A socio-economic approach to market transactions.
Behavioral sciences, Athens State University, 300 North Beaty Street, Athens, AL 35611, USA
Received October 1998; received in revised form November 1998; accepted December 1998
The task of this article is to explore social underpinnings in economic exchanges. This exploration is undertaken within the frame of reference of socio-economics that centers on the multifarious social and cultural variables of economic phenomena. In particular, the socio-economic perspective on the market, focusing on the social setting of market exchanges, is utilized. As such, this exploration probes under the surface of (seemingly) cost-benefit induced exchange processes and uncovers a far more complex social structure and dynamics underlying these processes. Hence, these processes are analyzed as constituting socio-economic categories of the market. The social-cultural contingency of economic exchange, especially of its market varieties, is the key hypothesis of this article. This signifies that market exchange, just as production, distribution, and consumption, is a dependent variable on concrete social-historical conditions, rather than being a human universal. The approach proposed here provides an alternative to the purely economic conception, which treats exchange processes as strictly economic variables driven by an intrinsic logic and insulated from other social relations. The mainstream economic literature's lack of consistent applications of such an approach to market exchange contrasts with the richness of such applications in the field of socio-economics. The paper's aim is to contribute toward further elaboration and application of socio-economics. (c) 1999 Elsevier Science Inc. All rights reserved.
A sociological-economic approach to market transactions and related processes is outlined and elaborated in the following pages. The framework of a theoretical-empirical socio economics (Etzioni, 1991) or economic sociology/anthropology is the epistemological foundation of such an approach. In general, the differentia specifica of socio-economics is the observation of economic variables as complex social phenomena (Sjostrand, 1993), i.e., as "sociological categories of economic action" (Weber, 1968, pp. 63). This implies assuming the incidence and salience of "sociological relationships in the economic sphere" (Weber, 1968, p. 63), including market exchange as well as production, distribution, and consumption. That exchange transactions and processes are socio-economic-cultural phenomena par excellence is the major premise of a socio-economics or/and "economic sociology of the market" (Boulding, 1970, p. 153), the perspective of which permeates this article. Rather than observing market exchange as a purely physical, technical, psychological or even economic phenomenon divorced from other social processes, this perspective is focused on the presence, multiplicity and relevance of social-cultural variables in that phenomenon. In contrast to the imputation of some intrinsic logic to it by pure economics, the perspective of the socio-economic of markets attributes an essential social constitution and rationale to market-economic exchanges.
The above preliminary considerations adumbrate the key assumption of this article: that of the social character, construction and contingency of economic exchange, above all of its market variants. More specifically, to show that market and (seemingly) cost-benefit-induced exchange, just as production, distribution, and consumption, is not a natural or social universal but rather a stochastic function of definite social structures and historical conjunctures--is this paper's main goal. Overall, the current literature in (especially) mainstream economics and rational choice sociology features a certain void in regard to coherently applying a socio-economic approach to market exchange, apart from treating the latter notion as the essence of the economy. This is in a stark contrast with the richness of applications of such an approach in socio-economics (recent applications in this journal can be found in Alvi, 1998; Buscher, 1993; Sjostrand, 1993; Tomer, 1998), in economic sociology (Smelser & Swedberg, 1994), including the sociology of markets (Lie, 1997), as well as in related heterodox economic and sociological endeavors (for recent examples and reviews, see Ackerman, 1997; Bowles, 1998; Hodgson, 1998; O'Boyle, 1993; Sciulli, 1996).
However, from the viewpoint of a socio-economic approach to the market and generally sociological economics or economic sociology as a broadly conceived alternative to orthodox economics, such a situation in the latter amounts to a fallacy of omission. This fallacy is found in the pure economic theory of exchanges in that it neglects the presence and importance of social variables in the market realm. In turn, this fallacy is further compounded by the fallacy of commission, as committed by rational choice sociology. The latter (mis) conceives the entire society as an exchange realm, a marketplace populated by mutants of the "species homo economicus" (Friedman, 1995, p. 3). Given such a curious state of affairs in the mainstream economic and sociological literature, this paper's intended contribution is primarily to help redress the above omissions in the analysis of market exchange, whilst rational choice sociology's commissions are largely outside the scope of this paper (for an attempt to specify the relat ions between socio-economics and rational choice theory, see in this journal Zafirovski, 1998). The overriding purpose of the paper is to make contribution toward further theoretical elaboration and empirical application of the discipline of socio-economics as pursued in this journal.
For that purpose, the structure of the article is the following. First, we present the general theoretical and methodological outlines of the socio-economic approach to economic exchange. Then we apply this approach in the rest of this article, by exploring the social conditions of economic exchange. Finally, we offer concluding remarks.
2. Outlines of a socio-economic approach to market exchange
In the following we attempt to show that economic exchanges, including seemingly cost-benefit induced market transactions, constitute special cases of social action. For that purpose we are using a socio-economic, especially a neo-Weberian, approach to the matter under examination. This implies suspicion if not tacit rejection of the opposite treating of social interaction as economic-type exchange or quasi-economic, social exchange, that is characteristic for much of so-called exchange theory in rational choice sociology. For to reduce all human (inter)action to exchange, economic or social, involves an untenable reductionism that grossly violates the real-life complexity by proceeding on the delusion of discovering simplicity in a complex socio-economic world. By misconceiving all social interaction as economic or quasi-economic exchange, social exchange theory like the entire rational choice model amounts to an over-ambitious, even trivial, "theory of everything [under the sun]" (Hodgson, 1998, p. 168), t hat "explains everything and nothing" (Ackerman, 1997, p. 663).
Hence, the idea of some ubiquitous social exchange is here regarded as only a metaphor or analogy at best. And as used by its proponents, this idea often boils down to an empty concept or "mathematic trick drained of any substantive content" (Margolis, 1982, p. 16), just as is an over-arching mono-utility function or cost-benefit model in which all human motives, preferences and emotions are lumped together (as critiqued by Elster, 1998; Etzioni, 1988). In essence, the problem with social exchange theorists is that they "do not always theorize exchange [but] rather than explaining markets and exchange, they employ markets or exchange to explain social and economic life" (Lie, 1997, p. 343). Thereby, they engage in (mis)construing all society as merely a marketplace presumably populated by cost-benefit human calculators driven by some inborn propensity to barter and exchange. In epistemological terms, such a (mis)conception of society indicates that all-embracing market theories, such as social exchange or ra tional choice, are not necessarily theories of the market (Lie, 1997, p. 343). For a theory of the market generally tries to explain the nature and functioning of markets, exchange, competition, and the like, and not to (mis)conceive nonmarket phenomena as markets, exchange or economic competition (for objections to this approach, cf., Etzioni, 1991; Yeager, 1997), as done by social exchange and other rational choice theories, especially public choice (Mueller, 1997).
Leaving aside social exchange theory as a mis-guided extension, especially in its rational-choice formulations, of the neoclassical theory of market exchange, we use a perspective that originates in socio-economics (or economic sociology), as an exploration into the social, historical, and cultural variables of economic phenomena, including production, distribution, consumption as well as exchange. Emphasis on the incidence, multiplexity and prominence of such variables in the realm of exchange relations and processes is a hallmark of the social-economic approach to markets as a special application of socio-economics. In the course of this analysis, we hope that the distinctive character of the socio-economic approach to market exchange and economic behavior generally will become obvious in relation to the purely economic approach.
Contrary to the explicit or implicit assertions of pure economists, market exchange as an ideal or actual type of social action represents not just economic or instrumentally rational action grounded in cost-benefit calculation or formal rationality. Within a social, Weberian framework, by virtue of its orientation to realizing certain ideal or transcendental values or substantive rationality regardless of cost-benefit ratios, such exchange also takes on the character of noneconomic or value-rational action. Furthermore, traditional and emotional action, driven by habits and other social rules and by Paretian residues and derivations (sentiments and their rationalizations), respectively, can also permeate what is on the surface cost-benefit induced exchange. Hence, probing more deeply under this surface, a sociocultural model of market exchange reveals the fallacy of misplaced concreteness and otherwise relaxes other failures of the purely economic approach used by orthodox economics (for a general critique, cf., Etzioni, 1988).
To put it in Weberian terms, that formal or instrumental rationality in cost-benefit induced exchange, just as in production or distribution, may often represent but an instrument, an intermediary, or a consequence of its substantial or value rationality seems ruled out by conventional economists' self-inflicted "veil of ignorance." This latter is exemplified by the celebrated residual, to which are relegated the unknown social and other variables, in the neoclassical production function (for a historical account, cf., Griliches, 1996).
Such a relationship between the two types of rationality is indicated by the historicalempirical tendency that what seems to be cost-benefit induced exchange is often no more than a means to ultimate realization of, for example, religious grace, social status, power, morality, identity, justice, and other nonmaterial ends. The typical or representative Protestant entrepreneurs provide a case in point for this. As elaborated later, these economic agents undertake and experience cost-benefit induced exchange as no more than an expediency in relation to the supreme goal of (knowledge of) religious salvation. In general, it is transcendent and otherwise noneconomic rather than economic ends (as indirectly acknowledged by Robbins, 1952) that are essentially sought by their engagement in rational, cost-benefit induced exchange in the market. In other words, value-rationality striving for religious salvation is, for these Protestant entrepreneurs, the ultimate orientation in relation to which the instrumental-ratio nality, as epitomized in their seemingly cost-benefit induced exchange and other economic activities, was merely an intermediate phase. At this juncture, immediate economic goals are to be viewed as performing a function similar to means of the latter (Alexander, 1982, pp. 72-4) relative to more ultimate noneconomic values, as the interrelations between the two, at least among these Protestant agents, are expressed in those between the instrumental and value rationality of cost-benefit induced exchange. Hence, far from being a natural state of affairs or an absolute or necessity, the spirit of capitalism associated with these cost-benefit induced exchange transactions has always been just a social-cultural and historical, i.e., relative category generated or influenced by such a religious (Protestant) ethic.
The above perspective on exchange sharply contrasts with the approach of conventional economics; we call this perspective socio-logics given its emphasis on the social nature and construction of market transactions. Conventional economics usually regards cost-benefit induced exchange as an invariant and strictly market activity devoid of nonrational and impure socio-cultural variables, including power, status, habits and traditions, religious ideals, ethical imperatives, as well as "animal spirits" (Keynes, 1960, pp. 161-162), emotions, and other irrational forces. All these variables and forces are generously handed over to sociology (Samuelson, 1983, pp. 90-92) and socio-economics, or relegated to the residual (Fararo, 1993, pp. 291-292) on grounds that they represent exogenous and irrational intrusions into rational processes- supposedly moved by an inner logic of their own. For example, most mainstream economists tend to "dismiss scholars that reject the rational actor paradigm as being outside 'economic s' and consign them to 'sociology'" (Hodgson, 1998, p. 189). A historical digression on the association of economics with the rational and of sociology and socio-economics with nonrational may here be in order. Namely, "these vigilantes of 'economic correctness' have to face two severe problems. First, leading economists such as Smith, Ricarrdo, Marx, Keynes, Hayek, Simon, and Coase, all failed to incorporate the standard picture of 'rational economic man' in their writings and expressed profound misgivings about his behavior. Second, the problem also has to be faced that much of 'sociology' has now embraced rational choice" (Hodgson, 1998, p. 189). Moreover, modern rational choice sociology often seems to be more rationalistic and economistic than pure neoclassical economics (i.e., so to speak, a "bigger Catholic than the Pope"). As an illustration, the "thick-rational picture of human beings as members of the species Homo economicus, whereas supposedly hypothetical even in economics textbooks, is, in the pr actice of [rational choice theory] taken for granted as an obvious truth" (Friedman, 1995, p. 3).
At any rate, strictly economic models of exchange attempt to be purified of these extraneous, social-cultural variables and thus theoretically-methodologically clean and rigorous. To take an example, pure economists or rational choice theorists often claim that "marginal productivity analysis of the determination of rates of return to resources does not have any ethical implication. The fundamental injustice is the original distribution of resources--the fact that one man was born blind, and the other not" (Friedman, 1976, pp. 199-200). Presumably, exchange agents seek to maximize cost-benefit ratios as a supreme goal to be reached by virtually any available means, regardless of these are legal, ethical and otherwise legitimate, moral or not. In other words, these agents are misconstrued as ruthlessly egotistic offsprings of Machiavelli bent to (mis)use the "system," including violating and finding structural holes in the market, organizations just as in the laws and morals of society. At best, they are supp osedly legal opportunists that refrain from violating the law (upright citizens), and yet have strong tastes for smart deals emptied of any ethnical considerations (as Dickens classically ridiculed "smart" American traders and businessmen). Simply, laws most often constrain, but morals almost never do, these exchange actors qua "optimizing automatons" (Rosen, 1997, p. 146), cost-benefit human computers, or moneymakers (Friedman, 1995, p. 22n).
Presumably, this is because for such Babbitt-type actors laws, with all their enforcement agencies, are the only serious forces to reckon with in terms of the possibility and success of cost-benefit optimization--after all, being in jail does not help much in this regard. In
Smith's words, playing by or not being caught in violating legal rules are "necessaries" for economic actors to succeed in cost-benefit maximization. However, these actors are portrayed to experience morals and other transcendental values as superfluities and luxuries in terms of cost-benefit maximization, because violating moral rules is legally neutral, except in oppressive totalitarian societies like communist China or conservative puritan ones like U.S.A. (as noted long time ago by Pareto, 1932; Weber, 1950).
Moreover, such moral violations can even help this maximization as implied in the idea of "self-seeking with guile" (Williamson, 1983). This would indicate how implausible and partly cynical is to equate morality and utility by defining moral behavior as a "special case of rational behavior" (Harsanyi, 1977, p. 625) qua utility optimization or cost-benefit calculation. At best, "honesty is the best policy" concerning cost-benefit maximization in exchange transactions, especially if actors engage in these transactions in the long-run like in a repeated Prisoner's game in which defection (cheating) is sub-optimal before the last iteration (as implied by Adam Smith, cf., discussion in Buchanan, 1991b, 208-212). This contrasts to one-night stand-like transactions or one-shot Prisoner's dilemma where defection is the immediate and dominant strategy, i.e., dishonesty is the best policy. Alas, defection is an ultimately dominant strategy even in an iterated Prisoner's dilemma, i.e., long-term exchange relations, be cause these not being perennial at some point exchange actors will presumably defect by acts of dishonesty, which shows that even in this case the rule "honesty is the best policy" is just a temporary expedience, mutating eventually into its opposite.
In general, regardless of either honesty or dishonesty is the best policy in cost-benefit terms, this treatment of an ethical category implies that moral virtues are no more than premeditated and calculated strategies for success in this maximization, rather than Kantian categorical imperatives of ethical universalizability (Caldwell, 1997, p. 1871), or invaluable goods (Arrow, 1997), including duties. Thus, as some studies of the contractual exchange transactions in Japan report, "it is not just that benevolence is the best policy--much as we say, rather more minimally, that honesty is the best policy. But that is not what they most commonly say. Benevolence is a duty. It is that sense of duty--over and above the terms of written contract.. ." (Dore, 1992, p. 169). In fact, such a (mis)treatment of morals in relation to cost-benefit exchanges conflates the established distinction, even within economics, between the extrinsic or economic incentives (Kreps, 1997) and intrinsic motivation of engaging in exchan ge and other social actions, including moral conformity "not just for money" (Frey, 1997) or cost-benefit ratios. A fortiori, this treatment thereby neglects the reported primacy of such intrinsic motivations in many economic and social situations, including exchange transactions themselves (for some examples and reviews, cf., Bowles, 1998; Elster, 1998; Rabin, 1998).
In retrospect, the implied unfairness hypothesis (as called by Thaler, 1991) of purely economic models of exchange appears as a late-day economistic variation on the Machiavellian theme of the ends-means link emptied of any ethical content. And yet here comes the legendary neoclassical economist who, after engaging in a definite exchange transaction in a road hotel (paying the bill for an "one-night stand"), still feels somewhat compelled to leave a tip, albeit he knows very well that he will probably never return (Granovetter, 1985). Of course, this behavior is a paradox, anomaly or pathology according to the "sacred precincts" (Schumpeter, 1950, p. 84) of economic orthodoxy preaching and even dictating automatic cost-benefit maximization as a supreme principle of behavior. As a result, not much freedom of choice is left, for "mechanical optimization excludes genuine choice" (Hodgson, 1998, p. 186).
Yet, the proverbial pure and serious economist assumed to defend this "god-like knowledge" (Friedman, 1995, p. 16) of conventional economic wisdom exerted his free choice precisely by deviating from the holy principle of rational choice, i.e., cost-benefit optimization in exchange. If such behavior of the sinful economist is presumably a paradox, exception or aberration from the viewpoint of homo economicus, it is in fact the opposite, i.e., patterned, expected and normal conduct from that of homo sociologicus in the broad sense of a complex social actor (Sjostrand, 1993) attentive to and induced by intrinsic social motivations, including gaining approval, morality, following habits and other socio-cultural rules, etc. By apparently violating the sacred precinct of cost-benefit maximization in economic exchange, here the neoclassical economist behaved as some kind of homo sociologicus, rather than as a disciple of the master homo economicus as he is otherwise supposed to behave, and as he typically assumes t hat others behave. Alas, if economists and other enlightened economic experts as presumed role models of rationality, i.e., cost-benefit maximization, do not often behave as their paradigm postulates, it is prima facie less likely that lay exchange actors will embody homo economicus as a "two-legged calculator" (Etzioni, 1991, p. 3). This holds true, given all their veils of ignorance and other cognitive limitations (Conlisk, 1996), as well as their character of multidimensional dramatis personae often induced by sentiments and rationalizations (Pareto, 1932), values and affects (Weber, 1968), including emotions (Elster, 1998), and a variety of other nonrational forces.
The aforesaid suggests that only by taking account of intrinsic motivation and other extra-economic variables, including moral and other ultimate values (substantive rationality) operating in exchange processes can we hope to solve the many puzzles and paradoxes that plague purely economic models of these processes. One such puzzle (Friedman, 1995, pp. 22--3) to which neoclassical economists usually have no sensible solution is why "individual buyers deliberately pay to sellers higher prices than is necessary [and] sellers deliberately accept lower prices than buyer are willing to pay" (Buchanan & Tullock, 1962, p. 18). By paying attention to intrinsic motivation in such exchange transactions one can help resolve this puzzle of orthodox economics.
Relatedly, considering status motives is conducive to the resolution of the so-called Veblen paradox of conspicuous buying and consumption that has been tormenting economic orthodoxy for a century. This "paradox" thereby ultimately turns out to be no paradox of all, but a socially frequent, patterned and normal behavior in the light of the "universal human desire for approval" (Frank, 1996, p. 117). Thus, what are from the stance of pure economic model exceptions or surprises in exchange behaviors and processes are actually rules or expected outcomes. In a complex socio-economics of market exchanges, economic paradoxes thus become socio-cultural patterns or uniformities, albeit not in the sense of natural laws, but rather of Weberian ideal types or theoretical generalizations with broad empirical validity.
Finally, the above-mentioned principle of moral unfairness or legal opportunism that presumably permeates and dominates exchange transactions have self-defeating tendencies in its practical operation. Despite all the presumed miracles of the "magical conversion" o individual benefits or private vices into social advantages or public virtues through the market's invisible hand (Mueller, 1993, p. 405), this principle tends to generate aggregate irrational or sub-optimal outcomes in both efficiency and equity, i.e., welfare terms. In other words, "social order would collapse overnight if all persons, or even a large share of persons, should suddenly commence to behave strictly in accordance with the utility-maximizing models of orthodox choice theory and within the constrains only of formal legal enforcement structures" (Buchanan, 1991b, p. 212). As such, this statement apparently comes in conflict with the holy axiom of an invisible hand that is invariably imputed the function to "channel the self-serving beha vior of participants towards the common goal" (Buchanan, 1991a, p. 40).
3. Applying a socio-economic approach to market transactions
In the following we apply a socio-economic approach to economic exchange, including its market modes, by recognizing and analyzing its social conditions. By virtue of the existence and salience of such conditions we preliminarily define market-economic exchange as a particular form of social action.
In examining the social underpinnings of market transactions Weberian exchange theory can be an indispensable (though not an exclusive) stepping-stone. First, Weber (1968, p. 72) advanced the following general definition of (economic) exchange: "Exchange is a compromise of interests on the part of the parties in the course of which goods or other opportunities are passed as reciprocal compensation." Hence, Weber does not refer to what modern exchange theories in rational choice sociology call social exchange, i.e., noneconomic relations conceived as market--like exchange. The present analysis builds on and at some point goes beyond this foundation, by taking account of recent empirical findings and by recent theoretical arguments in the field of socio-economics.
In a Weberian framework exchange for profit involves activities which in principle center on the market. Thus, exchange for profit is an activity "which is oriented to opportunities for seeking new powers of control over goods. Profit making is economic if it is oriented to acquisition by peaceful methods. It may be oriented to the exploitation of market situations. 'Exchange for profit' is that which is oriented to market situations to increase control over goods rather than to secure means for consumption" (Weber, 1968, pp. 90--91). But this definition of the phenomenon of "exchange for profit" is not something specific for this framework. Instead, a distinctive mark of this conception is that, while dealing with the same market--economic phenomena as pure economics (Weber, 1949, pp. 44--5), it puts an emphasis on the social and cultural determinants of such phenomena. This is exemplified by Weber's analysis of exchange for profit from the perspective of the social variables of the economy (Weber, 1968, pp . 63--204). That exchange for profit and generally the "development of rational economic action has been to a large extent determined by noneconomic events and actions" (Weber, 1968, p. 70) is a major assumption of such a perspective.
The socio-economic approach proposed here embraces and further elaborates this assumption. In retrospect, such an assumption sharply contrasts with the pure economic theory of market exchange, in which these are assumed to be unaffected by noneconomic factors, as well as with rational choice models of social exchange, which conceive all social action as a set of economic exchanges. In this later case, "instead of trying to integrate noneconomic factors, [the economic approach] is expanding its tools into spheres of politics, institutions, and (even) into ethics" (Buscher, 1993, p. 311).
The above assumption of the social determination of economic action would suggest that exchange for profit might historically express any one of Weber's ideal types of social action. Specifically, not only aim-rational or goal-oriented action but also value-rational as well as traditional and affectual (emotional) action can permeate such exchange. Weber' s definitions of these types of action can be helpful for understanding their relationships to economic exchange. Thus, Weber (1968, pp. 24--5) defines 1) aim-rational (zweckrational) action as "the attainment of the actor's own rationally pursued and calculated ends;" 2) value-rational (wertrational) action as being "determined by a conscious belief in the value for its own sake of some ethical, aesthetic, religious, or other form of behavior, independently of its prospects of success;" 3) affectual action as being "determined by the actor's specific affects and feeling states;" and 4) traditional action as being "determined by ingrained habituation." In o ther words, "in the case of Wertrationalitat the choice of means is oriented to the realization of a single absolute value without reference to consideration of cost. In that of Zweckrationalitat it is oriented to a plurality of values in such a way that devotion to any one is limited by the possibility of its entailing excessive cost in the form of sacrifice of others" (Parsons, 1964, p. 14).
More specifically, exchange transactions can be not only "economically rational both in intention and in result [but also] traditional or conventional and hence not economically rational" (Weber, 1968, p. 72). Hence there can exist not only transaction markets with cost-benefit calculi, "where the goal of sellers is, pure and simple to make a sale [but also] relationship marketing, where sellers aspire to develop long-term, symbiotic, learning partnership with customers [and] with relationship marketing, markets function not only differently but better" (Tomer, 1998, pp. 207--8). This crucial insight of a neo-Weberian socio-economic model that goes beyond transaction markets is a major innovation in relation to pure economics in which market exchange is by assumption rational, as well as to rational choice models which assume that not only these exchanges but noneconomic relations (called social exchange) are invariably rational, as well. That exchange for profit can also involve nonrational factors is exemp lified by the salience of traditions and related phenomena in this exchange. In historical and empirical terms, market exchange and economic action as a whole "may be a matter of tradition or of goal-oriented rationality [so] even in cases where there is a high degree of rationalization of action, the element of traditional orientation remains considerable" (Weber, 1968, p. 69).
In general, exchange for profit has historically been characterized by a curious duality of instrumental or economic and transcendental or noneconomic action, and even plurality that additionally includes traditional and emotional actions. In Pareto's (1932, pp. 246--248) terms, such exchange can be induced by logical-rational elements (interests) as well as by nonlogical ones (residues and derivations). Weber's (1968, pp. 202--3) functional equivalents for these two categories are material and ideal interests, respectively. Furthermore, in a Weberian frame of reference, the duality between instrumentality and noninstrumentality in exchange for profit logically implies a dualism between two different types of rationality: formal and substantive. Insofar as exchange for profit qua instrumental action involves calculation of the economic outcomes--utility and disutility, investments and returns, costs and revenues, gains and losses--of a given course of social action, it appears as an embodiment of formal rati onality or simply accounting. By contrast, as value-rational and other nonrational action modes (e.g., traditional and affective), this exchange embodies substantive or social rationality to the extent that it promotes extra-economic ends, such as equality, justice, status, power, morality, traditions, sentiments, beauty, faith, or truth. More precisely, in Weber's (1968, pp. 85-86) framework the "formal rationality of economic action will be used to designate the extent of quantitative speculation or accounting which is technically possible and which is actually applied." On the other hand, substantive rationality "is the degree to which the provisioning of given groups of persons with goods is shaped by economically oriented social action under some criterion of ultimate values, regardless of the nature of these ends." At this juncture, exchange for profit and related economic actions and institutions may be economically irrational (Sjostrand, 1993), albeit with a social rationale (Etzioni, 1988).
This presence of values and other nonrational elements seems to justify the treatment of utility or gain maximization or economic rationality in market exchange as a culturally and historically variate of social action and not as a constant, as seen in pure economics (and rational choice sociology). In this connection, rather than on a single principle of economic optimization, exchange agents often ground their actions on a complex process of "confrontation, conflict, dialogue and compromise between different kinds of rationalities" (Martineli & Smelser, 1990, pp. 31-32), economic and noneconomic alike. A fortiori, if one follows this argument and takes account of the historical and other research on economic exchange, there might have been certain tendencies for the central organizing basis of modern market processes to shift from that single principle of instrumental or formal economic rationality to normative, valuational, political, institutional, integrative, and other social factors expressing noninst rumental or substantive rationality.
In this connection, the market economy appears as a process of valuation (Samuels, Medema, & Schmid 1997) in the sense of being permeated and influenced by social values, including transcendental ones, and thus, in Weber terms, a set of value-rational actions. The tendency of different market structures--e.g., free competition, monopoly, oligopoly, or imperfect competition--to generate peculiar incentives not always reducible to cost-benefit optimization or gain-seeking per se, exemplifies the critical impact of social organization upon exchange processes as instrumental action and their subsequent transformation into, or their conjunction with, value-laden action. For example, monopoly and monopolids (Schumpeter, 1950; Wieser, 1967), such as duopoly, oligopoly, monopolistic/imperfect competition, etc., are often guided by the bounded rationality of satisficing (attainment) with respect to cost-benefit ratios or utility, unlike perfect competition presumably grounded in the unlimited rationality of maximizat ion. Moreover, analyses indicate that under all exchange structures, cost-benefit optimization is sometimes replaced by other radically different incentives, such as political influence or corporate power, status-seeking, fairness and related moral dimensions (Etzioni, 1988), religious motivation, and so on.
In this connection, the term exchange for profit could be a misnomer, especially if this latter is assumed to be the ultimate end of this exchange, rather than just a means or an intermediary to other ultimate ends. Ironically, even some economists concede that "there are no economic ends, but only economic and noneconomic ways of attainment of given ends" (Robbins, 1952, P. 145). If this is true, then the implication is that the ultimate objective of exchange for profit is not necessarily such an economic variable, and that, instead, this is an (economic) means for attaining trans-economic ends, including political power (Mueller, 1996), social status (Bagwell & Beruheim, 1996), fairness (Alvi, 1998), morality (Etzioni, 1988), and so on. This implies that the exploration into the ends or motivations of exchange for profit is not tautological and redundant. Weber's conception of economic exchange forcefully demonstrates in historical-empirical terms these relations between material interests and ideal values . And so does Veblen's theory of the extra-economic goals and functions of wealth acquisition and consumption (Ackerman, 1997).
In Weber's context, instrumental (zweckrational) cost-benefit maximization or pursuit (satisficing) is an instrument or a stepping-stone to valuational (wertrational) action, viz., attaining ultimate ends of an ideal or transcendental character, including moral and religious values. This was classical demonstrated by Weber's (1976, pp. 70-117) analysis of Protestant actors who engage in economic exchange in the market as just an expected road to (the knowledge of) religious salvation, and not for its own sake. For them, the material advantage from this market exchange had almost no sense or rationale if it did not lead to this ultimate goal, as shown in more detail later. The same mutatis mutandis can be said of Veblenian economic actors. The only or main purpose of wealth accumulation is to achieve or promote social prestige via invidious comparison and ostensible consumption of that wealth. Just as for Weberian Protestant entrepreneurs, this wealth has no independent value for them, as corroborated by rece nt research (e.g., Bakshi & Chen, 1996).
With this in mind, the expression exchange for profit or market exchange is to be understood beyond its formal (linguistic) meaning, namely in a qualified substantive sense that profit, though presumably always implied, is not necessarily the ultimate end of these exchange transactions. And even if one does not subscribe to the argument that there are no economic ends, and net income is seen as a particular economic end of market exchange, this end can reflect no more than Weberian ideal interests, including religious grace, ethic, traditions, or emotions, as well as power and status, Veblenian prestige considerations, Pareto residues and derivations, Dukheimian morality and Parsonian normative conformity, Marxian class and other social conflicts, and so forth. At any rate, this indicates all the complexity of the phenomenon of market exchange, to which this analysis attempts to do justice.
The discussion thus far is summarized as follows. In historical and empirical terms, exchange for profits is to be understood in Weberian terms of both instrumentally- and value-rational social action, or alternatively in Pareto's sense of logical and nonlogical actions, rather than just as solely rational economic action, as seen in conventional economics (and its mutant rational choice sociology). Obviously, such a characterization implies in no way that this exchange is solely nonrational or noneconomic phenomena, and thus avoids the pitfalls of a spiritualist conception of exchange processes (Weber, 1976, p. 183). And assuming that market exchange is both rational-economic and nonrational actions, it also distinguishes itself from the "one-sided materialistic conception" (Weber, 1949, p. 68), or sociological materialism, implied in both orthodox (vulgar) Marxism and utilitarian economics, including its current mutation in rational choice sociology. Thus understood, through the selection and use of approp riate means, market exchange furthers certain goals or values -i.e., immediate economic objectives (benefit as a calculative magnitude) or ultimate non-economic ends (e.g., religious salvation, power, status). In reality, these goals and values, be they economic or not, immediate or ultimate, tend to be plural and socially grounded in certain political, institutional-structural, socio-psychological, and cultural processes and settings. On the other hand, the means for attaining these ends have historically had both economic or rational and opposite forms. This socio-historical character of ends and means in market exchange is elaborated in more details in the next two sections.
3.1. The complexity of ends in economic exchange
A socio-economic approach assumes the variety and complexity of ends in
economic exchange, including exchange for profit. Hence, far from being a tautology, the exploration of motivational factors in what is superficially just an exchange for profit is a legitimate endeavor. In retrospect, that motivational factors cannot always be reduced to a single rational motive of material interest or net income has been recognized by sociologists as well as some economists, contrary to the economic approach that performs this reduction and thus makes exploring these factors seem tautological. For instance, Weber assumed both material interests, such as income, money or profit, and ideal interests, including religious values, as driving forces of economic exchange. In a similar vein, Pareto postulated that not only interests or logical-rational elements but also residues and derivations (sentiments and rationalizations) or nonrational elements propel socioeconomic actions, including exchange activities. And Veblen, alt hough not excluding rational motivations from economic actions, deemed them subordinate to nonrational ones, first of all, social prestige. At this juncture, market exchange can be induced by a variety of motivational variables of economic and noneconomic character, rather than by built-in economic motives alone.
Even some neo-classical economists were well aware of this motivational duality or plurality of economic exchange. We mention just a few indicative examples. In his institutionalist social economics (Jensen, 1996), Mill (1968, pp. 136-139) assumed a plurality of motives in market exchange and all economic behavior. Cairnes (1965, pp. 56-58) acknowledged a totality of human desires, rational and nonrational, that prompt actors in the pursuit of wealth via market exchange and other economic activities. Marshall (1961, p. 27) and Pigou (1960, p. 11) contrasted economic from social motives (and welfare) in market exchange, and so on.
A fortiori Weber's analysis of the Protestant entrepreneur's behavior evidenced in historical terms this motivational complexity in market exchange, as detailed next. In general, Weber (1968, p. 202) argues that the mainspring of exchange and all economic actions are ideal and material interests. This argument amounts to a major break with pure economics, which he criticizes for its overemphasis on one "psychic motive" (material interest) in these actions (Weber, 1949, pp. 88-95). However, such a general argument of motivational duality in market exchange is more intricate in its implications than it might seem. Its intricacy lies in the corollary proposition only in the context of such motivational complexity can the striving for income be deemed the driving force of economic exchange (Weber, 1968, p. 202). For not only material interests but also nonmaterial values can underlie or propel this striving for profit. In this framework, the first variables tend to be actualized in instrumentally--rational actio n and formal (economic) rationality, and the second in value--rational action, as well as in traditional, emotional and other nonrational actions.
Alternatively, in Pareto's (1932, pp. 507--508) frame of reference proxies to Weberian material and ideal interests are, as hinted earlier, appetites (or interests) and residues and derivations, respectively. And, in a striking similarity to Weber' s association between these interests and action modes, Pareto associates interests with logic-rational actions and residues/derivations with nonrational ones. In a Weberian Context, the striving for income can be induced not only by material interests, including what Weber ironically referred to as the impulse of acquisition, but also by ideal factors, including ethic, religious and related transcendental values, usually removed from pure economics or rational choice theory (as admitted by Buchanan, 1991b, p. 208). An identical assumption is advanced by Pareto. In Pareto's terms, the maximization of net income in market exchange can reflect appetites, interests and other logico-rational elements, as well as sentiments, rationalizations, and related nonrational fo rces. Veblen's position on the matter is even more categorical by attributing the primacy to these latter to the effect that actors seek material benefit (sellers) or utility (buyers) in exchange transactions mostly for invidious distinction and related extra-economic reasons.
Hence, Weber--Pareto's framework would imply that exchange actors are in various ratios, contingent on social systems and historical circumstances, curious mixtures of rationality and nonrationality--i.e., of homo economicus and homo sociologicus joint together in a homo complexicus (Sjostrand, 1993) for whom both self-interest and fairness or generally the moral dimension do matter (Etzioni, 1988). In this regard, analysts (Alvi, 1998) have identified, for example, three sources of fairness: moral precepts, stable convention, and reciprocity. Hence from a socio-economic viewpoint "economic models based on the view that man is purely selfish have performed poorly [and] fairness in exchange has a long history" (Alvi, 1998, pp. 245--251).
In addition, such a complex social actor often faces what Marx (1967, p. 598) called the "Faustian conflict" between rational profit-seeking or ascetic wealth accumulation and irrational ostentation or wasteful consumption to attain social approval and generally satisfy "his Adam." By comparison, the Veblenian exchange actor is to some degree less ambivalent, by conspicuously pursuing economically nonrational goals in exchange transactions, and to that extent can be denoted homo sociologicus. Overall, in all these three cases exchange for profit takes on properties, though in various proportions, of rational and nonrational actions alike. This further substantiate the preliminary definition of market exchange as both instrumental or rational and noninstrumental or nonrational social action.
The above also suggests that an economically rational activity or means, such as seeking material benefit in market exchange, does not necessarily presuppose rational ends or motivations. On the contrary, "there may be rational conduct [such as profit-linked activities] even in the absence of rational motive [e.g., net income]" (Schumpeter, 1949, p. 91). Thus exchange for profit does not necessarily display its underlying motive, insofar as material benefit is sought not for its own sake but as an instrument or intermediate goal to other ends. At a theoretical level, this is the meaning of the previous statement (Robbins, 1952) that economic ends or motivations do not exist, but only economic (and noneconomic) means to attain other ends. At an historical-empirical level, it was a major purpose of Weber' s analysis of the association between Protestant ethic and the emergence of capitalism to show the ideal origins of exchange for profit, namely the extra-economic roots of economic action and motivation. Thes e roots were mutatis mutandis identified by Veblen in his anthropological and historical exploration of sociocultural evolution and the impact of cultural stages on the behavior of the various actors (e.g., the leisure class) in economic exchange.
The discussion thus far suggests that in economic exchange net benefit is often better seen as "an immediate end which is not an ultimate end" (Parsons, 1990, p. 326) in relation to other goals, and thus as expressing immediate situational interests associated with some ultimate values (Alexander, 1990, p. 342). Either an immediate or ultimate end, gain represents one element in the infinity of motives involved in the pursuit of wealth through market transactions (Cairnes, 1965, p. 56). In most of conventional economics, including even Keynesian heterodoxy, however, net income presumably expressing only materialistic interests or rationalist motivations is considered the ultimate "engine which drives Enterprise" (Keynes, 1936, pp. 148--149) Hence, the emphasis on the exchange for profit as being induced by material interests alone is partial or contradictory within the intricate Weberian--Paretian framework of material and nonmaterial interests, or interests and residues, as underlying forces in this exchang e. For actual exchange actors seek to attain not only materialistic ends (Mueller, 1996, p. 346), as manifested in seeking net income for its own sake--but also "'transcendental' interests [i.e.,], nonempirical, invisible ends that material and instrumental explanations of motivation overlook" (Alexander, 1990, p. 339).
This situation has historically been exemplified by the behavior of Protestant actors in economic exchange. For these actors, the net benefit from market exchange are a means to other ultimate ends, not an objective in itself or only an immediate and intermediate one. For such benefit is instrumental in attaining some extrinsic ideal ends such as religious salvation or/and extra-economic objectives, above all social status (Bakshi & Chen, 1996), rather than intrinsic material interests (the instinct of gain). In Weber's (1976, p. 112) depiction, to such agents "in order to attain that self-confidence [of being chosen] intense worldly activity [exchange for profit] is recommended as the most suitable means. It disperses religious doubts and gives the certainty of grace." Thus, rather than pursued for its own sake income was an instrument to attain this transcendental reward as an ultimate driving force of these activities. This reward was in turn dispensed by the "God of Calvinism [who] demanded of his believ ers not single good works but a life of good works combined in a unified system" (Weber, 1976, p. 117). Such historical social determination of exchange for profit and other economic activities under the nascent Protestant capitalism had for the effect that "the ideal type of the capitalistic entrepreneur avoids ostentation and unnecessary expenditure, as well as conscious enjoyment of his power, and is embarrassed by the outward signs of the social recognition. His manner of life is distinguished by a certain ascetic tendency. He gets nothing out of his wealth for himself, except the irrational sense of having done his job well" (Weber, 1976, pp. 70--71).
Within a post-Weberian framework, many empirical-theoretical analyses have corroborated this crucial assumption of social contingency of markets and other economic institutions Buscher, 1993; Sjostrand, 1993). They indicate that a myriad of social motivational factors can be of crucial importance in seemingly profit-seeking exchange and related economic activities. These factors include, for example, power, authority and domination, social status and approval, moral duties and other transcendental values, compliance with customs and related social norms, and so forth. All this seems to indicate that the motivational structure underlying economic exchange or exchange for profit may be far more complex than assumed by orthodox economics (as well as its unfortunate offspring rational choice sociology). In assuming so, the latter commit the fallacy of single and absolute motivation, by the "psychological isolation of a specific impulse, the acquisitive impulse, the so-called economic principle" (Weber, 1949, pp. 88--89). Consequently, market agents in conventional economics--and even all social actors in rational choice sociology--are typically portrayed not as "flesh-and blood dramatis personae [but as emanations of an] anemic and one-dimensional homo economicus" (Bowles, 1998, p. 78). In turn, orthodox economists often see this latter image of a human actor as something real, as an economic law and thus a social universal, rather than an ideal type of historical or real-life actors, as classically argued by Weber (1949, pp. 44--46; 1968, pp. 10--13).
For instance, Weber (1968, p. 10) argues that the "generalization called Gresham's Law [is but] a rationally evident anticipation of human action under given conditions and under the ideal-typical assumption of purely rational action. Only experience can teach us how far action really does take place in accordance with it." This argument was attacked by some neoclassical economists (Mises, 1960, p. 186; for a recent discussion of this disagreement, cf., Friedman, 1995, pp. 22--24), claiming that such economic laws are universal rather than socio-historically contingent. By its tendency to subsume a multiplicity of motivational control systems (Arrow, 1997, p. 765), under a single homogenous one, this portrayal seems dubious even for some economists. For the real-life economic actor has "a hard time doing what homo economicus does so easily [optimizing, calculating, planning]" (Blinder, 1997, p. 11). Hence, consistent with Weber's depiction of the ideal type of a Protestant entrepreneur, as well as Veblen's o f the historical economic actor and Pareto's of the circulation of (economic) elites, this "is not simply homo economicus, the embodiment of economic rationality [but] the would-be founder of a family dynasty, the prestige of which extends far beyond his own lifetime" (Parsons & Smelser, 1965, p. 3).
As a specification of the conception of motivational multiplicity and complexity in economic exchange, the present analysis advances a notion of historical-institutional motivation as a corrective to the concept of economic man (or economic animal). Such a notion implies two sets of variables: first, historical constellations within which market action and motivation emerge and change over time, second, institutions, relations, systems, and other social settings in which this exchange are embedded at a given point of time. A similar formulation includes institutions and rules defining and regulating this exchange, the value systems of the actors, the available resources, the expected social rewards or sanctions of their actions, and the cultural meanings of these actions and sanctions (Parsons & Smelser, 1965, pp. 184--185).
Of those two general sets of variables, the first express the social dynamics of market exchange, and the latter its social structure. This conception of motivation posits that some type of "institutionalized individualism" (Bouricauld, 1981, p. 17) is operative in market and other economic transactions. A related proposition is that actors' pure disinterested respector social institutions and rules can be the principal motivation for normative-institutional conformity, quite apart from the direct profit associated with this respect (Bourdieu, 1988, pp. 19--22). Moreover, for a rational actor ostensibly engaging in exchange for profit irrespective of any normative or transcendental considerations (Buchanan, 1991b, pp. 208--212), sometimes the "primary motive for obedience to an institutional norm lies in the moral authority it exercises over the individual. His attitude to it is one of disinterestedness--he obeys it because he holds it good for its own sake, not merely as means to some further end" (Parsons, 1990, p. 330). In retrospect, such an assertion can be justified by invoking Durkhemian moral agents, Weberian (Protestant) entrepreneurs and Veblenian prestige--conscious actors.
Some recent economic studies in the economic significance (Bakshi & Chen, 1996) of cultural norms and social institutions support the above proposition. They suggest that the conception of normative-institutional motivation (or constraint) is consistent with the finding that "social norms have an important influence on [economic] behavior," especially, that actors in their normative compliance and enforcement "are motivated by factors other than an exclusive concern with their material interest" (Sethi & Somanathan, 1996, pp. 766--768). No doubt "homo economicus may not behave this way. But responsible people [...] do" (Blinder, 1997, p. 14). Hence, market (and, for that matter, all social) action could be conceived as involving mixed motivation or control multiplexity (Arrow, 1997), insofar as it is shaped not only by economic rationality but by historical, moral, institutional and related social factors, rather than by either. In retrospect, this is not a quite novel proposition, because the Weberian fusio n of instrumental or formal rationality and value-ridden or substantive rationality implied such multiplex motivation in economic action. The same can be said of the Paretian combination of logico-rational elements or interests and nonrational ones or residues and derivations.
Since the role of economic rationality in market exchange and all economic actions is a function of definite sociohistorical--institutional conditions, it becomes an institutionalized value that is "something more than a psychological postulate--i.e., a standard of behavior to which people conform or from which they deviate" (Smelser, 1976, p. 34). First, these conditions, for instance, include: the relative importance of market and all economic action in a given society at a given historical period, conformity of this action with social-institutional structure, and the adoption in market-economic action of such a rationality principle (Parsons & Smelser, 1965, p. 185). Second, such a status of rationality prevents conflating the psychological with social underpinnings of economic exchange and all social action, given that "sociological influences deeply affect the psychology underlying economic behavior" (Lewin, 1996, pp. 1294--1295).
Much of mainstream economics commits such a conflation between the psychology and the sociology or socio-economics of market exchange, by focusing on the former and neglecting the latter (Rabin, 1998). This fixation on individual psychology seems to have a function of catharsis for economists because it relieves them from the obligation to pay attention to the psychological bases of economic behavior, and maximally to ground and "prove" the assumption of utility-optimizing behavior in human psyche or nature, e.g., ingrained "propensity to track, barter and exchange." Then, the psychological fixation on individuals as "natural born" utility-maximizers, members of the biological genus homo economicus (Friedman, 1995), creates the illusion that economists thereby can avoid a consideration of nonpsychological, macro-structural, i.e., impure socio-cultural variables--usually equated with the nonrational and thus disregarded (Samuelson, 1983, p. 90)--in economic behaviors and processes (Bowles, 1998; Hodgson, 1998 ; Lewin, 1996). One instance of such variables are impersonal institutional arrangements antedating individuals, and the "the fact that institutions typically portray a degree of invariance over long periods of time, and may outlast individuals, provide a reason for choosing institutions rather than individuals as a basic unit [and] most institutions are temporary before the individuals that relate to them" (Hodgson, 1998, P. 172).
In retrospect, the danger of conflating the psychological with the sociological-economic approaches to exchange and other market phenomena was perceived by Weber. Weber (1968, pp. 18-19) in analyzing rigorously rational economic action, including exchange, prophetically warned that "this very case demonstrates how erroneous it is to regard any kind of psychology as the ultimate foundation of the sociological interpretation of action." Hence, most economists' fixation on the psychology of exchange and other economic processes as an attempt to avoid the sociology or socio-economics of the economy appears as a typical case of building head-in-sand theories (Frank, 1996, p. 118). (No wonder, socio-economics or economic sociology is omitted in the AEA classification system, because what is therein termed sociology of economics is quite different, viz., a socio-economic analysis of economic science not of economic reality.) In light of such socio-cultural and historical influences on individual economic action, i. e., of the sociological on the psychological, exchange for profit can be characterized as a phase of social action and institutional motivation. The consideration of ends in economic exchange is followed by examining the variety of its means.
3.2. The variety of means in economic exchange
In the previous section it has been shown that economic exchange can be both rational and nonrational actions in terms of ends or motives. In addition, exchange and generally economic activity may have these properties in terms of procedure, i.e., on the basis of means used. On the one hand, the pursuit of wealth is "economic if it is oriented to acquisition by peaceful methods [such as] the exploitation of market situations" (Weber, 1968, pp. 90-91; also Hayek, 1948, p. 110; Mises, 1957, p. 34). This situation exemplifies economic activities by rational means, i.e., the "appropriation of goods through free, purely economically rational exchange" (Weber, 1968, p. 639).
On the other hand, such actions can be non- or pseudo-economic if they seek the appropriation of goods by physical coercion and other nonmarket means. However, such coercive, political, traditional, affective, and related extra-economic or nonrational means of appropriation have historically been prominent alongside or independently of the economic ones. For that reason these former should not be compounded with or dissolved into the latter.
For example, "acquisition by force follows its own particular laws, and it is not expedient to place it in the same category with action that is oriented to profits from exchange" (Weber, 1976, pp. 17-18). Hence, so-called robber capitalism and generally politically oriented capitalism is to be distinguished from modern capitalism based on exchange, as well as production, processes. This is especially so because the "structure and spirit of robber capitalism differs radically from rational management of an ordinary capitalist large--scale enterprise and is most similar to same old-age phenomena: the huge rapacious enterprises and occasional trade with its mixture of piracy and slave hunting" (Weber, 1968, p. 118). (In this connection, the proverbial robber barons of late 19th and early 20th century America would be a far cry from robber capitalism.) Apart from acquisition by force versus profit from exchange, the same can ceteris paribus be said of other noneconomic means of wealth accumulation. Moreover, as hinted above, economic exchange itself may be rational in terms of ends and means as well as nonrational in these terms, as in cases of traditional or conventional exchange. Thus, the ends, conditions and means of economic exchange range from completely traditional to partly traditional or conventional and to rational. As an illustration, "examples of conventional exchanges are exchanges of gifts between friends, heroes, chiefs, princes; as, for instance, the exchange of armor between Diomedes and Glaucos" (Weber, 1968, p. 73).
In terms of ends, insofar as economic exchanges seek to realize purposes of consumption rather than of wealth acquisition or opportunities for profit, they are in "this sense irrational" (Weber, 1968, p. 73) In terms of means, to the extent that exchanges resort to traditional, conventional, and related noneconomic means rather than to purely economic ones, they can be considered nonrational or irrational in economic terms. An exemplar of such nonrational exchange has historically been quasi-commercial exchange as a network of continual gifts between members of different social groups, especially their rulers. As historical research reports for ancient Egypt, the source of money exchange, including foreign trade, has been "a regular commerce by gifts outside the group. A state of peace between two peoples presupposes continual gifts between their rulers; this is quasi-commercial exchange, out of which chieftain trade develops. To omit the gifts means war" (Weber, 1950, p. 238).
These nonrational or irrational means of economic exchange can be placed within definite global socio-historical entities, as follows. The so-called "capitalism in trade, war, politics or administration as sources of gain" (Weber, 1976, pp. 23--24) is one such socio-historical entity. Military society, as based on "the regime of status," the "legal inequality of classes," and "compulsory cooperation" (Spencer, 1969, pp. 1--20), is another one. Societies with "mechanical solidarity," which are formed by an "association of clans," and in which "the individual does not appear" (Durkheim, 1964, pp. 175--176), exemplify the next sociohistorical entity. Gemmeinschaft (the rural community) characterized by the household economy, agriculture and arts (Tonnies, 1955, p. 270) represents the following one. These sociohistorical entities also include the "lower stages of barbarism" dominated by "a predatory habit of life (war or hunting)" (Veblen, 1934, pp. 60--63). Another exemplar of such entities pertains to "ideatio nal" sociocultural systems in which "reality is perceived as nonsensate and nonmaterial," and the "needs and ends are spiritual grounded on nonmaterial considerations" (Sorokin, 1970, p. 27).
The common trait of all these traditional sociohistorical systems is that, at least in terms of the means employed, exchange activities are of a largely noneconomic or nonrational character. Hence, Weber (1976, pp. 58--59) saw traditionalism as historically the most important opponent to rational profit--seeking exchange as found in modem capitalism. In Polanyi's (1944) frame of reference, the nonrational means and varieties of economic exchange can be subsumed under reciprocity and redistribution, i.e., reciprocal and redistributive exchange (Barber, 1993, pp. 226-227)
On the other hand, the rational means of economic exchange are "only possible when both parties expect profit from it [exchange], or when one is under compulsion because of his own needs or the other's economic power" (Weber, 1968, p. 73). Hence, these means would be productive in terms of wealth accumulation, and thus distinguished from the nonrational means that are oriented to consumption or the "personal use of the actor." Analogously to the nonrational, rational means of economic exchange can be located within the following societal and historical categories, with mostly homologous features (as depicted by sociologists and economists).
Modern capitalism, particularly "this sober bourgeois capitalism [founded on] the rational organization of free labor" (Weber, 1976, p. 24), is a first exemplar of these sociohistorical categories. A largely isomorphic category to this is industrial society to the extent that it is premised upon "the regime of contract," class "legal equality" and "voluntary cooperation" (Spencer, 1969, pp. 1-20). Another homologous category refers to societies with "organic solidarity," as complex societies in which "social harmony comes from the division of labor," and in which "each individual consecrate[s] to a special function" (Durkheim, 1964, p. 200). A next proximate category is exemplified by Gesellschaft (urban society), as underscored by trade, industry and science, and in which "the loss of one is the profit of the other..." (Tonnies, 1955, pp. 86-90). The so-called "higher barbarian culture" also belongs to these sociohistorical categories, insofar as it is permeated by economic differentiation, especially the invidious distinction between the working and leisure class (Veblen, 1934, pp. 53-60). And so do "sensate" sociocultural systems, in which the "needs and ends are physical, and maximum satisfaction is sought of these needs" (Sorokin, 1970, p. 28).
Apparently, all these sociohistorical systems are characterized by the use of rational means in economic exchange. In Weber's (1976, pp. 36-45) framework, such systems can be subsumed under the heading of economic modernism vs. economic traditionalism. In Polanyi's terms, the rational forms of economic exchange are exemplified in market mechanisms as present in capitalist societies. In reality, even the modern market economy is characterized by a complex admixture of these rational and nonrational means and varieties of exchange, "because each does have some place in the different sets of values and structures" (Barber, 1993, p. 229). Next we further elaborate such complexity of the market economy by examining the social constitution of the spirit of capitalism as a distinct economic attitude with origins in or connections ("elective affinity") with a definite type of culture, especially religion, morality and ideology.
3.3. The social constitution of the spirit and structure of capitalism
This section explores the socio-cultural (especially moral-religious) constitution of the spirit of capitalism within the context of economic exchange. As introduced by Weber (1976, pp. 52-53), the concept of the spirit of capitalism designates a tendency for "earning of more and more money combined with the strict avoidance of all spontaneous enjoyment of life." Interestingly, some contemporary economists re-define the spirit of capitalism by social status. Reportedly, "in reality [actors] acquire wealth for the resulting social status. Weber refers to this desire for wealth as the spirit of capitalism" (Bakshi & Chen, 1996, p. 135). In retrospect, this seems a Veblenian-style reinterpretation of the Weberian spirit of capitalism within economics, by infusing it with prestige and related social ingredients, rather than purely economic components such as wealth or gain.
What is at issue here, however, is not re-defining the spirit of capitalism, but exploring its social constituents. Rather than being immutable human nature (for a more socio-economic model of human nature, see in this journal, Ho, 1998), the spirit of capitalism is expressive of contemporary institutions and values (Parsons, 1964, pp. 79-80) in that it is a socially determined economic attitude (Weber, 1976, pp. 64-65). The spirit of capitalism, as operating in exchange for profit, is far from being a social universal (natural). Admittedly, people are not natural born moneymakers or "recklessly selfish monad[s]" (Frank, 1996, p. 117). Rather, they "simply live as [they are] accustomed to live and earn as much as necessary for that purpose" (Weber, 1976, p. 60). To mention just one historical example, the guild organization of economic exchange was predicated on the idea that its members are entitled to the "traditional standard of life [as] the analogue of the 'living wage' of the present day" (Weber, 1950, p. 138). Moreover, that economic behavior under a market economy is often conditioned by customs and related social conditions is reported by some recent studies. Reportedly, in the United States and other developed economies "people get accustomed to a certain rate of increase in their standard of living" (Stiglitz, 1997, p. 7).
Being accustomed to a certain economic pattern or level implies the influence of a matrix of socio-cultural factors, such as traditions, conventions, moral rules, religious values, and institutions, as well as the confluence of concrete historical circumstances. In this sense, consistent cost-benefit maximization in market exchange and other economic transactions can be seen as a matter of habit. For it is based on habituation or traditional behavior (Weber, 1968, p. 25) and generally guided by definite social rules (Hodgson, 1997). Hence, consistency in behaviors, preferences, and choices, as an assumed hallmark of rationality, would be not so much an individual idiosyncracy as a cultural and institutional trait, viz., a course of action expected or required by conventions, traditions, and other established social norms. This sheds light on the old dictum that habit is the second "human nature," and this is presumably the supreme expression of consistency, but not necessarily of rationality in economic term s. For if habitual or traditional conduct, moral conformity, belief formation and persistence, and the like are exemplars of consistency, then not all consistent behavior is rational. This thus invalidates the standard rationality--consistency equation within axiomatic economics, including decision and social choice theories.
In this connection, cost-benefit maximization in economic exchanges reappears as a socially constructed, especially institutionalized, attitude and behavior, not as an ingrained propensity to optimize and compute. No wonder in a Weberian frame of reference, traditions, customs, conventional rules and related phenomena are among the most potent and persistent forces in economic and all social behavior, as indicated by the status of traditional action as an autonomous category of social action. The same can ceteris paribus be said of the economic relevance of cultural values, especially moral and religious ones, as subsumed under the concept of value-rational action. And it is precisely this concept of value-rational social action, with an emphasis on its moral-religious components, which is critical for understanding the sociocultural constitution of the spirit of capitalism, and thus exchange for profit. This especially holds true of the Calvinist interpretation of economic exchange as a calling, since Calvi nism was the "most absolutely unbearable form of ecclesiastical control of the individual which could possible exist" (Weber, 1968, p. 37).
The findings reporting the dominance of social values in the operation of the spirit of capitalism suggest that certain social ethic or economic cultures (Weber, 1968, pp. 43--44) have socio-historically predated, or are autonomous relative to, the economic system. They are thus not but appendices of (or intrusions in) the latter, as assumed by utilitarian (rational choice) and orthodox Marxist conceptions. In other words, "this rationalization of conduct within the world, but for the sake of the world beyond, was the consequence of the concept of calling of ascetic Protestantism" (Weber, 1976, p. 154). Figs. 1 and 2 illustrate these differences in conceiving the association between the spirit of capitalism, work ethic or economic culture and the market economy or the structure and practice of capitalism.
Utilitarian and vulgar Marxist conceptions view the spirit of capitalism and the entire cultural super-structure as an inexorable effect or reflection of the economy. For instance, rational choice theory or utilitarian economics assumes that moral, religious, and other socio-cultural institutions are combined outcomes of rational individual exchange, just as these institutions are viewed as epiphenomena of economic structure in orthodox Marxism. In both cases, the spirit of capitalism, work ethic, and (economic) culture generally is a causal effect of some universal and objective economic rationality. In a departure from both conceptions, in the Weberian framework a certain religious ethic with definite attitudes toward economic exchange harbors or is conducive to a particular economic culture, namely the spirit of capitalism, which has socio-historical (and thus causal) priority in relation to the (modern) capitalist economy. For economists and Marx, first there was the economy of capitalism, and then the c ulture of capitalism as the necessary product. This causal or temporal order is radically reversed in Weber. For capitalism as a practice and structure of profit-seeking exchange to emerge and develop there must first exist capitalism as a spirit and idea, i.e., as a definite work ethic, an economic culture historically grounded in a certain religious, ethical, ideological, and overall socio-cultural matrix.
Now, within a recursive model specification positing multiple causation or interrelations, the structure and spirit of capitalism (Weber, 1968, p. 118), i.e., an exchange economy and economic culture, would be closely intertwined. But the question may arise as to what is the specific nature and direction of this interaction, i.e., which phenomenon is anterior in time and has a stronger influence. In statistical terms, this involves the need to identify concrete independent and dependent variables, for which purpose simple correlations or covariations are insufficient because they do not specify such variables. This shows limitations of establishing correlation and generally of recursive modeling in historical and empirical analyses; and though hardly a statistician in the modern sense, Weber was aware of these methodological problems.
The Weberian conception implies nonrecursive modeling and thus an identification of Protestantism (religion) as an independent variable and capitalism (the economy) as a dependent one. This is a model that focuses on the "influence of certain religious ideas on the development of [capitalism]" (Weber, 1976, p. 27), but not (at least here) on that in the direction from capitalism to religion. Weber (1976, pp. 26--8) justifies this nonrecursive approach in the following way: "Every such attempt at explanation must above all take account of the economic conditions. But at the same time the opposite correlation must not be left out of consideration. In this case the connection of the spirit of modern economic life with the rational ethics of ascetic Protestantism [in order] to attempt a causal evaluation of those elements of the economic ethics of the Western religions which differentiate them from others." Here, Weber examines only the impact of religion, ethic and generally culture on the economy, and not the opposite effects. Within such a model, the structure of capitalism is functionally or causally dependent on (Protestant) religion or culture generally and thus on the spirit of capitalism, rather than vice versa as assumed by Marxist and utilitarian (rational choice) theories.
In sum, the spirit of capitalism can be deemed a cultural, socio-psychological and historical prerequisite of modern market exchange and thus of capitalism as a world market. Rather than being an innate human propensity to exchange, optimize and calculate, the spirit of capitalism is a social creation in that it is grounded in particular cultural patterns and
historical conditions, such as Protestant (especially Calvinist) ethic in the wake of the Reformation.
The above considerations suggest that economic-only models of market exchange seem mature for a Kuhnian-like paradigm shift or theoretical revolution reflecting a global paradigm shift in the economy. One manifestation of such a shift has been the emergence of markets with relationship marketing as an important new phenomena in relation to ordinary transaction markets (Tomer, 1998, p. 208-214) that are only analyzed or recognized by orthodox economists. In particular, these models seem ripe for their supplementing and even replacing by a multilevel socio-economic perspective that takes into consideration both economic and extra-economic variables. The need of such shift derives from the realization that the ruling paradigm (of rational choice) has become such an intellectual handicap that "things that are obvious and important can be seen more easily by a native observed than by specialists armed with a theoretical perspective that blinds them to the obvious" (Margolis, 1982, p.71). The above argument and ev idence suggest that orthodox explanations of market exchange and other economic phenomena "in terms of rational and given individuals are not as robust as is often supposed" (Hodgson, 1998, p. 175).
For these reasons, the economic paradigm, positing only extrinsic incentives or utilitarian preferences as engines of exchange transactions in the market (and even beyond), is to be substituted by an alternative that also incorporates intrinsic motivation, including morality alongside material utility (Etzioni, 1990). Thereby, this alternative approach cannot be labeled as spiritualistic (Weber, 1976, p. 183), as mainstream economists, especially "vigilantes of economic correctness" (Hodgson, 1998, p. 189), are prone to do to disqualify pluralist socio-economic analyses of market phenomena. Rather, by virtue of dealing with market exchange and related economic phenomena in their social framework (Hicks, 1959) this approach amounts to an interdisciplinary, socio-economic analysis.
Implications for the present and future state of economic science can be far-reaching. Only by being attentive to the socio-logics of market transactions and the economy generally could economics reconstitute itself as a social science rather than as a sub-discipline of physics, mechanics, biology, or applied mathematics and statistics. In consequence, some kind of socio-logical economics (Lewin, 1996; Reisman, 1987) seems prima facie more plausible and viable than pure economics that is ostensibly free from impure and irrational socio-logical intrusions but unfree from physical, mechanical, technological, physiological, and other nonsocial ingredients. The mechanistic terminology of economic machine, market mechanism, and the like is quite indicative of economics' perverse, from a social science perspective, reliance on nonsocial categories and terms.
Hence, emancipation from this unbearable lightness of existence and servile dependence on such mechanistic Weltanschauung, reasoning and methodology is, in conjunction with the with the alternative loss of freedom in regard to social instrusions, a necessary condition for re-establishing modern economics as what Mill and Keynes termed the most agreeable branch of moral (social) science, i.e., of sociology as thought by Mises, Wieser, Hayek, and other
Austrian economists influenced in this regard by Weber. Until and unless this is performed, prospective pure and socio-economists are likely be "puzzled by the persistence with which most economists clung to such a transparently deficient model" (Frank, 1996, p. 122) as the pure economic model of market exchange and related processes. This applies a fortiori of the sociological rational choice model of what is called social exchange or the noneconomic market as at best a metaphor or analogy (Arrow, 1997; Yeager, 1997), at worst as a nonentity (Etzioni, 1990). But, a more detailed treatment of this is a topic for another analysis.
Editorial assistance and guidance given by Professor Richard E. Hattwick is gratefully acknowledged. By their useful suggestions on an earlier version of this manuscript, three anonymous referees have significantly contributed to its present form. Barry Levine, Steve Fjellman, and Walter Peacock, professors at Florida International University, have offered insightful comments on this and related subjects. Michelle Lamarre, employee at Florida International University, has been technically helpful in preparing this manuscript.
(*.) Corresponding author. Tel.: + 1-256-333-8246.
E-mail address: zafirn [greater than]firstname.lastname@example.org (M. Zafirovski)
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Utilitarian (rational choice) and Marxian conceptions
The capitalist economy (the base) [right arrow] the spirit of capitalism (economic culture) [right arrow] the Protestant ethic (religion)
The Protestant ethic (religion) [right arrow] the spirit of capitalism (economic culture) [right arrow] the capitalist economy
Fig. 1. The association between the spirit of capitalism and the capitalist economy. Utilitarian (rational choice) and Marxian conceptions the capitalist economy (the base) [right arrow] the spirit of capitalism (economic culture) [right arrow] Protestant ethic (religion). Weberian Conception Protestant ethic (religion) [right arrow] the spirit of capitalism (economic culture) [right arrow] the capitalist economy Figure 2 further simplifies and generalizes these associations in the following way.
Utilitarian (rational choice) and Marxian conceptions
The economy (the spirit, structure and practice of capitalism) [right arrow] religion (Protestantism) and all other culture
Religion (the Protestant ethic) and culture as a whole [right arrow] the economy (the spirit, structure and practice of capitalism)
Fig. 2. The association between religion, culture and the economy Utilitarian (rational choice) and Marxian conceptions the economy (the spirit, structure and practice of capitalism) [right arrow] religion (Protestantism) and all other culture Weberian Conception religion (Protestant ethic) and culture as a whole [right arrow] the economy (the spirit, structure and practice of capitalism).
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|Author:||Zafirovski, Milan; Levine, Barry B.|
|Publication:||The Journal of Socio-Economics|
|Date:||May 1, 1999|
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