From classical economics to economic sociology

A brief summary of the chapter in Trigilia’s book.

1. The Birth of Economics

• economic phenomena began to be studied in their own right during the 1700s
• why this late?
• “visibility” and autonomy of economic activities
• more specifically: clear separation of production and distribution of goods and services from religious and political regulations and constraints
• in primitive and archaic economies, economic activities were embedded into a system of non-economic institutions (Polanyi 1968, 1977)
• “reciprocity” or “redistribution” rather than “market trade”

2. The Foundation of Political Economy and Adam Smith’s “Great Synthesis”

• during the 1700s: two trends began to emerge
1. economic inquiry became increasingly detached from studies of religion and/or politics
2. study of economic phenomena took on a more positivistic orientation
• influence of scientific method in natural sciences
• verification of hypotheses
• distinction between explanation of phenomena and proposals for intervention
• through the work of physiocrats and Adam Smith: economic sphere as an autonomous system of interacting parts
• creation of political economy
• also earlier observations on the “activity of production and distribution of goods” exist
• Aristotle, St. Thomas Aquinas
• only in the 1600s: extension of “economics” from the private sphere to the public one (mercantilist economists)
• political economy began to be discussed (Montchrétien: Traité de l’économie politique 1615)
• the term economics came into use towards the 18th century
• introduced into Britain and the US through Alfred Marshall’s Principles of Economics, 1890
• autonomy of economics from politics; distinction between scientific analysis and economic policy (Schumpeter 1954)
• terminology illustrates: how economic activities were analyzed
• mercantilism analyzed problems and characteristics of economic activity strictly in the light of underpinning the nation-states (emerging at that time)
• vision of economics: not systematic, but very practical (not seeking “general laws”)
• physiocrats (around middle of 1700s) assumed natural laws governing society similar to the physical world
• “natural social order” and understanding that through reason; organizing society according to these laws
• François Quesnay in Tableau économique (1758): economy as a “self-regulating machine”
• deductive and systematic approach to economics
• in Adam Smith’s view, economy and society (market and institutions) were still closely related
• stereotypical view of Smith: laissez-faire (he did not use this expression)
• meaning of institutional rules (sociocultural, legal, political-organizational) for the general good (and pursuit of individual interest)
• Smith: studying these institutional constraints is integral part of studying “causes of the wealth of nations”

3. The “Dismal Science”

• change in economic thought during the 40 years between Wealth of Nations by Smith (1776), On the Principle of Political Economy and Taxation by David Ricardo (1817) and Principles of Political Economy by Thomas Malthus (1820)
1. prospects for the growth of wealth and spread of prosperity: more pessimistic evaluation compared to Smith
2. economic analysis became more developed and established, especially in Britain
3. “economistic” turn
• Thomas Carlyle: economic analysis is “dismal science”
• Thomas Malthus in An Essay on the Principles of Population (1798): Iron Law of Wages
• economist point of view: economic actors are not viewed as subjects interpreting situations with relative autonomy
• they were seen merely as calculators whose aim was to maximise according to their interests (defined by their class situation)
• deductive reconstruction of behavior
• greater analytical precision and degree of generalization, but losing the adherence to historical-empirical reality

4. The Critique of German Historicism

• As capitalist development extended over 1800s: problems arose in the relation between society and economy
• Two types of criticism emerged
1. German historicism: focus on territorial differences in economic development and how they might be overcome
2. Marx: questioning the interpretation of relations between social classes in capitalist development
• need for a complete description of “living reality” in its historical evolution to the theoretical pretensions of classical economics
• Max Weber’s criticism: this suffers from “encyclopaedic descriptivism”
• ambiguous interpretative instruments with no scientific control (e.g. the concept of Volkgeist, spirit of the people)
• however, historicist critique of classical economics was to be very important in the autonomous principle of economic sociology

5. Marx’s Critique

• Marx wanted to formulate a general theory of historical development, within which he focused his attention on capitalist society and its transformations
• “capitalism’s “laws of movement”
• background in German idealism (Hegel): history as continous act in progress
• Marx’s criticism: classical economists are unable to describe the conflict between capitalists and workers
• class struggle => socialist society
• Marx believed: technical progress has no role in the creation of wealth

6. The “Marginalist Revolution”

• during end of 1800s, neoclassical economics became more clearly and rigorously distinct from the study of institutions
• casting off the explicit links with any specific historical context and taking up a more general and ahistorical perspective
• at the same time economic sociology started to develop => the study of the relationship between institutions and economic activities
• basis for “marginalist revolution” and neoclassical economics: Stanley Jevons (1871), Carl Menger (1871) and Léon Walras (1874)
• the fundamental question, by Jevons: “Given, a certain population with various needs and powers of production, in possession of certain lands and other sources of material: required, the mode of employing their labour which will maximize the utility of the produce.”
• distancing of economics from its original classical perspective (investigating the causes of the wealth of nations) => consequences:
1. static analysis was preferred to dynamic analysis
2. no longer describing or interpreting a particular form of historical organization => exploring the most efficient way of allocating resources, given certain conditions, in general terms
3. the prevalent approach was normative and deductive, rather than descriptive and interpretative
4. economics became a science of choice; economizing as core assumption of economic research
5. institutional variables were excluded from the explanatory picture
6. units of analysis were isolated individuals who developed their own aims independently of others and tried to maximize the resources available in conditions of perfect competition => implications:
1. the aims of single actors were given, in the form of a stable hierarchy of preferences over consumption and labor => no examination of the origin of these preferences but seeing them as exogenous input into the functioning of the economic machine
2. the means (available resources such as natural resources, technologies, capital and labor) were also treated as given
3. their specific location in space and time + distribution between different actors were tied to institutional factors that were not taken into consideration
4. individual actors could maximize utility according to their preferences through exchanging resources in the different markets (of goods and factors)
5. their behavior was thus influenced exclusively by the rational individual calculation of means versus ends => no factors dependent on the institutional context
6. why this exclusion of institutions: otherwise impossible to maintain the degree of regularity and predictability in actors’ behavior => needed for formulating models

7. Why Economic Sociology Came into Being in Germany

• the German intellectual context was very different to those of Britain and France
• In Britain: Herbert Spencer’s work (1877-96)
• In France: influence of Auguste Comte’s (1830-42) positivism
• in both cases: sociology came into being as a separate science with a strong positivist underpinning
• tendency towards general theory (synthetic science of society) discouraged the affirmation of economic sociology as a specific and independent area of study
• in Germany: strong influence of idealistic philosophy => orienting economic tradition towards historicism
• vital role played by Max Weber (1864-1920): methodological foundation to economic sociology as an independent discipline
• Weber emphasized: the objective of social sciences is not to formulate general laws, but to explain historical phenomena
• constructing ideal types: conceptual tools that bring together certain features of historical phenomena in an internally consistent picture
• case in point: The Protestant Ethic and the Spirit of Capitalism (1905)
• ideal types are based on empirical evidence, but they are not a mere description of reality
• “analytical accentuation of certain elements of reality” for heuristic reasons
• Weber: relationship between history and sociology?
• history studied patterns of behavior and their causal connections, sociology aimed to explain particular phenomena
• sociological knowledge seeks to make history intelligible and is to avoid the risks of theoretical vagueness or the use of ambiguous theoretical terms which had plagued the historicists
• sociology could contribute to more effective knowledge when it examined specific activities
• Both Weber and Sombart: economic sociology had taken a different (intermediate) path between historicism and neoclassical theoretical economics.
• important to begin a theoretical study on the economy in its sociocultural context (overcoming the defects of historicism)
• interest in Western capitalism, its origins, functioning, and prospects

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