw sociology as "an indispensable comple-
ment to the studies of political economy" (Pareto as cited
in Perrin 1956, p. 92), but separated the two in such a rad-
ical fashion that an economic sociology in principle became
impossible. Economics, Pareto argued, should only deal
with "logical action" and sociology with "nonlogical ac-
tion." It has, however, been argued that Pareto--like
Walras--tried to unite economics and a more social type of
analysis in his studies in "applied economics" (e.g., Perrin
1956). Thorstein Veblen (1857-1929) published a num-
ber of articles in _The American Journal of Sociology_ around
the turn of the century, and his work illustrates the fact that
a certain type of institutionalism is very close to economic
sociology (see e.g., Veblen [1899] 1953; [1915] 1966;
1948). For a fuller discussion of Veblen's work, see chap. 3
in this Handbook.

   6. Surprisingly little work has been done in "the sociol-
ogy of economics," by economists as well as sociologists.
For some exceptions, see Stark (1944), Frey et al. (1984),
Coats (1984, 1992), Block (1985), Samuels (1986), and
Starr (1987). The reader may also want to consult the vari-
ous works on "the rhetoric of economics" in this context,
such as Klamer (1984), McCloskey (1985), and Klamer
and Colander (1990).

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