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The Toolkit of Economic Sociology

Richard Swedberg,

Cornell University, Department of Sociology, Uris Hall 328

rs328@cornell.edu

April 1, 2004

MIT/Harvard Economic Sociology Seminar

This paper is the first version of an article written for Barry Weingast and Donald
Wittman (eds.), Handbook of Political Economy. The final version will probably look
quite different (though the size will remain the same: 6,000 words including references).
For this reason, comments are very welcome.

Economic sociology is a term that was rarely heard a decade ago but which has

become popular again. Today sociology departments get ranked according to their

prominence in this field, and a respectable number of articles and books that label

themselves “economic sociology” appear every year. While the standard definition of

economic sociology – the application of the sociological perspective to economic

phenomena – shows that economic sociologists are primarily interested in analyzing the

economy and its main institutions, a quick look at some representative studies show that

these often also include a political dimension in the analysis. The modern economy, the

argument goes, is deeply influenced by political powers.

This tendency in contemporary economic sociology to highlight the interface

between economics and politics is so strong that one may even speak of an emerging

economic sociology of politics (e.g. Evans 1995, Fligstein forthcoming). What this type

of analysis may look like, can be illustrated by one of the first examples in this genre,

namely the analysis of taxation in Schumpeter’s “The Crisis of the Tax State”. The main

idea of fiscal sociology (Finanzsoziologie), as Schumpeter called it, is to analyze the role

that economic factors play in the actions of the state with the help of sociology, and

thereby get a better and less ideological handle on what the state is all about. “The budget

is the skeleton of the state stripped of all misleading ideology”, to cite a famous line from

Schumpeter’s study (1991a:100).

To focus on the interface of politics and economics is not the exclusive task of

economic sociology; it also is something that e.g. political economy does. An important

difference, however, is that political economy draws on a type of analysis that is deeply

influenced by analytical economics. Political economy, in contrast to contemporary

economic sociology, makes use of a variety of economic ideas, such as constitutional

economics, game theory and so on. One may even define the field of political economy

as the logic of economics applied to political phenomena.

In this chapter I will argue that economic sociology would do well to follow the

example of political economy and pay more attention to analytical economics and its

ideas. Contemporary economic sociology, I argue, focuses far too much on social

relations and see the impact of these as the explanation to most of what happens in the

economy. What is wrong with this approach is that it disregards the importance of

interests or the forces that drive human behavior, not least in the economy. What needs to

be done – and this will be the red thread throughout of this chapter – is to combine social

relations and interests in one and the same analysis. If we do this, I argue, we will be able

to unite some of the basic insights from economics, with some of the basic insights from

sociology (Swedberg 2003).

To proceed in this manner would clearly necessitate the existence of a

sociological concept of interest and, as we shall see, such a concept did in fact emerge

around 1900 in the work of Max Weber and a few others. This concept, however, has

long been forgotten and needs to be revived. More generally, I will argue that MaxWeber

is a model to follow for economic sociologists in that he often took ideas from analytical

economics and introduced them into his sociological analysis – while giving them a twist

of his own.

Following in the spirit of economics I will present economic sociology in this

article as a toolkit of concepts. The idea of presenting one’s analysis as “a box of tools”

comes from modern economics, more precisely from The Economics of Imperfect

Competition by Joan Robinson (1933:1). This “unsurpassably felicitous phrase”, as

Schumpeter has called it, was then incorporated into mainstream economics (Schumpeter

1954:15). In the pages to come, the reader will therefore find a presentation and

discussion of concepts such as embeddedness, field and so on

For the political economist who also wants to know which the main texts in

economic sociology are, a few titles will be supplied. For the reader who is interested in

contemporary economic sociology, the following two works contain the essential: The

Handbook of Economic Sociology and the reader entitled The Sociology of Economic Life

(Smelser and Swedberg, 1994, forthcoming; Granovetter and Swedberg 2001). For the

reader who has a bit more time, and who is more interested in the wheat than in the chaff,

the following works are strongly recommended: Max Weber, Economy and Society;

Joseph Schumpeter, Capitalism, Socialism and Democracy and his sociological essays;

Karl Polanyi et al, Trade and Market in the Early Empires; Mark Granovetter, “Economc

Action and Social Structure: The Problem of Embeddedness”; and Pierre Bourdieu, The

Social Structures of the Economy.

# 1: Interest

The first thing that needs to be done in an economic-sociological analysis is to

figure out which interests are involved and how the actors try to realize their interests.

This often entails going beneath the surface of things, since what is involved are the basic

motives or forces that drive the actor in the particular case. The actor is presumed to be

rational (until otherwise proven), and by “rational” is meant that efforts are made by the

actor to realize his or her interests.

The emphasis is not, to speak with Amartya Sen, on rational choice as

consistency, but on rational choice as interest realization (Sen 1986). Sen’s formal terms

for the former is “the interest consistency approach”, and for the latter “the interest-

correspondence approach”. While the actor can hardly realize his or her interests without

somehow, and to some extent, figuring out which these interests are and how to realize

them, the emphasis in the interest-correspondence approach is nonetheless more on the

interests themselves than on the decision process.

The reason why interests have to be taken into account in the first place (and this

is less evident to sociologists than to economists!), is that interests represent the primary

driving force of human action. They are, metaphorically speaking, the motor that drives

the boat or the spring that makes the clock tick. Interests provide the human actor with

the strength to meet the challenges of the day – be it to clean offices, run a corporation or

to write a scholarly article.

Social life also entails the bringing together of individuals and their interests into

larger forces, in the form of families, tribes, corporations, nation states, and so on. The

individual is assumed to know his or her interests the best, and also when they diverge

from those of other individuals, as they are apt to do. In the latter case, the interests of

individuals may have to be aligned, coerced or the like, since collective forces are

necessary in society. In economics, agency theory covers many cases of this type.

Interests may also block and conflict with one another; and this goes for

individual interests as well as for larger interest constellations. Traditional interests may,

for example, block interests in change or entrepreneurial interests. In The Religion of

India Max Weber describes how the religious interests of Hindus in reincarnation

blocked the Hindu artisans’ interests in improving their tools (Weber 1958b:112).

Social science literature is filled with examples of interests that clash and oppose

one another. One famous example of this can be found in the work of Marx, where the

clash of class interests drive the historical development. Weber, who was suspicious of

class interests since he was a methodological individualist, nonetheless proclaimed à la

Marx that conflicts are very much present in all societies. Competition, for example, is

defined by Weber as conflict with non-coercive means. And a market, from Weber’s

perspective, represents a social order that is the result of two types of conflicts: between

sellers and buyers over who will be the final seller and buyer; and between the final buyer

and seller over the price. Conflicts in markets typically end with a compromise, Weber

argues.

While economics and sociology share the insight that interests are essential to the

understanding of society, they nonetheless differ on at least two points. First, economics

tends to only take one type of interests into account, and that is economic interests.

Second, economics operates with a non-sociological concept of interest. Both points need

some explication; and one way to go about this is to say something about the history of

the concept of interest.

According to the standard history of the concept of interest, people such as David

Hume, Adam Smith, Tocqueville and so on made use of a wide variety of interests in

their analyses (e.g. Hirschman 1986, Holmes 1990). Towards the end of the 19

century,

however, economic analysis went through a period of formalization (relating to the

invention of marginal utility theory). And as part of this process, other interests than

economic interests were eliminated from the economist’s repertoire. Interests were

equated with utility, just as half a century later the economic concept of interest would be

further impoverished through revealed preference theory. According to this theory, actual

economic behavior is directly equated with underlying preferences or interests,

something that eliminates the tension between a possible and an actual realization of

interests.

What is not included in the standard history of the concept of interest is that

towards the end of the 19

century, a sociological concept of interest was developed. By

this is simply meant that the concept of interest was introduced into many of the different

types of sociological theory that were now being developed. This goes especially for

those by Georg Simmel and Max Weber. An interest can be expressed in many different

social forms, Simmel argued, and similarly different interests can be expressed through

one and the same social form (Simmel 1971). An economic interest can be expressed in

the form of a firm, buying of securities, and so on; while, say, competition may exist

between buyers, sellers, admirers of the same woman, and so on. Weber added an

interpretative dimension to this argument – interests always have to be subjectively

perceived by the actor – and also the idea that interests can only be realized through

social relations. Weber’s embrace of the idea of a plurality of interests as well as interests

being social comes out very clearly in his famous statement about the relationship

between ideas and interests:

Not ideas, but material and ideal interests, directly govern men's conduct. Yet

very frequently the 'world images' that have been created by 'ideas' have, like

switchmen, determined the tracks along which action has been pushed by the

dynamic of interest. (Weber 1946:280)

How can the concept of interests be of use in analyzing the intersection of economics

and politics? One answer has already been given – that of Schumpeter in “The Crisis

of the Tax State” - and this is that a focus on the economic interests of the state allows

the analyst to cut through some of the ideological trappings of politics. Another

example would be Mancur Olson’s theory of the free rider - but with a sociological

dimension added. What this means for Olson’s theory is simply that it is qualified and

modified in a number of ways – say by taking the actors’ perception of their interest

into account, their social history, the pre-existing social structure, and so on.

#2. Economic and Social Action

Economic and social action constitutes the second major concept in economic

sociology. The concept of economic action, as used in economics, differs from the

concept of economic and social action in that its social part is not highlighted and

theorized. The fact that economic action typically consists of some kind of interaction is

ignored, partly because of parsimony but probably also because economic analysis was

formalized well before there was a sophisticated concept of social action. Both

economics and economic sociology argue that action in the economy is driven by

economic interest; but while economics derives action directly and exclusively from the

interest, economic sociology does not. In economic sociology an additional assumption is

made that economic action is also social action, and that this will significantly influence

how the action unfolds. To put it differently, while economics can be said to focus on the

shortest distance involved (“as the crow flies”), economic sociologists try to capture the

“real” distance involved when the economic actor tries to get from A to B.

The concept of economic and social action, as used in economic sociology, is a

sub-category of social action; and the structure of the latter was first outlined by Max

Weber in Economy and Society. In this work we find Weber’s famous definition of

sociology: “sociology…is a science concerning itself with the interpretive understanding

of social action and thereby with a causal explanation of its course and consequences”

(Weber 1978:4). Social action is defined in the next sentence as follows:

We shall speak of “action” insofar as the acting individual attaches a

subjective meaning to his behavior – be it overt or covert, omission or

acquiescence. Action is “social” insofar as its subjective meaning takes

account of the behavior of others and is thereby oriented in its course.

(ibid.)

Economic and social action (Weber uses a single term: Wirtschaften) differs from

social action by having the satisfaction of a “desire for utilities” as its goal (ibid., pp. 63-

4). The reason for this awkward-sounding phrase is that Weber not only wants to include

the satisfaction of needs but also profit-making.

Weber’s definition of social action, as just cited, is very concentrated, and some

of its implications need to be spelled out. First of all, Weber’s position is one of

methodological individualism, but we are here confronted with a methodological

individualism of a social type. What makes it social is that it is oriented to another actor.

A quick look at Fig. 1 may help to clarify.

/Fig. 1 about here/

It should be emphasized that social action can be part of an interaction, but does

not have to be so. A social action is by definition oriented to another actor - and this

means that a much wider range of actions can be included in the analysis than if social

action was simply equated with social interaction. An actor may, for example, take

another actor into account without the latter being aware of this. As we shall see later on,

in the discussion of the concept of order, the concept of “orientation to” also facilitates

the analysis of institutions.

Finally, there is an interpretive dimension to the concept of social action that is

characteristic of economic and social action, and which differentiates it from economic

action. While economics operates with a stylized and single-dimension concept of

meaning (in the form of utility, preferences, and so on), Weber opens up the concept of

economic and social action to a cultural definition of meaning as well as to much greater

empirical variety, through his emphasis on the need for the actor to invest his or her

action with a meaning. “Behavior” only becomes ”action”, according to the definition

just cited, when the actor invests his or her behavior with meaning.

The concept of economic and social action can be useful when it comes to

analyzing what is happening at the interface of economics and politics. Take, for

example, the following two typical examples: an economic actor whose actions are

influenced by some political authority; and a political actor whose actions are influenced

by the economic structure of society. In the first case we would start the analysis by

assuming that the economic actor is driven by economic interest and attempts to satisfy

his or her desire for utilities, while orienting his or her actions to (say) the state. And

similarly, the political actor who has some political goal in mind, will simultaneously

take (say) some powerful corporations into account. In both cases as well, some of the

answer to what is going on will also have to be sought in the actor’s understanding of

how this orientation to others influences his or her actions.

# 3 Economic Order

Economic order constitutes the third major concept in economic sociology, and

lays the foundation for economic sociology together with interest and economic and

social action. The way that economic order is linked to the earlier concepts is as follows.

An individual action cannot only be oriented to another actor, but also to something that

Weber terms an order (Ordnung).

The concept of order includes, among other things, what in today’s social science

is referred to by such concepts as norms, organizations and institutions. The reasons for

following the example of Weber in bringing all of these together under one single

conceptual heading are primarily two. First, the concept of order theoretically links

together a number of otherwise independent concepts. Second, it also economizes on

space in this brief article, which would be seriously incomplete without some kind of

mention of norms, organizations and institutions.

An order, we learn from Economy and Society, can roughly be defined as a

prescription for how to act that has acquired a certain independence in the minds of

individual actors (e.g. Weber 1978:3-24, 33-6, 48-50). Its origin is in a set of interactions

between individuals, which can either take the form of a spontaneous relationship or be

agreed upon. The fact that an order appears as independent of the actor, makes it possible

for him or her to orient his or her actions to the order – and in this way introduce a social

element into the action, similarly to what happens when the action is oriented to another

actor.

An order is valid or legitimate if it is seen as binding or obligatory to the actors. A

norm (Weber’s preferred term is “convention”) is characterized as a valid order, which is

guaranteed through disapproval (ES:34). An organization is defined as an order that is

guaranteed to be carried out by specific individuals: a head and often also an

administrative staff with representative powers (ES:48). An institution (a term that Weber

does not use in his general sociology) can be described as an order that consists of a

general model for behavior, often enforced by a staff emanating from the political order

(see Fig. 2).

/Fig. 2 about here/

It should be emphasized that the most important factor in making norms,

organizations and institutions so powerful in social life (and thereby also difficult to

change) has to do with their links to interests. A norm often describes the type of

behavior that is unofficially prescribed by a group in order to realize an interest. If a norm

is official and also backed up by a staff, it becomes a law according to Weber (ES:34-6).

An organization, on the other hand, has a staff whose main task is to realize the purpose

(interest) of the organization. Institutions, finally, can from this perspective be seen as

large complexes of prescriptions for how to act, in order to realize interests. They are

typically backed up by law, that is, by a staff linked to the political order.

The concept of order that Weber uses ties together a set of concepts that are

usually defined independently of one another. It is also a very flexible tool. Weber

himself, for example, uses it in his famous definition of law; and in this article I have also

extended it to the concept of institution. One may use it as well to get a handle on such

concepts as group and network – two terms that Weber does not use, but which denote

phenomena that he discusses under other headings in his general sociology.

Concepts such as norms, organizations and institutions are also useful in

analyzing the economy. For an illustration of this, the reader may want to consult the

chapter on economic sociology in Economy and Society (Weber 1978:53-211). Here, as

well as in the main chapter on political sociology in this work, one can also find many

examples of how these concepts are used to analyze the interface of economics and

politics. It is in the main chapter on political sociology that we, for example, find

Weber’s famous typology of legitimate political order or rule (rational, traditional and

charismatic rule; ES:212-301). These three types are all linked to the economy in various

ways. For one thing, their staffs need to be paid (from the ruler’s personal resources, from

tributes or from taxes). There is also the fact that each of these forms of legitimate

political order either furthers or impedes the development of the various forms of

capitalism (rational, political and traditional-commercial capitalism).

# 4. Reciprocity-Redistribution-Exchange

Up till now only classical economic sociology has been drawn on for conceptual

tools in this article. The reason for this is that Weber’s contribution to this field is still

unsurpassed when it comes to creativity and sophistication. Nonetheless, also more recent

economic sociology has produced some key concepts, and Karl Polanyi’s three “forms of

integration” are prominent among these (Polanyi et al 1971:243-69). According to

Polanyi, every economy needs to be stabilized, and this can basically only occur in three

ways: through reciprocity, redistribution and exchange. Reciprocity roughly means

sharing; redistribution, allocation via a center; and exchange, distribution via a price-

making market.

While Polanyi ‘s three forms of integration may not seem very exciting at first,

they are in reality quite handy and useful. Polanyi himself, for example, points out that an

institutional structure answers to each of the forms of integration. Reciprocity may take

place in a family; redistribution in a socialist state; and exchange in a modern market.

Every economy, Polanyi also notes, typically contains a mixture of the three forms of

integration. A modern Western economy, for example, is not only characterized by

exchange (in the form of sophisticated and specialized markets), but also contains

elements of redistribution (say through the state or the non-profit section), and of

reciprocity (say through the household).

The dynamic nature of capitalism may be illustrated with the help of Polanyi’s

concepts as well. While all economies start with production and end with consumption,

their rhythm differs widely with the mechanism that is chosen for the distribution of

production. While reciprocity and redistribution at best lead to slowly expanding

economies, exchange creates an economy that has an inherent tendency to dynamic

expansion (see Figure 3).

/Fig. 3 about here/

Polanyi’s three forms of integration may also be of help in analyzing the

economics/politics interface. Redistribution, for example, is typically handled by the state

and is therefore a political-economic category par excellence. When the Soviet Union

collapsed, state-led redistribution grinded to a halt, and a crisis immediately developed

since markets had been repressed for a long time. In this situation reciprocity emerged –

between neighbors, acquaintances, family members and so on – as an alternative

mechanism.

# 5 Embeddedness

The concept of embeddedness is the most famous concept that has been developed in

contemporary economic sociology. While the term itself can be found in the work of

Polanyi, it was rarely used in his days and had to wait till the 1980s and Mark

Granovetter to be thrust into prominence. While the centrality of embeddedness to what

has become known as “new economic sociology” (mid-1980s-) is beyond doubt, its

analytical status, on the other hand, is contested. While many see it as a useful tool with

which to show what is distinctive about the approach of economic sociology, many

economic sociologists also contest its usefulness.

One reason why the concept of embeddedness is so controversial may well be its

many meanings, which range all the way from being a slogan or advertisement for the

sociological approach, to a more analytical vision, as in Granovetter’s own work

(Granovetter 1985; cf. Granovetter 1992, 1995). Polanyi, who invented the term, used

embeddedness as part of his attack on liberalism and market-oriented ideologies more

generally. The first half of his analysis is well known: in pre-capitalist society the

economy is integrated into, or embedded in, the rest of society, especially its political and

religious institutions; but with the advent of capitalism the economy was separated out

and has come to dominate society. The second half of Polanyi’s argument is less known,

but follows logically from its first half: for society to become healthy again, the economy

has to be re-embedded or integrated into society. Political and other collective institutions

have to acquire precedence over market concerns.

Through his well-known article in the mid-1980s Granovetter introduced a

different and analytically more useful concept of embeddedness. He first of all

challenged the political dimension of Polanyi’s ideas by arguing that the pre-capitalist

economy was as embedded as the capitalist economy, in the sense that both are social or

embedded in social structures. Secondly, he brought some analytical sharpness to the

concept of embeddedness by insisting that all economic actions are embedded in

networks of social relations. There is no embeddedness of the economy in general; all

economic actions, however, do take an interpersonal expression; and thanks to network

theory this expression can be traced with precision.

One may finally also speak of a third way in which the term embeddedness is

used. This may well be the most popular (and least interesting) meaning, since

embeddedness is simply synonymous with “social”. The general hostility that

sociologists often feel towards economic analysis may well be at the roots of this usage.

Whatever the reason may be, the analytical content of this meaning is close to zero.

What makes the concept of embeddedness so useful, many economic sociologists

argue, has to do with its close links to network theory. This type of approach, which is

quite popular in current economic sociology, provides the analyst with a metric to

analyze social interactions, including economic ones (e.g. Wasserman and Faust 1994).

To some extent, through its reliance on a method that has a strikingly visual dimension,

network theory also gives the analyst a sense that he or she is getting close to tracing the

social structure of reality.

Critics of the embeddeness approach in its strongest version (that is, the version

that Granovetter represents) have pointed out that it ignores the political and cultural

dimensions of society; that it is unable to handle economic phenomena at the macro level;

and that it is inadequate and confusing as a metaphor (e.g. Zukin and DiMaggio 1990,

Nee and Ingram 1998). To this may be added that it does not single out and theorize the

role of interest, and thereby runs the risk of attaching far too much importance to the role

of social relations in economic life.

That the concept of embeddedness can be used to analyze what happens at the

interface of the economy and politics is clear from what has already been said. One may

even argue that Polanyi developed the concept of embeddedness precisely to give voice

to his discontent with the way that the economy and politics are separated from each

other in capitalist society. While Granovetter’s concept of embeddedness has been

accused of ignoring the impact of political forces on the economy, it is nonetheless

obvious that that it provides the analyst with a very useful tool with which to trace the

exact relations between, say, a political actor and an economic actor, between some

corporations and state agencies, and so on.

# 6. Field

The second most important concept in “new economic sociology” is that of the

field. This term can be defined as a distinct area of social space, in which all the relevant

actors are influenced by its structure. This definition is admittedly somewhat vague, and

just as embeddedness, the concept of field has a number of critics.

There currently exist two versions of the concept of the field: one that has

emerged in the sociology of organizations in the United States, and one that has Pierre

Bourdieu as its author. While they overlap to some extent, these two versions are also

different on important points. Sociologists of organization basically use the concept of

field in the sense of organizational field – that is, for phenomena in social life that can be

conceptualized as a number of similar and related organizations. A field, from this

perspective, typically denotes a number of organizations that belong together, either by

virtue of directly interacting with one another or because they take each other into

account in some other way. To cite a standard text in organizational sociology: “by

organizational field we mean those organizations that, in the aggregate, constitute a

recognized area of institutional life: key suppliers, resource and product consumers,

regulatory agencies, and other organizations that produce similar services or products”

(DiMaggio and Powell 1991:64-5). Examples of fields include industries, professions

and national societies.

For Bourdieu, in contrast, a field is not so much a middle-range concept as an

integral part of his general theory of society. The field, in all brevity, constitutes together

with the concepts of habitus and different types of capital (social capital, symbolic

capital, and so on) the basic building stones of Bourdieu’s theory of society. There exist a

huge variety of fields in society, Bourdieu says, such as the fields of art, photography,

literature, the economy, an industry, a firm, and so on (e.g. Bourdieu and Wacquant

1992:94-115).

The main function of the concept of field, Bourdieu argues, is to represent the

structure of some part of society. This structure is primarily important in that it assigns a

specific place to each actor and also exerts pressure on each actor to remain in his or her

position. Each field is centered around a specific interest; and the actors in a field all

basically pursue the same interest – be it prestige in the field of art, market share in an

industry or personal power in a firm.

The advantage with the concept of field, according to its advocates, is that it is not

restricted to what happens in direct interactions. If you rely primarily on networks and the

theory of embeddeness, you are restricted to actual interactions, and thereby miss the

impact of the structure of the field (e.g. Bourdieu 2000:242). But it is also well

understood in sociology that it is hard to trace the exact impact of a field, and that the

social mechanisms involved are often neglected. Even the advocates of “field theory”

agree that this is the case – but argue that the positive outweighs the negative (e.g. Martin

2003).

Can the concept of the field be of help in addressing issues at the interface of the

economy and politics? Its advocates in economic sociology say “yes”. While they

acknowledge that politics is its own field, just as the economy is, they also note that the

political field typically impinges on the economic field. As an example of direct impact,

one may mention Bourdieu’s argument that the French state has profoundly influenced

the country’s construction industry by introducing various loans for private home

ownership (Bourdieu 2001). And as an example of a more mediated influence, one can

mention Neil Fligstein’s argument that “the conception of control” (or general strategy)

of large American corporations has been deeply influenced by antitrust legislation

(Fligstein 1990).

Final Remarks

Before ending this brief article on the toolkit of economic sociology it should be

noted that economic sociology lacks a single coherent structure, in the sense of an agreed

upon set of basic concepts that are taught in, say, introductory courses and textbooks.

Another way of saying the same thing is that it is harder for economic sociologists than

for economists to agree upon what should be included in the toolkit and what should not.

Some economic sociologists may argue, for example, that networks constitute one of its

main tools, while I prefer to present network theory as closely related to the idea of

embeddedness. There also are those who attach great importance to “performativity” or

the idea that modern economics does so well because it first helps to create the reality

that it later analyzes (e.g. McKenzie and Millo 2003).

A final remark on the concept of toolkit is also in order. In 1998 Ronald Coase

commented on this metaphor in American Economic Review and said that it had become

problematic since contemporary economics pays so much attention to its analytical task

that it has lost its subject matter, namely concrete economic reality. The whole thing

reminded him of a modern poem, Coase said, which reads as follows:

I see the bridle and the bit all right

But where’s the bloody horse? (Coase 1998:72)

Fig. 1 Economic Action according to Mainstream Economics and Economic Sociology

1. Mainstream Economics
Actor

utility

economic
interest

2. Economic Sociology
Actor A

utility

Actor B

economic
interest
(subjectively
perceived)

Comment: Economic action, Max Weber argues, is theorized in different ways in
mainstream economics and in economic sociology. Two major differences can be seen in
this figure: economic sociologists, in contrast to economists, see economic action as not
only oriented to utility but also to another actor; economic interest also has to be
subjectively perceived.

Source: Max Weber, Economy and Society, pp. 1-24, 63-69.

Fig. 2. Different Types of Order to Orient Your Action to, according to Weber

norm organization other orders (e.g. law, political order, etc.)

order (Ordnung)

Actor

Actor A

Comment: The actor may orient his or her action to an actor or to an order – and thereby
make it social.

Source: Max Weber, Economy and Society, pp. 3-24, 33-6, 48-50.

Fig. 3. Different Ways of Organizing the Economic Process according to Karl Polanyi

A. The Economic Process

B. The Economic Process where Redistribution is Predominant

C. The Economic Process where Reciprocity is Predominant

D. The Economic Process where Exchange is Predominant

production

redistribution

consumption

production

reciprocity

consumption

production

distribution

consumption

Comment: The distribution of what has been produced in an economy can be organized in
fundamentally three ways which, following Polanyi, we may call redistribution, reciprocity
and exchange. Exchange characterizes the capitalist organization of the economy; and this
type of economy derives its dynamic from the fact that the end goal of the economic process
is not exclusively consumption, but also profit. The more that this profit is reinvested into
production, the more dynamic the economy will be. The two key mechanisms in capitalism,
in other words, are organized exchange (the market) and the feedback loop of profit into
production. It is the use of these two social mechanisms, it should be stressed, that makes
the organization of economic interests in the form of capitalism into such an effective
machinery for transforming economic reality.

production

exchange

consumption

profit

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