Economic Sociology: Origin, Development,Theories, and Concepts

As introduced and defined by Durkheim and Weber, ‘economic sociology’ refers to “the application of frames of reference, variables and explanatory models of sociology to that of complex of activities which is concerned with the production, distribution, exchange, and consumption of scarce goods and services.” In simpler words, economic sociology can be defined as “the sociological perspective applied to the economic phenomenon.” The specificity of this definition can be increased by stating the variables and models being employed by the economic sociologist. (Smelser & Swedberg, 2005)

When the definition of economic sociology was first put forth by Smelser, sociological perspectives on social structures, social groups, personal interactions, and social control were included. However, cultural contexts, gender, and perspectives on social networks were also added later on following the developments made. In addition to this, “the international dimension of economic life” also assumed more importance in this field since this aspect penetrated the actual economies in the contemporary world. (Smelser & Swedberg, 2005)

Origin and Development of Economic Sociology 

The origin of economic sociology can be traced back to sociology and neoclassical economics. The term ‘economic sociology’ can be credited to Jevons who was a neoclassical economist and the first to envision the possibility of economic sociology. His 1871 publication, ‘Theory of Political Economy,’ incorporated economic sociology “as a branch of economic science” by placing it alongside other economics branches like commercial statistics, descriptive economics, and systematic economics. This further led to many other economists incorporating economic sociology in their work and writings. For example, in 1945, Schumpeter included economic sociology in his economic discipline taxonomy. (Zafirovski, 1999)

Many sociologists and economists claimed for economic sociology to be “everyone’s land” or “no man’s land” an “almost virgin territory” lying between sociology and economics. As Schumpeter claimed, economic sociology was an overlap between economics, that was primarily concerned with “institutions and other social forces shaping economic behavior” and sociology, that was primarily concerned with “sociological preserves.” This idea highlighted the importance of sociology of knowledge, institutions, and comparative-historical sociology, instead of simply relying on the “pure economic theory.” To corroborate this, we can take the example of the Great Economic Depression of 1929-1933 wherein, “economic life is constantly acted upon by social and political factors. It lives in a social and political environment full of disturbances of its own. The non-economic causes play a dominant role in its drama.” More traces of economic sociology can also be found in the discipline of sociology itself. For example, Adam Smith analyzed economic processes with regard to their social settings, such as division of labour, economic liberty, the origin of private property, and so on. This indicated that the birth of the political economy was the foundation of economic sociology. (Zafirovski, 1999)

Another perspective employed to economic sociology states that at the core of economics lies “economic psycho-sociology.” This can be understood by looking at the phenomena of the market economy wherein socio-psychological forces govern the causes of demand, supply and prices; this substantiated the point that sociology could produce more satisfying results than economics, even in areas pertaining to pure economical processes. This idea was contested by contemporary economists who held the position that, the economic approach was a “superior model of studying both economic and non-economic phenomena, and that sociology and any other social science could be subsumed under it or disposed of.” (Zafirovski, 1999)

Durkheim explained his position on economic sociology through the social embeddedness principle which claimed that the “economic factor depended on social phenomena since it is embedded in institutions, norms, and values.” This idea had a pronounced impact on the different economic theory segments and research which ultimately inspired the modern economic sociologists to consider Durkheim as the “father of economic sociology.” Weber’s ideas of economic sociology also played a key role in shaping the discourse. Weber maintained that “economic theory was a constituent of the broader sociological analysis of the interrelations between economy and society, or of the social economics in the broadest sense.” (Zafirovski, 1999)

It is important to trace the origin and development of economic sociology to understand how initially, economic sociology was used by neo-classical economists and then by classical sociologists, however, it was the sociologists who laid down the coherent sustentative agenda for the discipline. (Zafirovski, 1999)

Tools

Based on the developments and advancements of society, economic sociology entails broadly three conceptual tools. These are as follows- First, social networks or social capital. This states that economic actors are placed within concrete social networks. These network relations influence and control the information in their possession, their ideal norms, and individuals to whom they should be loyal and obligated. This influence and control are of such enormity that despite one’s social networks being exogenous to his/her economic behavior, the social networks have a causal effect on the economic outcomes. Second, culture, social norms, and institutions. According to sociologists and anthologists, culture and social norms play an essential role in the determination of economic behavior. The term ‘institution’ plays a role in forming the base through which organizations set their awards and punishments. Third, self-interested rational choice. This is crucial for determining paid work and family life. The rational choice theory is becoming increasingly salient in social sciences and provides a lens on understanding behavior. (England & Folbre, 2005)

Division of Economic Sociology

According to the paper written by Fligstein and Dioun, economic sociology can be defined as, “the study of how production and consumption of material life depend on social processes for their structure and dynamics.” They suggested that economic sociology could be divided into 2 fields namely- sociology of markets and sociology of consumption.

Sociology of Markets 

Sociology of markets, under economic sociology, is primarily concerned with how “market participants and stakeholders solve the problems of production and exchange.” According to sociologists, markets are arenas that are socially constructed and that contain within themselves exchange between sellers and buyers, repeatedly, under “ a set of formal rules and informal understandings.” These rules further guide and impact interactions, trade, define production, and make provision for buyers’ stability. (Fligstein & Dioun, 2015)

To understand the sociology of markets, 4 theoretical approaches are used. These approaches offer concrete guidance for studying the market processes. These are-

1. Network Analysis Network analysis can be defined as a method of studying social mechanisms that solve the key market problems. If the sociology of markets claims that “market actors are embedded in social relationships that define who they are and what they do,” then network analysis can be defined as an instrument for mapping these social relations. Formal network analysis techniques have shown how actors and the relationships between them, determine what actions they will take: whom they hire, trade, and exchange goods with. These networks also serve as information conduits, mitigator of problems related to trust and controller of resource dependencies. Presently, it has been firmly established that connections amongst actors determine prices, increase probabilities for the survival of well-established firms, and help competition between market participants. (Fligstein & Dioun, 2015)
2. Institutional Theory: The institutional theory emphasizes cognitive frames and informal understandings for shaping the market social structure. Under this, markets are conceptualized as fields wherein firms watch and imitate one another, and build niches for reproducing their positions. The reflexive and observant behaviour of firms can lead to market stabilization and mitigation of competition, however, institutions are “rarely fully settled or taken for granted.” This theory also stressed upon formal rules and regulations, and state and court action have a profound impact on market structure. Institutional theorists, thereby, examine how state dynamics shape and impact market intervention. (Fligstein & Dioun, 2015)

3. Political Economy: The political economy traces the linkages between law, states, and the market and the “historical emergence of systems of governance.” ‘Comparative Capitalisms,’ which is a comparative study of capitalist arrangements and their consequent effects on various outcomes, (such as economic development) has been a fundamental component of the sociology of markets. Political economy literature has also helped identify the systems that produce the most “sustained economic growth.” Through this, scholars have also made efforts in understanding the post-capitalist world and its economic transformation. (Fligstein & Dioun, 2015)

4. Market Devices: There can be two approaches for understanding how market devices focus and treat problems neither network analysis nor political economy can. The first approach originates from the idea that there is a requirement for conventions to make quality and price judgements simpler. For example, in a case where a bank is required to loan money, the bank must judge the creditworthiness of each customer. Over a span, rating agencies have introduced various quantitative yardsticks allowing banks to make a judgement of the loan riskiness. The second approach is the performativity of economics. This refers to understanding how economic principles and qualitative models have played a role in structuring financial markets. (Fligstein & Dioun, 2015)

Markets and Culture 

Some economic sociologists study the economy from a different perspective that incorporates the idea of understanding economic behaviour through values and culture.

At present, there are two ways of addressing and understanding culture in the sociology of markets. The first approach treats markets “as a culture.” This is also known as the constituent approach wherein the central claim is that “market actors, objects and activities must be made stable before they can look and act like economic markets.” Instead of subsuming markets under culture, this approach aims at the constitutive nature of the market while drawing upon the phenomenologist sociological tradition. This approach also states that a market is not preformatted, that is, it is through cognitive, structural, and legal processes that buyers, sellers, commodities, and rational exchange is created. The second approach states that “markets have culture.” Under this approach, it is claimed that once the markets are settled, they do not take the form that is imagined for them in neoclassical textbooks since the economic image is embedded in individual action. This approach aims to evaluate the multiple ways in which social relations impact business relations, shaping economic outcomes in a form running counter to the economic theory expectations. (Levin, 2008)

The usage of these two approaches showcases that economic sociology utilizes a dichotomous method of understanding culture. However, in 2008, Peter Levin spelled out the need for utilization of a multidimensional approach when it came to studying culture in economic sociology. He stated that the dichotomous method assumes an excessive amount of stability in the market and does not take into account the role of the cultural constitution in market outcomes. Work done by Viviana Zelizer on ‘connected lives’ revolves around the relationship between cultural and economic activities. This shows that economic sociology is moving towards the direction of the multidimensional approach. (Levin, 2008)

Zelizer also produced three empirical studies that demonstrated the impact of values and culture on the economic phenomenon. In her first study, she evaluated the life insurance industry in the United States. She did this to depict how hard it can be for individuals to accept that their life can be evaluated and measured in monetary terms. In her second study, she looked at how an object that had economic value could be transformed into one with a sacred value as time progresses. In her third study, she evaluated the different forms of money and how depending on social factors, the characteristic of money could change. (“Economic Sociology”, n.d.)

Sociology of Consumption 

This is primarily focused on what “goods and services mean to people.” Under this, the consumption of an individual is studied as a form of self-expression and lifestyle statement. Therefore, consumption is seen as a determinant of one’s social status. Advertisers, therefore, use this concept to further the race by promoting goods and services as bringing more social status to an individual. Sociology of consumption also focuses on how cultural categories construct goods. For example, identifying the boundaries between what one can and cannot sell to understand the moral edge of society. This also helps us in understanding how previously immoral products, come to become moral. (Fligstein & Dioun, 2015)

Sociologists have documented the history of how consumption became an indicator of social status. The process began in early modern Europe when the newly rich bourgeoise made attempts to mimic the nobility. This resulted in the nobility shifting the “markers of high social status to retain their edge over the bourgeoisie.” In 2000, Elias indicated that this lifestyle competition began including the middle and working classes. More recent work on this has shown that lifestyle was not simply seen as a competition wherein those below tried to emulate those above; lifestyle was seen as being oppositional. (Fligstein & Dioun, 2015)

Karl Polanyi’s concept of Embeddedness 

One of the central concepts in new economic sociology is embeddedness and Karl Polanyi has been claimed as the “father of embeddedness.” According to him, embeddedness implies that the “economy is immersed in social relations.” He stated that historical institutions and organizations; the economy as a whole should be understood in the context of “historically derived institutional, or social structures.” In the field of economic sociology, this concept has been used to identify the linkages, connections, and interdependencies between economic organizations, economic phenomenon, and social structures. This concept entails the preferences of actors that can only be interpreted in cultural, institutional, and relational contexts. Therefore, embeddedness does not simply act as a regulator of behaviour by modelling the way actors pursue self-interest, it constitutes of the interests itself.

Polyani pioneered this concept by his studies that linked the society and economy. This included the anthropological studies on small communities and the political economy regulating the global economy. His idea was that embeddedness should be seen as the “basic condition of the economy” since humans were social beings, not economic ones. His work, ‘The Great Transformation,’ of 1944 analyzed the expansion of capitalism in the 18th and 19th centuries and studied its consequences. He argued that prior to the 19th century, the economic system was conceived to be a component of the broader society, that is, being governed by norms and social customs as much as by principles of profit and exchange. The risk of capitalism led to the de-linking of the economic system from its social environment. This dis-embedding led to a change in the society wherein the social life was treated as a pure market commodity and human beings had been re-defined as, “purely economically rational actors.” Polyani argued that efforts towards embedding society in the market as opposed to the market in the society would lead to dangerous societal reactions such as fascism. (Schmidt, 2019)

Current status of Economic Sociology

Despite the developments made in economic sociology, there is still a lack of clarity regarding the discipline and its content. This is depicted by the unnecessary distinctions made between the new and old economic sociology and between economic sociology and socio-economics, and by confusions regarding the treatment of economic sociology as equivalent or subsidiary to the rational choice theory. In addition to this, economic sociology and its key characters and sources have not been defined distinctly. Milan Zafirovski, in his paper, ‘Economic Sociology in Retrospect and Prospect: In Search of Its Identity within Economics and Sociology,’ made some proposals for correcting the deficiencies in the present status of economic sociology. First, the association and disassociation between the disciplines of sociology and economics were reconsidered and economic sociology was viewed as a bridge between these two disciplines. Second, in the light of its double legacy from sociology and economics, the development and sources of economic sociology were re-examined. Third, economic sociology and the rational choice theory were partially defined by claiming a boundary between them. Fourth, the boundary between socio-economics and economic sociology was abolished, and lastly, a perspective was put into place regarding the debate between new and old economic sociology. All these proposals were made in the hope of economic sociology witnessing further refinements from both sociologists and economists and being viewed as a promising area of study. (Zafirovski, 1999)

References

England, P., & Folbre, N. (2005). Gender and Economic Sociology. In Smelser N. & Swedberg R. (Eds.), The Handbook of Economic Sociology, Second Edition (pp. 627-649). PRINCETON; OXFORD: Princeton University Press. doi:10.2307/j.ctt2tt8hg.31

Economic Sociology. Retrieved 17 May 2020, from http://sociology.iresearchnet.com/

Fligstein, N., & Dioun, C. (2015). International Encyclopedia of the Social & Behavioral Sciences (Chapter 2). Elsevjer.

Levin, P. (2008). Culture and Markets: How Economic Sociology Conceptualizes Culture. The Annals of the American Academy of Political and Social Science, 619, 114-129. Retrieved May 17, 2020, from www.jstor.org/stable/40375798

Schmidt, A. (2019). Embeddedness. Retrieved 17 May 2020, from https://www.britannica.com/topic/embeddedness

Smelser, N., & Swedberg, R. (2005). Introducing Economic Sociology. In Smelser N. & Swedberg R. (Eds.), The Handbook of Economic Sociology, Second Edition (pp. 3-25). PRINCETON; OXFORD: Princeton University Press. doi:10.2307/j.ctt2tt8hg.5

Zafirovski, M. (1999). Economic Sociology in Retrospect and Prospect: In Search of Its Identity within Economics and Sociology. The American Journal of Economics and Sociology,58(4), 583-627. Retrieved May 14, 2020, from www.jstor.org/stable/3487999