economy & society

with its attendant, largely middle-class democratic revolutions beginning in the second half of the eighteenth century. Its rise as a distinctive preoccupation of social thinkers can be understood as conditioned by two basic developments associated with those revolutionary changes: (1) the growing differentiation of economic structures from social structures and relations - for example the differentiation between economy and state in the

early, laissez-faire stages of capitalistic development, the dissocia- tion of kinship from economic production under the factory

system. This separation permitted the development of a culturally separated field of economics, with sociology and its sub-branches emerging and consolidating later; (2) the problem of social order (integration) as this preoccupied the emerging social commen-

tators and social scientists; in particular, the potential for

capitalist economic structures and processes to generate

inequalities and injustices, disrupt community life, and to foster social instability became the foci of attention. In these senses the study of economy and society arose from those intellectual attempts, modelled after the scientific mode of enquiry, to grasp the fundamentals of modern capitalist society.

The rise of the relevant modern social sciences, then, represents a kind of double differentiation: first, the differentiation of distinct social structures (economic production, banking, markets

and distribution structure, urban structure, modern kinship struc- ture) from one another, thus making them more visible and accessible to study; and second the differentiation of the social- scientific mode of enquiry from existing philosophical, religious and historical thought, carrying forward some of the themes of that thought but simultaneously emulating the logical- experimental methods as these had developed in the natural sciences.

The starting point of our illustrative historical account is

classical political economy, the first coherent and systematic attempt to understand economic and social relations in a modern scientific sense. Adam Smith's political economy is based on the postulate of homo economicus: a simplified set of assumptions about human action, seen as the result of the behaviour of isolated individuals, each pursuing his or her own interests and making free and rational choices after having calculated the prospective costs and benefits. (The economic actor is thus an

'exceptional statistician', as Arrow ironically defined him later.)

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Economic Sociology

On the basis of a further set of assumptions and calculations,

Smith came to regard the equilibrium of the market and social

order as the spontaneous outcomes of the profit-maximizing activities of individuals.' The market dynamics by which this result was attained followed from Smith's special solution. of humanity's relation to the natural environment and to each other as flowing from maximizing behaviour in satisfying their wants and ni choosing the means to satisfy them. The attendant processes were presented as the natural laws of economics, applicable not only to early capitalist society but presumably over a wide historical and comparative sweep.

The first creative simplification of classical economics, then, was the simplification of human psychology by adopting the view of people as instrumental, rational, maximizing materialists. While this simplification excluded most of the rest of psycho- logical nature, an argument might still be made for ti on theoretical and methodological grounds as necessary for creating

an analytical model for scientific analysis? (It was a 'model' ni

a second sense, for it contained a set of idealized criteria for evaluating the correctness or incorrectness of existing economic

arrangements and for guiding social policy.) There was a second creative simplification, too. By focusing more or less exclusively on economic motivation, behaviour and interaction, other features of social action and social structure were left out of sight or reduced: the dynamics of culture were frozen into fixed tastes and preferences; collective action was expressed as an aggregation of individual actions, without an internal social dynamic; the polity was represented passively, with little attention to the processes of political conflict and negotiation leading to policies; and aspects of personal interchange other than the economic were

left out of account. In its classical formulation, in short, the classical solution was as near as might be imagined to a pure

economic solution; it is difficult to say much about economy and society within the confines of such an extreme formulation, because so many aspects of that relationship were resolved by simplifying assumptions.

The unreality and the evident limited applicability - limited, that is, to a certain model of capitalist society - has been addressed and in some ways overcome by developments along two lines: first, economists themselves have altered the specific

assumptions of the classical school and extended its applicability,

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as we will illustrate later. Second, as time went on, the social sciences - dealing directly with those parts of the society that the economists had simplified - began to develop, and take the form of major social science disciplines we know at present, mainly as sociology, anthropology, and political science, but more specific bodies of knowledge as well, such as demography, information science and organization theory.

The r i s e of t h e o t h e r s o c i a l s c i e n c e s - a n d h e r e w e h a v e sociology most in mind — was also conditioned in large part by the conditions of early industrial capitalism.' As indicated, the social changes initiated by the commercial and industrial revolu- tions involved a series of differentiations that produced new institutions - the modern family, the urban community, new agencies of social control such as the police - that became more clearly visible as objects of study. In addition, the urban and industrial changes produced a whole new range of social problems - crime, addictions, broken families, poverty — which demanded explanation and amelioration. But above all, the pace of change, the instabilities, the strains and contradictions of the economic revolution led to the erosion if not destruction of many traditional integrative institutions, such as the monarchy, the church, the local community, the artisan guilds, and the extended peasant family; much of the agenda of the emerging new social sciences was thus concerned with the problems of integration, or the problem of 'how is society (or social order) possible?'

Those social scientists working on the edges of the already

developed economic sciences adopted a range of strategies in rela-

tion to them. Pareto, for example, took economic explanations as more or less adequate to analyse one kind of social action, and

invented other constructs (for example 'derivations', 'residues') to deal with other aspects of reality (Pareto, 1935); Weber took the mentality of modern society ('rational calculation') as a phenomenon to be explained, and laid out the ideal-type institu- tional conditions under which ti was possible (Weber, 1947); and Marx and Polanyi (1944), while addressing some of the problems of classical economics directly, looked outward and raised questions about phenomena (for example, class conflict, group

hegemony, political instability) that were outside the analytic realm of classical political economy.

Whatever the historical origins of the rise of economics and sociology as separate disciplines, their emergence as such poses

Economic Sociology

three sets of questions: first, what are the formal relations between them with respect to logical structure, types of hypotheses, explanatory models, and so on? second, what are the distinctive ranges of empirical data each calls into question and generates

findings about? and third, how can the substantive findings of one modify the parametric assumptions of the other and vice versa? In the remainder of Part I we will consider the thought of

several general theories ni the tradition of economic sociology —

Karl Marx, Max Weber, Joseph Schumpeter, Karl Polanyi, and Talcott Parsons and Neil Smelser - each of whom attempted to work out alternative and more comprehensive frameworks for the

study of economy and society than those generated by the classical political economists.* Each attempted to address issues associated with the three questions posed in the last paragraph, though with varying degrees of completeness.

Karl Marx. In his own programme, Marx had in mind neither revising classical political economy from within nor forming a new social science completely distinct from it; he was aiming to generate no less than a new theory of society. While he incor- porated most of Ricardo's theoretical insights, he 'historicized' them by regarding the 'natural laws' of political economy as rele- vant only to a specific phase of a world-historical evolutionary process, the phase of bourgeois capitalism. The larger set of laws within which political economy (and other forms of knowledge specific to other economic phases) is the definite sequence of historical phases through which human society passes. Each phase has its own dominant modes of production and distribution, and its own set of principles of functioning. The other item on Marx's agenda, of course, was the idea of revolution, which referred both to the mechanism of transition from one phase of economic development to another, and to the purposes to which his own knowledge was to be put in the revolutionary destruction of capitalism.

Marx's conception of the relations between economy and society parallels his distinction between two pairs of key concepts in his theory: productive forces vs. social relations of production and structure vs. superstructure. His most succinct statement of the former is the following: 'in the social production of their existence men enter into necessary relations, independent of their will, which correspond to a given stage of development of

6 A. Martinelli and N.J. Smelser

productive forces' (Marx, 1913). By this assumption Marx replaced the classical economists' assumption of free and rational choice with a more deterministic one: forces rooted in the mode of production impose themselves upon individuals. The real, or structural basis of society is the complex of productive forces (machines, labour, technical knowledge) and the corresponding social forces (property rights, authority, class relations). Resting on this structure is the superstructure, constituted by legal and political institutions and by culture, and determined by and expressing the material conditions inherent in the structure.

Marx's theory of social change - which replaces the natural- istic materialism of classical economics - is rooted ni a process of dialectical materialism. This conception regards society as never static but as totalities in the making. The engine of change is contradictions between the structural and the superstructural forces. The fundamental type of contradiction - analysed most completely with reference to capitalist society - is the changing division of labour, which generates inequalities, as wel as asym- metries of power and class conflict. Applying the method of dialectical materialism means identifying the primary contradic- tion of vital ruptures in society, including the forces that are rising to negate the existing relations. Marx regards the crucial contradictions in the dialectical process as material, not cultural.

This is what is meant by the famous dictum that Marx turned

Hegel upside down; to regard real, economically based class interests and conflicts, not ideas, as the driving force of civiliza- tion.

Capitalism is like all other phases of history in that it contains the germs of its own destruction. But ni capitalism the process is particularly accelerated:

The bourgeoisie cannot exist without continuously transforming the means of

production, hence the relations of production, hence the whole of social rela- tions. . . . The continuous revolutionizing of production, the unceasing shaking of all social conditions, the eternal uncertainty and movement distinguish the bourgeois epoch from al previous ones. . . . Everything which si solid melts into the a i r. . . (Marx and Engels, 1964: 7)

The basis for this dynamism - and the resulting precariousness and ephemerality - of capitalism is found in the mechanisms that propel it forward. It is driven by an intense competition between firms in the market, which makes for an accelerating

Economic Sociology

process of improvement of the bases of productivity, mainly by the application of superior technology to the means of produc- tion. This process of improving technology, moreover, is simul-

taneously a means of exploiting the labouring class further through an accumulation of greater surplus value; as such it intensifies the inequality of owners and workers, and increases the conflict between them. Through this complex process involving competition, the intensification of contradictions, the concentra- tion of capital, the falling rate of profit, overproduction, and recurrent crises, capitalism speeds toward self-destruction. This is realized through the process of increasing worker class conscious-

ness and ultimately worker revolution, which serves to destroy the capitalist system and replace it with a communal mode of produc- tion.

In developing this theory Marx widened the scope of the economy as it is found in other versions of social theory - as a system more or less isolated from society as in classical economics, or as one cognate system among many as found in

some functionalist theories. For Marx, the forces emanating from the economy radiate throughout society and continuously trans- form it through the generation of contradictions. (This view of economy and society as found in Marx is a more accurate rendi- tion, we believe, than a static 'reductionist' or 'deterministic' reading.) Taking classical political economy as a starting point, Marx expanded its horizons in two directions: first, instead of taking its basic character as a given, he developed a theory of social change that gave an explanation for its historical appear- ance; and second, at the other 'end' of the economic conse- quences, he regarded some of the consequences which the economists regarded as the 'end of the line' (for example distribu- tion of the shares of income) and treated them as a phenomenon (a class system) with an entire dynamic (class conflict) and outcome of its own.

To look at this matter of widening the scope of the economy in yet another way: like the political economists, Marx took as his starting point the analysis of exchange relations. But instead of taking these as given, he moved "behind' them, as it were, and attempted to account for them not in terms of their internal laws (supply and demand) but in terms of the double significance of human labour as a good and as a source of economic value. This formulation is, of course, the labour theory of value associated

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with Marxian economics. And while this theory has generated the greatest storm of criticism and debate as to its verifiability and its validity, it stands - from our special perspective here — as a broadening of the classical economists' vision of economy and society.

In addition to its status as an economic theory, Marx's work has a sociological core. This core is his focus on social classes as the actors in the dynamics of social change. In the first instance, of course, classes are 'deduced' from the economic categories of labour, surplus value, wage and profit. But above and beyond this Marx develops a theory of the process by which class groups become more than social categories (Klasse für sich). While the dynamics of the dialectic posit a certain inevitability in this transformation, there is at the same time a conception of agency in the theory. Geographical concentration and proximity in the work place, processes of communication and the development of common consciousness, the appearance of leaders, and their fashioning of an organized collectivity - these are the mechan- isms by which a class comes to form its own purpose and destiny. This view of a sociological process that develops within a framework generally determined by economic relations and forces also strikes us as a sounder rendition of Marxist theory than of static determinism.

The evolving history of capitalist societies has indicated that Marx's sociology of class formation and class action si more com- plex than he foretold, and for that reason the fate of capitalism as a whole has differed, too. His view of an industrially based proletariat has been complicated by the rise of armies of service workers and the barriers to class consciousness and class action

that accompany this development. In some cases, too, the very instruments that would be regarded as arms of the proletarian struggle — unions, parties, and so on — have proved historically to be bases for integrating workers into the system and dulling the revolutionary impulse. The development of other institutions as capitalism moves forward - specifically, extensions of the democratic franchise and the development of systems to safe- guard the security and welfare of workers — have had the same kind of effect. Yet, different as these outcomes are to what Marx originally envisioned, they stand in one sense as proof of the strength of those underlying forces of economy and class that shaped them. For these reasons, Marx's theory must be regarded

Economic Sociology

as one of the fundamental contributions to the analysis of the relationship of economy and society, because it reintroduced the

economy into the social system, identified some of the major contradictions of industrial capitalism, and laid the groundwork for a sociology of classes and class action.

Max Weber. Many historical commentators have tended to stress the differences between Marx and Weber, especially ni rela- tion to Weber's sometimes antagonistic dialogue with Marx on the relative importance of material and cultural factors in history. Genuine as this difference is, ti is equally important to point out their affinities. First, both succeeded in widening the view of the relations between economy and society from that of the classical economists. Second, they both 'historicized' capitalism through their historical and comparative studies. Third, they took as contingent rather than fixed the relationship between economic and social forces - Marx regarding that relationship as dialec- tical and Weber as mutually conditioning. And finally, both stressed the intrinsically contradictory and conflictual character of al social systems, including above al that of rational bourgeois capitalism.

But to return to the differences. Marx's main avenue for under- standing the capitalist mode was to root it in a general theory of historical development, of which it was the most advanced form. Marx strove to understand the anatomy of capitalism, in short, through the laws of its evolution. By contrast, Weber selected certain aspects of capitalism, identified certain correlations, congruences and conditional relations between those aspects, and attempted to verify these by drawing comparison with non- capitalist societies - without, however, attempting to formulate a general theory of change of philosophy of history. It is true that

Weber had a number of very recurrent preoccupations, especially to discover the key to the character of western rationalism and to focus on the relations between fundamental religious beliefs and economic structures and processes; but even in these efforts Weber focused on certain central relationships and did not

develop —indeed, remained hostile to — a fully-fledged model of explanation or historical evolution.

In addition to this cautious — relative to Marx - methodology

of explanation, Weber was more reluctant to establish a definite link between scientific (theoretical-empirical) analysis and moral

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conclusions. For Marx, the moral necessity for the downfall of the capitalist (or any other) system was as clear as - indeed, derived from — its historical necessity. Weber was aware that scientific findings had moral implications, but these were not derived. Furthermore, his rigorous distinction between value judgements and factual judgements reveals this same sense of contingency. This probably explains why Weber holds more fascination than Marx for those engaged in complex comparative scholarship and why Marx holds more fascination for leaders of mass social movements and for 'intellectuals' in general.

A third difference between the two theories is that while Marx

focuses clearly on the functioning of the capitalist system (profit, innovation, competition and accumulation), Weber attends more closely to questions of the genesis of capitalism. Marx's theory of primitive capital accumulation as the transition to modern society is not a thorough historical study but a reconstruction of the processes of capital formation and the liberation of labour from serfdom and corporate ties. Weber's focus, on the other hand, is more precisely on the historical conditions underlying its genesis (as well as its failure to appear) and is grounded in the most thorough scholarship on religion and other causal factors.

A fourth difference concerns the substantive relations between economy and society. Weber virtually reverses Marx's emphasis ni places. He takes the same economic phenomena - free wage labour and profit-making - and analyses them in terms of cultural and motivational significance. Both are related to the phenomenon of rationality, which helps explain the rise of capital accumulation and the structuring of labour. However, Weber does not totally reject Marx's emphasis on material relations and conflictual class relations; what he does reject is Marx's

monolithic formulations, arguing that economic interests are only one factor, existing side by side with ideal interests and the strug- gle for domination.

Weber's substantive writings are enormously varied, ranging from the early writings on commercial law and ancient economic history to the first sociological works on the transformations of agrarian relations and the psycho-physics of industrial work; from the methodological essays to the great comparative studies of religions and from the systematic analysis of the relationship between economic and social action to the late lectures on econo- mic history. Running through all of them is the preoccupation

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with the nature of rationality in general and the nature of modern capitalism and western rationalism in particular.

Similarly, his explorations of the relations between economy and society are wide-ranging in content, dealing with the relations between capitalism and bureaucracy,

the relations between

economic class and other forms of stratification, the link between market freedom and the growth of cities, and the tension between formal and substantive rationality in economic action. But the most important thread ni these writings is the link between religious ethics, economic mentality and economic action, which si also central to the understanding of rationalism and capitalism in the West.

For Weber, modern capitalism is a great complex of inter- related institutions, including the market economy, business corporations, free and voluntary labour, public credit, a stock exchange, and so on. Each institution has its own history and its own relations with other institutions. However, for Weber, especially in his essay on the Protestant Ethic but also in his more general comparative religious studies, this complex of institutions si tied together by a common mentality, the spirit of capitalism, which is in turn related to the ascetic ethic of Calvinism and Puritanism.

To review the essentials of Weber's argument, both the capitalist entrepreneur and to some degree the individual wage earner are distinguished from their historical predecessors ni traditional economies by virtue of their rational and systematic pursuit of economic gain, reliance on calculation measured in relation to this economic criterion, the extension of trust through credit, and the subordination of consumption in the interests of accumulation. These are the elements of the rational economic actor's Zweckrationalität, by which he establishes a systematic relationship between preferred goals and the best means to reach them.

In his famous and controversial thesis, Weber argued that the advent of ascetic Protestantism provided an especially fruitful breeding ground for the mentality of economic rationality. Rational action becomes possible when human beings postulate a natural reality free from magical and ritual elements and a religious faith posited on the absolute transcendence of God. While many of the elements of ascetic Protestantism are found in Jewish monotheism, with its rational prophecies, and the early

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Christian tradition, the Reformation, especially in its Calvinist manifestation, brought these elements to fruition. In this religion humanity stands alone before God, without the mediation of rites and ceremonies of repentance and absolution; the sacred is not immediately apparent as ti si ni primitive religions, and salvation si not possible through sacraments, as ni Catholicism. Rather, each individual's state of grace is determined ('predestined') by God's inexorable choice. Defined as such, the problem of salva- tion is a painful one. Each person must consider himself or herself as chosen and reject doubt as the work of the devil; lack of self-confidence in this is seen as a sign of insufficient faith. The critical link in Weber's reasoning si that unceasing, planned, methodical work and the rational organization of life are seen as 'evidence' of this self-confidence and, ultimately, the possession of grace. When this viewpoint is applied to profane economic activity, it si translated into the notion of worldly success, because of its evidence of planning and self-control. By this complex formula Weber arrives at the final irony: that material success is a sign of ascetic realization.

In developing this case, Weber shunned deterministic claims and put forth no case that he was building a general theory. He was, first, aware that socioeconomic conditions, such as the

formation of medieval cities with a socially cohesive urban middle class and a universalistic ethic of trade, had influenced the religious movements of the Reformation. And, like Marx, he was aware of the legitimizing functions of beliefs ni the arena of class relations. Finally, Weber considered the Protestant Ethic as only one — though a central one — of the phenomena which contri- buted to the rise of rationalism in western civilization, others being the development of experimental science, rational law and rational government administration.

The specific investigations into Protestantism and capitalism are embedded in an ambitious range of comparative studies in Weber's work. They are best seen as a part of the great works on

the economic ethics of the major world religions, published between 1916 and 1919 in the Archiv für Sozialwissenschaft. From these studies it is seen that the specific western relationship between Protestantism and capitalism is only a single instance of the relationship between the origins of an economic mentality and the specific contents of religious beliefs.

In his comparative studies of religion and in the remainder of

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his last work, the incomplete Wirtschaft und Gesellschaft, Weber

dealt with the problem of modern capitalism and western rationalism in two ways: in the sociology of religion, the problem

is dealt with directly, as Weber explored the linkage of the religions of classical China and India and ancient Palestine in terms directly comparable to his studies of the modern west. In his theoretical work on economy and society he dealt with the problem more indirectly, as a systematic analysis of the typical relations between forms of economic life and modes of social organization, such as communities and organizations. His systematic exploration of multiple possibilities of relationships — often specifying their positive or negative implications for capitalist development - supplies a larger theoretical base for a sociological understanding of the unique historical phenomenon of rational bourgeois capitalism.

The methodological device by which Weber analysed the relations between economy and society - and a myriad other relations as well - was the ideal type. By this device Weber was able to construct generic concepts (bureaucracy, patrimonialism, pietism and so on) which were built in large part on inductions from historical study but at the same time were represented in such a way as to move a distance away from historical particular- ism and thus to permit statements of sociological relationships of a fairly general order. Another methodological distinction Weber pressed was that between the interpretive understanding of historical phenomena (Verstehen), and the establishment of causal relations between them, which he regarded as two separate but essential features of investigation and verification ni his scholarly programme. Weber's particular formulations relating to the use of ideal types and the role of understanding ni investigation have been criticized extensively, but the social scientific issues they attempt to solve continue to be unavoidable.

Joseph Schumpeter. Whereas both Marx and Weber declined to

work within the traditions of classical political economy, each relativizing it and attempting to account for its subject matter in the context of a larger scheme, Schumpeter worked mainly within that scheme, especially in his work on business cycles and the impact of entrepreneurial innovation. He did not attempt to substitute a different general theory of social relations for economic theory, but in his work used categories and insights

14 A. Martinelli and N.J. Smelser

from cognate disciplines, mainly sociology but to a lesser extent political science and psychology. In common with both Marx and Weber, however, Schumpeter was concerned with the understand- ing of the particular historical reality of capitalism as an economic system, and in integrating historical knowledge with theoretical constructions. From the standpoint of theoretical ambition, Schumpeter stood midway between the other two: he was more convinced than Weber of the feasibility of general, systematic theory and made an effort to synthesize ingredients

from the various social science disciplines to this end; but he did not attempt, as did Marx, to construct a general evolutionary theory of economy and society or a philosophy of history.

The sociological element occupied a large place in Schumpeter's work, mainly as a complement to the basic economic core. As he spelled out his view ni the introduction to The History of

Economic Analysis (1954), economic analysis has the task of

studying how people behave at a given time and what effects

derive from their behaviour, whereas economic sociology has the

task of studying why they happen to behave in the larger institu-

tional context in which economic activity is implicated. This stress

appears implicitly ni his frankly economic works on economic

development and business cycles, but brought it directly into view

ni his great sociological works on capitalism, socialism and democracy and on social classes and imperialism.

Schumpeter's sociology interacts with his economics in at least three ways. First, ni the development of key analytical concepts such as the entrepreneur, he utilized sociological and historical insights to make his portrayal of that agent more realistic and convincing. Second, ni his attempt to transform the basic assump- tions of economic theory - such as the rationality of the economic actor and the attainment of economic equilibrium — into workable research questions, he called upon insights and formulations from sociology and the other social sciences. Third, he was always prepared to invoke non-economic, predominantly sociological variables at any moment when economic analysis did not seem to yield an adequate account of matters; for example, in his analyses of the crises of capitalism he goes beyond the study of economic cycles and raises questions of its social-political contradictions. We wil illustrate Schumpeter's methodological openness to sociology in relation to three topics in his work: the

role of entrepreneurship, innovation and leadership in his theory

Economic Sociology

of economic development; the relationship between the entre-

preneurial function and the formation of bourgeois classes; and the question of economic stability and social instability ni capitalism.

The entrepreneurial function is the key element in Schumpeter's theory of development. He defined ti as innovation - the intro- duction of a new combination of the factors of production (and labour) which, when combined with credit, breaks into the static equilibrium of the circular flow of economic life and raises it to a new level. The entrepreneur changes the conditions of supply, combines existing resources in new ways, and thereby sets up a new production feature. Weber stressed the revolutionary character of the entrepreneur (and sometimes held ti in the same kind of awe as Marx held the revolutionary proletariat). But even though it is sometimes personified, Schumpeter regarded the entrepreneur mainly as a function: it does not imply the requisite of property, is not based on the assumption of risk, and does not require belonging to a business organization. But ti remains the case that the entrepreneurial function is clearly and dynamically set aside from the activities of the everyday businessman.

To demonstrate the entrepreneur's exceptional qualities and

role, Schumpeter drew on a range of sociological and psycho-

logical insights. Entrepreneurship, he argued, calls for a certain

type of personality and conduct, which differs from the rational conduct of the economic man. The entrepreneur is a bold leader,

willing to break through ordinary constraints; this sets him off

from the routine manager. Leadership, moreover, involves the capacity to think the new, to grasp the essential, to set the incidental aside, to act quickly, to understand by intuition. The entrepreneur acts through his will and personal authority; he must

be willing to forgo the criticisms that always arise when new and innovative behaviour is regarded as deviant and dangerous. While having some elements in common with religious and military

leaders of the past, the entrepreneur is, however, less heroic. He is a leader in a rational and anti-heroic civilization, and as a result does not excite the charismatic feelings and collective enthusiasm of those who make or defend whole civilizations. The entrepreneur operates in a more limited sphere, and occupies a more precarious place in society.

Entrepreneurship

as a specific

historical phenomenon, Schumpeter realized, rests on the premiss of the differentiation of

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a distinct economic sphere separate from others. In previous epochs the entrepreneurial function was fused with others in the

actions of political, religious and social leaders. Entrepreneurship and the entrepreneur si the form —the ideal type, fi you wil — of leadership that appears specifically and historically ni capitalism. Given the importance of innovation and competition in that kind of economy - as Marx correctly stressed - the entrepreneur si a particularly appropriate and even essential phenomenon for capitalist dynamism.

Schumpeter also dealt with the psychology of entrepreneurship. Entrepreneurial conduct involves a mix of rational and emotional elements. On the one hand, it si rational in that it calls for a great measure of forecasting and planning. On the other hand, ti is not narrowly utilitarian because it rests on an autonomous drive to achieve and create for its own sake, and also rests on a dream on

the part of the entrepreneur to establish, ultimately, a family dynasty. The entrepreneur takes advantage of rationally based components of his environment, such as money, science and individual freedom, and he orients his conduct to rational values, but that is not the end of the story. Entrepreneurial innovation is basically a creative act, and deviant from the bourgeois culture which defines rationality from the narrower viewpoint of calculating to one's short-term advantage. The 'rationality' of the entrepreneur has an element of profit and gain, but in addition is based on the desire and capacity to think of the new and original and to act on those thoughts. In this formulation Schumpeter deviates from the assumptions of both neoclassical economists and the thought of scholars like Weber, Pareto, Sombart and Tönnies, al of whom, ni different ways, tended to equate utilitarian rationality with capitalism.

With respect to the question of the relationship between

entrepreneurship a n d s o c i a l classes, Schumpeter actually

developed a unique view of social stratification. For him, the class structure is the hierarchical order of families. Individuals belong to classes independently of their own wills. The fundamen- tal factor which explains the mobility of families within classes is the same as that which explains mobility from one class to another: the capacity to adapt to the needs set by the social environment of a specific historical epoch, and to demonstrate those abilities necessary for a leadership role. Social classes change slowly over time, like hotels, occupied by different

Economic Sociology

populations. To illustrate this view of stratification, Schumpeter developed a statement of the relations between functions and

rank in the rise and decline of the German aristocracy and in the historical phenomenon of patrimonialism.

The performance of socially important functions is the core

element of classes because it generates social prestige and

consolidates society into ranks. Once established, moreover, the social prestige system tends to acquire a life of its own — the life of social rewards, gratifications, influence and deference - and often survives long after its functional base has eroded. The status of the upper classes in society, and of the leading families in those classes, is consolidated through the solidarity ties between their members and the transmission of social privileges from one generation to another. In capitalist society as such, the bourgeoisie is the leading class because they have performed the innovating and leadership functions in the economy and because they acquire, consolidate and transfer prestige, power and wealth to future generations. At the same time, this process helps explain the decline of the bourgeoisie as well, as the entrepreneurial function tends to fade and bourgeois institutions such as private property and contract are weakened.

Schumpeter's theory of class is fundamentally different from that of Marx, who ties ti to the structure of production itself. It also differs from the theory of elites as propounded by Mosca and Pareto, based as ti is on the performance of socially important functions rather than the protection of power posi- tions ni society. Schumpeter's theory has a more functionalist flavour. At the same time, it differs from classical functionalist formulations because ti regards the class system at a given time as a mix between socially relevant and important roles on the one hand and the preservation of an inherited class legacy on the other.

To turn to the third illustration, Schumpeter also developed a theory of the crisis of capitalism, which is also a basically sociological theory. While recognizing the importance of economic effects such as the stifling of competition under condi- tions of large firms and monopoly capitalism, and while recogniz- ing that phenomena such as the Great Depression of the 1930s

serve to dramatize the economic failures, Schumpeter's theory of the crisis of capitalism relies more on 'non-economic' considera- tions, particularly his theory of classes.

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There are two ways in which Schumpeter's theories of develop-

ment and economic cycles impinge on his theory of crisis in

capitalism. In the first instance, the development of monopoly

capitalism - capital concentration and giant firms - does not

impinge directly on the capitalist system, but does so indirectly

by its erosion of the institution of private property and its

weakening of the role of the innovating entrepreneur. Second,

late capitalism tends to generate a deep social crisis, involving the decline of the central institution of the bourgeois family, the destruction of intermediate and protective strata and the worsening social climate that is due to the corrosive critique by intellectuals of bourgeois values and capitalist institutions. The

failure of capitalism si not an economic failure. As Schumpeter himself puts it:

the actual prospective performance of the capitalist system is such as to negative [sic) the idea of its breaking down under the weight of economic failure, but its very success undermines the social institutions which protect it, and 'inevitably' creates conditions ni which ti will not be able to live and which strongly point to socialism as the heir apparent. (1950: 61)

That Schumpeter's prediction has not materialized, and that capitalism has proved more resilient than he — and Marx, for different reasons - predicted, prompts us to seek for those aspects of his analysis of the end of capitalism which are not convincing.

Let us turn to the first component of the crisis of capitalism, the progressive decay o f the entrepreneurial function by virtue o f

the routinization of innovation in large organizations, thus rendering the entrepreneurial function superfluous and undermin- ing the bourgeois basis for continued dominance. As Schumpeter dramatically put it, 'the forerunners of Socialism were not the intellectuals and political activists who preached it, but the Vanderbilts, the Carnegies and the Rockefellers' (1950: 134). In addition, there si the melting down of key institutions of property and contract. The limitation of Schumpeter's view in this regard is due largely to his belief that the competitive economy of the individual, innovative entrepreneur is the only brand of capital- ism. In reality, capitalism has proved compatible with the existence of very large firms and with state intervention and control of the economy. It might also be questioned whether the destruction of 'protective social strata' is also a liability for

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capitalism. Schumpeter argued, for example, that the alliance of the British bourgeoisie with surviving aristocratic elements added to its vitality, because of the key role ti played ni the political role of government. That view has been challenged, for example by Barrington Moore, Jr (1966) who argued that the alliance between the bourgeoisie and the traditional estates si an obstacle, rather than a facilitating condition, for capitalist development.

Schumpeter also argued that in later capitalist development the intellectuals played a leading role in discrediting its values and institutions. He asserted that capitalism tends to breed social unrest because it simultaneously holds out the hope for growth and improvement and at the same time generates a high level of personal insecurity. The expression of the resulting dissatisfaction si facilitated, furthermore, by the existence of political freedom and tolerance of dissent, another hallmark of bourgeois capital- ism. In this context the role played by an expanded group of economically unemployed and politically dissatisfied intellectuals can be decisive. Sound in some respects, this argument also over- estimates the 'unemployment' of intellectuals in advanced capitalist societies - particularly with their expanded university systems - and underestimates the stabilizing influence of political tolerance in complex and diversified societies.

The final component of Schumpeter's view is the deterioration of the bourgeois family and household. This process is traced to the diffusion of utilitarian values and to the spread of patterns of consumption that undermine its exclusivity of status symboliza- tion and household maintenance. Once again, Schumpeter's asser-

tions appear to be overdrawn, and to

underestimate the

adaptability of institutions and groups in capitalist society. To a

large degree it si still the case that marriage ties, family solidarity

and cultural affinities generated by common experience in educa- tional institutions continue to operate in various ways in different countries to sustain the bourgeoisie as a class with a leading if not

an altogether dominant role (Bottomore and Brym: 1989). Schumpeter's view of capitalist crises bears some affinities to

Marx's conception of capitalist breakdown and Weber's concep- tion of bureaucratization and the routinization of charisma as hallmarks of late capitalism. There are important differences, however. Whereas Marx identified the contradictions of capital accumulation — that is to say, the success of capitalism — as the root cause of crisis, Schumpeter looked to the obsolescence of the

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entrepreneurial function and the decay of capitalist institutions. And while Weber's views of social change envision a variety of escapes from the 'iron cage' of capitalism through the renaissance of old values and the rise of new charismatic prophets, Schum- peter foresaw, fairly straightforwardly, the inevitable decline of capitalism.

Karl Polanyi. Like the others we have discussed, Polanyi developed a view of the economic that is broader than the alter- native posed by the tradition of political economy. His central thesis is that the economy is 'embedded' ni the larger society (thus establishing his partial affinity with the views of the American institutional economists, Veblen, Commons and Mitchell). Polanyi's work is less widely known and cited ni the literature on economy and society than those we have already considered, but all the same he offers an articulate critique of the paradigm of political economy, as wel as contributing to the understanding of the interplay of economic and social phenomena, the analysis of economic institutions, and the understanding of the mechanisms and contradictory tendencies ni industrial capitalism.

Polanyi argued that the relation of economy and society varies

over time, but as a general rule the latter has priority and control

over the former. In the broad historical and comparative sweep,

the economy is immersed in social relations and economic agents

do not act to maximize their material interests but rather to

safeguard their social positions, status pretences and social advan-

tages. Modern capitalism is 'exceptional' in this regard, because

the economy is subordinated to social relations less than in most

societies. In fact, Polanyi regarded market and industrial capital-

ism as resulting from a process by which the economy has freed

itself from societal controls and subordinated all other aspects of

social life to its needs. So pervasive has been this process that

students of modern industrial society have tended to forge its

exceptionalism — its unique place in human history - and to

think of it instead, and mistakenly, as manifesting universal, general laws.

In all his works, Polanyi was preoccupied with three central issues: the market economy and its contradictions; the self- regulating market as the fundamental institution; and the limita- tions of the claims to universal validity of the paradigm of classical and neoclassical economic theory. These themes are al

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seen in his first and best-known book, The Great Transformation (1944), which was a great and ambitious attempt to trace the origins and causes of "nineteenth-century civilization' (i.e., modern industrial capitalism) and its collapse in the twentieth century. The collapse, Polanyi argued, was visible ni the crisis of most of the international institutions of capitalism, such as the gold standard and international finance, the balance of power, constitutional democratic government, the balance of power among the great powers and, above all, the self-regulating market.

Polanyi's central thesis ni that book is that the self-regulating market was the great institutional mechanism of economic regula-

tion ni capitalism, but that ti could not exist for long 'without

annulling the human and natural substance of society' (1944: 3),

physically destroying humanity and transforming the environment

into a desert. The economy, structured on the basis of the self-

regulating market, radically separated itself from other social institutions and constrained the rest of society to function accord-

ing to its laws, in the meantime transforming land and labour into 'fictitious commodities'. The defensive strategies that the economy attempted - such as regulating the market from the political centre - themselves generated further contradictions.

Much of Polanyi's critique, ni fact, is based on the analysis of what he called the 'double movement' stemming from the attempt

to control the intractable conflicts between the market economy and society, seeking to permit the coexistence of the free, self- regulating market with its integration by means of controls on the exchange of labour, capital and natural resources.

Polanyi 'tested' this central and perhaps oversimple thesis by drawing on historical materials from the period of the early industrial revolution in Britain and from the twentieth-century

period of international instability. For the earlier period Polanyi analysed not only the market forces but also a number of social policies, including social and labour legislation, union strategies, tariff policies, and central bank activities. Throughout the work, moreover, Polanyi augmented his analysis by a running critique of the philosophical and theoretical principles of utilitarianism and classical economics, against which he juxtaposed his own alternative conception of the economy as an institutional process. Finally, Polanyi included a line of analysis which was more distinctly sociological, namely how to maintain a requisite degree

22 A. Martinelli and N.J. Smelser

of social solidarity in an individualistic society dominated by

utilitarian values. That question has not been answered to this

date, we believe, as the large, modern welfare states continue to struggle with the inexorable tensions between economic efficiency and market freedom on the one side and social regulation and

social rights on the other.

Having presented this brief summary of Polanyi's thesis and its defence, ti remains to note a few points of criticism. First, because of his view of the embeddedness of the economy in other

institutions, Polanyi implicitly adopted a fundamentally organic view of society, emphasizing above al the structural context of almost all social action and social policies. One consequence of this organic or holistic view of society is to underplay the independent historical significance of classes, their interests and their activities as independent sources of understanding the march of capitalism, as well as its subsequent crises. Second, Polanyi seems to view capitalism in such 'exceptionalist' terms that he

treats its rise almost as the artificial result of exogenous factors,

rather than as developing from any internal dynamic of its own.

In this connection, it may be an irony that Polanyi, so polemic- ally at odds with the economists' alleged attempts to treat the laws of the capitalist economy as universal, committed the opposite error of regarding capitalist society as such a deviation from the norm that he produces too particularist a view of that economic system.

Central to Polanyi's critique of economic theory is his notion

of the 'economicist fallacy'. He identified two distinct features of

economic life: the 'substantive' aspect, which defines the institu- tionalized relations between humans and their social and natural

environments and aims at satisfying human needs; and the 'formal' aspect, which rests on the notions of a choice between alternatives and a scarcity of means, and on the idea of a logical relationship between means and ends. The 'economicist fallacy' si mistaking the second aspect for the whole of economic life. That fallacy has arisen in tandem with the rise of the formal market economies with their supply-demand relations since the eigh- teenth century, which was mistaken by the economists as being natural and universal. Moreover, the 'laws' that economists have generated are not human laws, because they fail to take into account the human context of economic activity. According to Polanyi, Marx was moving in the right direction when he took up

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the social relations of production and their dynamics, but because he remained so much within the Ricardian world-view of the economy, he did not move far enough. Polanyi and his col- leagues, moreover, took as their task the demonstration of the institutional modes of regulating economic activity other than the market.

Polanyi's general point about the limited validity of the model

of rational economic action echoes the points made among

scholars in the German historical school, Weber, Pareto, and the

American institutional economists. The debate continues to this

day, as we will indicate later. Those who stress the non-

universality of economic assumptions are no doubt correct. But

Polanyi's strict division of economic activity into its 'substantive'

and 'formal' aspects seems likely to suggest that formal economic

analysis is some kind of historical freak, that ti is useless ni study-

ing economies other than that of liberal capitalism in a limited

historical period. One of the unfortunate features of Polanyi's

position, if pressed, is that it would seem to discourage the

development of general economic theory and, indeed, to dis- c o u r a g e systematic comparative analysis between rational

bourgeois capitalism and other systems, because they differ so fundamentally from each other.

On the more constructive side, Polanyi and his associates

developed an almost 'physical' view of economic activity, meant to contrast with the market-money-exchange model of formal economists. Economic activity is a constant movement of people, material means, capital and technical knowledge around the society. Economic activity does, after all, require the mobilization of resources and the distribution of product. The key questions that Polanyi and his associates wanted to ask are: in what kind of institutional realities is this process embedded, and, accord- ingly, what kinds of principles govern the flow of economic goods through the society? If the questions are phrased in that manner, then non-economic institutions, such as religion and government, become paramount in the analysis.

Based on their own anthropological researches, Polanyi and his associates formulated a typology of three principles of economic integration: reciprocity, redistribution and exchange. Each type entails different forms of distribution in space: reciprocity indicates correlated transactions between symmetrical groups (for example, gift exchanges); redistribution indicates appropriative

A. Martinelli and N.J. Smelser

transactions to and from a 'centre' (for example, administratively organized distribution of food, philanthropy); and exchange refers to transactions between 'hands' in a market system

(purchase and sale). A corollary of this classification si that in societies which possess those kinds of structural groupings (for example, symmetrically organized kinship), the mode of economic transfer will be shaped accordingly.

A number of critical questions can be raised about his typology. In the first instance, ti may be incomplete; it does not seem to cover, for example, political mobilization of economic goods and services for collective action (such as the conduct of war). Second, the typology is a basically static, classificatory scheme with no sense of the principles of economic dynamics or the transformation from one system to another. An example of attempting to make exchange more dynamic is found ni the work of the transaction-cost economists, who argue that when costs exceed benefits when exchanging in a market-money-price system, alternative modes of exchange and distribution will be devised (as in the case of the rise of informal bartering, and in administered distribution of public goods). Third, because of his own scholarly agenda, Polanyi probably overestimated the disruptive and dis- integrative aspects of the market principle, and underestimated the negative possibilities of the other (for example, one-sided exploitation in a reciprocative system and arbitrary despotism and autocratic centralism in a redistributive system). Despite these shortcomings, Polanyi's general critique seems valid, and he offered some helpful guidelines for moving ni the direction of developing a comparative economics that takes institutional context into explicit account.

Talcott Parsons and Neil Smelser. Perceiving a decades-long lull in systematic activity such as that of Marshall, Weber and Pareto to combine economy and society, Parsons and Smelser turned their hands to this effort in the mid-1950s. Parsons had made earlier forays on this score in his early work on German writers on capitalism and in his synthetic work, The Structure of Social Action (1937). But the enterprise of Parsons and Smelser twenty years later took place in a new intellectual context and, accord- ingly, their work si set apart from that of their predecessors in several important respects.

First, Economy and Society was one phase in Parsons's

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ambitious programme to create a general theory of action,

including a theory of society. In Economy and Society (1956), Parsons and Smelser did not espouse a general evolutionary

theory or develop a philosophy of history (as did Marx), did not undertake a vast, comparative study of cultures and institutions

(as did Weber), and did not attempt to develop a historically specific theory of capitalist dynamics and contradictions (as did Schumpeter and Polanyi). Their plan was to lay out, ni the most abstract analytic terms, the major exigencies that confront societies, to catalogue the major types of differentiated subsystems that are oriented toward meeting these exigencies, and to identify the major relations between the subsystems. The special relations between economy and society were to be spelled out in the context of this enterprise. In addition to these items on their agenda, Parsons and Smelser were impelled to lay out the main similarities and differences between economic theory and other types of theory in the social sciences, and to try to synthesize them.

Second, Parsons and Smelser were working within an explicitly functionalist framework, as this theoretical framework had evolved in the first half of the century. The relevant ingredients of this approach included the biologically derived notion of the contribution of social activities to societal functions, a notion of interdependence of different roles and institutions, and a notion of equilibrium and equilibrating processes. Taken together, this meant that Parsons and Smelser were working with a causal imagery of functional independence, and this set them apart from their predecessors, who stressed other kinds of relation, such as materialist determination, elective affinity, and domination. In addition, Parsons and Smelser paid less attention to system- specific contradictions than did the other theorists we have considered.

Third, and also in contrast to their predecessors, Parsons and Smelser accepted a great many of the categories and relations of formal economic theory - the factors of production, supply and demand, theories of credit and money, and equilibrium solutions - as legitimate theoretical frameworks and, in certain respects,

as models of social science theorizing. They viewed economic theory, however, as a special case of a more general theory. They argued that economic structures and processes constituted the parametric constraints for other bodies of theoretical and

A. Martinelli and N.J. Smelser

empirical investigation, and vice versa. They did not attempt to 'relativize' them in the same ways that Marx, Weber and Polanyi did, even though they were aware of the comparative limitations of the market economy model (1956: 80-3).

Central to the case presented by Parsons and Smelser is the idea that the economy si one of several societal subsystems, to which it bears special relationships of mutual dependence. What are these subsystems?

(a) Latent pattern-maintenance and system-management (L).

Every society has a system of values and beliefs that operate as legitimizing and sustaining arrangements for its major institutions and as structured motivational patterns for its members. Part of the institutionalized energy of society goes towards the maintenance of the consistency and integrity of these values and to providing outlets for the 'tensions' that arise ni connection with conformity with them. Institutions that specialize in this "latency' function are religion, science, the family and education.

(b) Goal-attainment (G). This function refers to the ways in which the society establishes specific goals - legitimized by the dominant values — and mobilizes the population to attain these goals. Parsons and Smelser identified this subsystem as society's 'polity', which was constituted mainly but not exclusively by the institution of government, the main mobilizing agency in society.

(c) Adaptation (A). The legitimized and institutionalized goals - for example, warfare, maximization of the aesthetic, economic productivity - are not realized automatically, and the society has to devote some of its energies to providing generalized facilities - a reservoir of societal means. It is this adaptive function

around which the economy is structured.

(d) Integration (I). While the L function deals mainly with the

function of legitimation, all social life entails a great deal of individual and group conflict, and a certain level of its institu- tionalized arrangements are devoted to handling this and promoting social solidarity. The main institutional complexes involved here are the legal system, the 'peacekeeping' aspects of the state, and the differential allocation of facilities and rewards and the maintenance of a system of stratification.

Parsons and Smelser developed this scheme in many directions, but ni this summary we wil identify only the major ways ni which economics and society impinge on one another in their theory.

The most important relationship between the subsystems of

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society is that of exchange. The other subsystems are responsible for generating the major resources (factors of production) for the economy, which ni turn supplies them with its own output. The exchange between the latency system (in this case, households) and the economy si motivated labour which is exchanged, ultimately, for consumer goods and services for the economic sustenance of the household and its style of life. Mediating this exchange is the medium of money, which takes the form of wage payments for labour and prices for goods and services. Parsons and Smelser developed a comprehensive catalogue of exchanges regarding land, capital and organization (entrepreneurship) as well, each with corresponding societal subsystems. They also developed a theory of generalized social media - wealth, power, influence and value commitments - corresponding to the four major subsystems and providing the mechanisms that facilitate the exchanges between them.

A second relationship is that the other subsystems determine in

large part the value of the parameters of economic activity. For

example, with respect to 'tastes', Parsons and Smelser criticized

the traditional view of these as individual and 'given'. They

argued that tastes are not only shaped by community interaction,

but that they are structured by the exigencies and activities of

other subsystems. Similarly, Parsons and Smelser developed a critique of simplified assumptions such as indifference curves or

the marginal propensity to consume, giving instances of ways in which family exigencies and cultural values structure these and

other functions, which ni turn give shape to economic activity. Third, non-economic forces structure economic exchange through the institutionalization of normative systems such as contract, property and law, and thus build into these exchanges certain 'non-economic factors into markets. They developed an account of the market for professional services, for example, showing how it deviated from classical exchange notions deve-

loped by economists, by virtue of special value and normative commitments associated with professional roles. On the basis of this line of analysis they laid out an elaborated set of criteria for classifying different kinds of imperfection in economic markets.

Finally, Parsons and Smelser developed the germs of a theory of economic growth, phrased more in terms of institutional struc- turing than according to the usual economic criteria such as gross national product. They developed a model of economic change,

A. Martinelli and N.J. Smelser

in which pressure from cultural values and from environmental forces combine to yield a sense of dissatisfaction with economic forces. By a complicated, multi-stage process, the economic and other agents adapt by developing a more differentiated structure for the execution of economic activity. As a current example, they chose the phenomenon of the differentiation of ownership and control in American corporations. Their model of economic change draws from Adam Smith's notion of the division of

labour as the source of economic efficiency, Durkheim's theory of functional differentiation, and Weber's conceptualization of cultural values as providing legitimizing criteria for economic change. Towards the end of the volume Parsons and Smelser

generalized this model of change, and gave a general sketch of the development of modern western capitalism as a series of crucial differentiations of the economy from kinship, ascribed stratifica- tion systems, and traditionalist political organization. This was as close as they came to developing a general account of industrial capitalism, and on this score they contrast with the other theorists whom we have considered.

As our sketch shows, Parsons and Smelser were addressing a line of theoretical issues very different from the others reviewed, so that in some respect their theory stands in an orthogonal rela- tionship to them. Their work has been criticized by Polanyi, Arensberg and Pearson (1957) as not regarding economic life as

sufficiently embedded ni institutional life, and thus committing some of the same errors as did the classical economists. Parsons and Smelser's formulation has also been criticized for its abstract- ness and its failure to generate specific hypotheses and explana- tions about specific historical societies, and has been subjected to the general range of criticism directed towards functionalism regarding its neglect of domination, conflict and change. Different and critically opposed to other theories as it is, however, it shares with them a preoccupation with the strengths and limitations of the fundamental agenda laid down by classical economics.

Part II: The Problematics of Economic Sociology

At this point our discourse shifts from the historical to the analytic mode. Part of our interest in the 'state of the art' of

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economy and society si to lay out the main questions — or prob- lematics, if you will —of that area, conceived as a more or less articulated sub-discipline of research. We present this as the editors' judgements about research themes and priorities, not as an exhaustive review of the literature of economic sociology (though we wil select references to certain works ni theory and empirical research) nor as a statement which we claim would have universal consensus among those working ni the area of economy and society in different nations and regions of the world.

The Idea of the Economic Actor

Any discussion of the character of economic life must include, fi not begin with, the psychological substratum of that life - that is, the motivation of the economic actor. The main intellectual heritage to be cited in this connection is that of English utili- tarianism (Halévy, 1928) as formulated ni the works of the classical writers of political economy, taken over ni modified form ni Marxian materialism, refined ni neoclassical analysis, and both modified and extended in contemporary economic and social thought. This version of rationality has proved one of the most pervasive intellectual forces in the history of social thought in the past two and a half centuries (Dumont, 1977).

In the simplest form, the classical economic version of economic rationality is based on the assumption that the indivi- dual actor will behave in such a way as to maximize his or her material well-being, or utility, ni economic transactions. An addi- tional assumption si that both buyers and sellers wil possess full knowledge of the availability and prices of products, job oppor- tunities, and other market conditions. These first two assump- tions are linked by a third, a postulate of rationality, whereby it si assumed that buyers and sellers, possessing preferences and full information, wil act rationally on the basis of these. They wil not make errors, they wil not forget what they know, and they will not act irrationally (that is, on bases counter to their interests and information).

This model of general rational behaviour is framed in the context of certain further assumptions about the interaction of buyer and seller. It is assumed that they will meet in a peaceful setting ni which ti si understood that neither wil engage ni

30 A. Martinelli and N.J. Smelser

transactions other than economic exchange (for example coercion, violence); that certain institutional arrangements (such as property laws, a state that wil maintain social order) wil guarantee the integrity of this peace and protect it from disrup- tion; that neither economic agent has power over the other or over the price of the product exchange; that each will make offers on the basis of his or her own preferences (supply schedule and demand schedule), and that on this basis an equilibrium price

deviation from the more or less automatic intersection of the

schedules of each.

This classical model has been subjected to the greatest variety

of modifications over time; indeed, it might be argued that one of the major sources of innovation in economic thought is found in tracing the implications of such modifications. A non- exhaustive list of these modifications would include: the refine- ment of the notion of rationality by the invention and elaboration of indifference curves in neoclassical economics; modifications of economic preferences under conditions when seller or buyer

controls the conditions of price or supply, i.e., imperfect competi- in tion (Robinson, 1948; Chamberlain, 1948); alterations economic behaviour when information is not complete (Stigler, 1961); relaxations of the principle of maximization, for example

in the notions of 'bounded rationality' and 'satisficing' (Simon, 1957); changes in the terms of rationality when the good in ques-

tion si public, not private (Harden, 1968), including the problem of the 'free rider' (Olson, 1968); modification of the principles of economic rationality as institutional conditions are varied (North, 1987); extension of the idea of economic rationality to tradi- tionally non-economic settings such as voting behaviour (Downs,

1957); participation ni social movements (Oberschall, 1973), deci- sions to marry and bear children (Becker, 1981); and the formula- tion of rationality as a general feature of social life (Becker, 1976; Coleman, 1990).

By the same token, the idea of rationality has been subjected to a diversity of lines of fundamental criticism. Among these are that economic rationality (rational accounting) is realizable only

under certain institutional and historical conditions (Weber, 1947); that it is only one of the great range of orientations of

social and political life (Pareto, 1935); that its utilitarian

Economic Sociology 31

underpinnings are invalid accounts of human conduct in institu- tional life (Durkheim, 1948); that economic rationality is an institutionalized value, not a general psychological propensity (Parsons, 1954); that economic rationality si a specifically western, market-based phenomenon, and does not apply to societies bound by traditionalist values (Firth, 1971; Polanyi et al., 1957); that utilitarian thinking undermines the moral dimen- sion of the human condition (Etzioni, 1988).

It seems to us that the most appropriate task for the economic sociologist is not to continue the by now stale debates over the fundamental place of rationality, non-rationality and irrationality in human life; the merits and demerits of economic imperialism, and the like. It seems more fruitful to take economic rationality as a variable feature in human institutional life, and to devote research to understanding and explaining that variation. With respect to the firm (whether in a free-market or administered economy), it should be asked under what conditions more or less

unfettered calculations based on costs and benefits are possible, and what other kinds of considerations - for example jurisdic- tional demands on the part of officers and departments within a firm and other adjudication; political influences from regulating agencies or party apparatus — influence and divert such calcula-

tions. With respect to the household (this, not the individual, is t h e c a l c u l a t i n g a n d d e c i s i o n - m a k i n g u n i t in m a n y l i n e s o f economic analysis), how do considerations of sharing and equity between family members, exigencies associated with the life cycle, and other aspects of the family's 'communal' rationality (Weber, 1947) act as sources of family 'tastes' and as the source of other types of calculation other than cost-benefit? (We will mention family and other determinants of the rationality of the labourer later.)

More generally, the political-economic scene in the contem- porary world does not seem to be one ni which individuals, firms and nations work on the basis of economic rationality and the maximization of efficiency (technological and economic competi- tion between nations notwithstanding), but that most major deci- sions are made on the basis of a complicated process of

confrontation, conflict, dialogue and political compromise between different kinds of rationalities (economic rationality, the rationality of military preparedness and national security; of environmental protection and preservation; of cultural integrity

32 A. Martinelli and N.J. Smelser

and territoriality of racial/ethnic groups, and so on). That si to

say, the main bases of action and public policy are accom-

modative and synthetic, not the deliberate actions taken in the name of a set of programmed tastes; ni that sense the political and integrative can be said to have displaced the economic and

the central organizing basis of contemporary societies.

The Ideas of Exchange and the Market

Exchange as the typical mode of economic activity is a natural outgrowth of the conception of economic rationality. The pheno- menon of exchange is based on the minimal assumptions that different goods and services have different kinds of utility and that individuals wil seek to realize these through barter, trade,

and buying and selling (Smith, 1937). In classical economic theory the market as macroeconomic phenomenon was little more than a numerical aggregation of the thousands of microeconomic exchanges that constitute the economic behaviour of individual trading partners interacting with one another. A further assump- tion of the classical economists was that according to the laws of economics all exchanges would 'clear' freely and the market would always be in equilibrium in accordance with the dominat- ing principles of marginal utility, marginal costs and marginal return.

Like the phenomenon of economic motivation, the ideas of exchange and the market have undergone modification and elaboration in economic and other social scientific thought. Types of exchange other than the free market have been identified, including exchange based on the norm of reciprocal obligation (Mauss, 1954); status and authority reinforcement (Malinowski,

1922; Sahlins, 1972); and redistribution, charity and philanthropy

(Polanyi et al., 1957; Boulding, 1973). The classical model of market equilibrium - which did not envision disequilibria - has

been challenged theoretically by the notion of imperfect competi- tion, monopoly and oligopoly; by the Keynesian theory of more or less chronic equilibrium (or disequilibrium, according to one's view) at levels of high unemployment and market depression on the one hand, and inflation on the other; and by variations on these themes. On the borderline of economics, social scientists have generated theories of human behaviour based on the