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Bargaining policies and social exchange: review of a neglected concept.

Social exchange is the analog to so-called "economic" exchange. Having failed to notice the demise of homo economicus (e.g., Wicksell, 1910; Knight, 1934; Robbins, 1935), sociologists have been anxious to supplement a perceived narrowness of micro-economics with the richness of nonpecuniary costs and benefits. Persons who exert themselves to please others in the expectation of suitably reciprocal efforts are as much engaged in exchange as any collection of buyers and sellers.(1) Few economists would dispute this, but those who are unwilling to deal in the starkly subjective terms of psychic costs and benefits (e.g., Olson, 1965) have left a gap which sociologists might easily fill. The problem in so doing, which has scarcely been acknowledged on the sociological side, is that it requires a commitment to subjective theory.(2) There are, of course, two models of bilateral exchange from which to choose, one objective and the other subjective. And while it is true to say that sociological exchange theorists have never embraced the subjective model, it would be misleading to charge them with simple neglect. Better to say that the choice itself has seldom been clearly perceived.

With the publication of The Organization of Academic Work (1973), Peter Blau acknowledged this choice by announcing his disinterest in sociological theories that "are built by discovering interpretations of empirical observations and social processes that are meaningful in terms of human experience" (1973, p. ix). He maintained what he called the co-validity of "micro" and "macro" sociological theories (1977, p. 3) but made it clear that his own interest had turned to theory that "is designed to explain empirical findings by the fact that they fit into a meaningful pattern of interrelations" from the viewpoint of an outside observer (1977, p. 243). By this default, Exchange and Power in Social Life (1964) would remain his definitive "praxeological" treatise.(3) Viewed as such, it was incomplete in some respects and posed problems for the careful reader.

Like the majority of sociological theorists past and present, Blau tended to slur the distinction between objective and subjective theoretical perspectives (see Appendix) in an effort to weave elements of each into an overarching purview of the social realm. The insights afforded by such a mixing of paradigms may be considerable but the method itself, which is logically inconsistent, should be distinguished from social scientific theory, per se. Soon after the appearance of Exchange and Power, George Shackle correctly identified the melding of paradigms as species of social philosophy (1965, pp. 195-196).(4)

That Blau became aware of the logical contradictions inherent in his method can probably be inferred from his eventual decision to break entirely with the subjective. This was more a withdrawal from the eclecticism of his earlier theoretical work than a crossing over from the subjective to the objective. His personal exit from the realm of social action, however, did not lessen the power of the ideas he had already deposited there. Through his efforts a collage of concepts, some original with him, some the currency of his generation, took form as the grand edifice of social exchange.(5) The portion of Blau's work examined here forms an important chapter in the recent history of the social sciences. It is also a clear expression of ideas that remain embedded in the mainstream of sociological thinking. Received ideas, as we know, are protected insofar as they are no longer discussed. To find the discussion one must often return to its sources. For better or worse, Peter Blau struggled openly with the basic concepts of his field, defining terms and making arguments in the quiet and sometimes desperate manner characteristic of the person who has undertaken a major task.

Among his many contributions, Blau described the process of bargaining in aid of exchange. He was guided in this effort by the seminal work of F.Y. Edgeworth who gave us the social scientific concept of "indifference" (1881).(6) By the time Blau came to the task of working out the details of social exchange, Edgeworth's paradigm had long been called into question. Aided by the kaleidic perspective which was the culmination of Keynes' long struggle with received theoretical concepts (Keynes, 1937), George Shackle (1949, pp. 101-108; 1970, pp. 135-147) developed an alternative to the Edgeworth model which allowed adequate scope for the unfolding of human action. This paradigm lay available to Blau, but was unavailed. He never mentioned an alternative in his published works and had he known of Shackle' s, he might well have recoiled from its consistent subjectivism. The two paradigms, Edgeworth's and Shackle's, stand respectively at the opposing poles of objective and subjective.

The following will be divided into four sections. The first will set out the elements of Edgeworth's neoclassical model, the second will outline Blau's adaptation of these elements to his own purposes, and the third will offer the contrast of Shackle's model. Out of this context, a fourth and final section will examine the limitations sociological theory imposes on what it is possible to think, and thereby, upon what it is possible to see.


As conceived by Edgeworth, quantities of two homogeneous goods are displayed, respectively, along an abscissa and ordinate intersecting at zero amounts. He drew his diagram in the conventional manner with the origin at the lower left. The indifference curves for two negotiating parties pass through the origin to connect an array of points at which each individual, respectively, will be indifferent to trading. That is to say that an exchange made on the jointly quantitative terms identified by those points will leave one or the other of the participants no better or worse off with a transaction or without. In Edgeworth's diagram, the abscissa represented amounts that Crusoe would pay Man Friday for increasing quantities of work, and the ordinate, the amounts of work Man Friday would perform for increasing amounts of pay. As shown in Figure 1, the curves of the two men describe lines which resemble the nose of a football wedged into the origin, slanting from the lower left at its tip toward the upper right. Crusoe's indifference curve is the lower edge of the football, starting at the origin moving sharply to the right and upward. The further from the origin the more steeply it slopes upward. Man Friday's indifference curve, the upper edge of the ball, also starts at the origin and moves upward steeply and toward the right. As it rises, its slope flattens out so that it moves further and further to the right with each subsequent upward movement.

The shape of an indifference curve is said to reflect a preference ordering (or "utility function," as it is often called) which includes for this example, the relative values of money, leisure, and the fruits of labor. Declining marginal utility, then, insures that the indifference points will not describe a straight line. The act of exchange is designed to decrease the actor's holding in one good in favor of increased holdings in another. As Crusoe's stock of money declines, what he has left becomes more valuable to him at the same time that additional fruits of Man Friday's labor become less valuable. Man Friday's situation is no different. As he works, the money he receives from Crusoe becomes less and less attractive in relation to leisure and work he might do for himself. If preferences change, of course, the shape of the indifference curve will be altered. It should not be forgotten, however, that the utility function, so-called, is no more than a construct through which behavior may be interpreted as action. It has no independent existence apart from behavior (e.g., Mises, 1949, pp. 94-95).

If Crusoe offers terms which lie on Man Friday's indifference curve, the offer will be declined (likewise, if Man Friday offers terms which lie on Crusoe's indifference curve). Terms which lie in the area between the two curves, however, represent opportunities for mutual gains through trade. We have to bear in mind that we are not dealing with objective entities such as ounces of silver which might have been paid to Man Friday by Crusoe, or some number of tons of rock that might have been moved by Man Friday for Crusoe. Our only concern is the relative value each individual assigns to the goods exchanged. A point which lies just inside Crusoe's indifference curve, which is to say just to the left and above it, will be far from Man Friday's. It is tempting to say that an exchange struck on these terms would benefit Man Friday much more than it would benefit Crusoe; but this is an illusion. We lack the means to compare the utilities enjoyed by these two individuals.(8)

Any point between the indifference curves falls on what has been called a pair of "higher" indifference curves for the two actors. The number of these curves is infinite and they all display the same general shape as the curves at which the participants are truly indifferent. These subsequent curves might as well be named equal benefit curves because they indicate all the terms of transaction which will yield the same utility gain. Man Friday, for example, might be indifferent to a contract with Crusoe on the terms of three hours work for five dollars pay. This implies that he would benefit from any contract to work three hours which returned more than five dollars. If Crusoe offered six dollars, Man Friday would find himself contemplating a higher indifference curve, in terms of which he might, hypothetically, derive the same gain in utility by working six hours for fifteen dollars, or nine hours for twenty-seven dollars. If he were inclined to accept the three hour contract, he would also accept a contract for six or for nine hours, provided the pay reflected the requirements of this higher indifference curve.

It is clear that each of Man Friday's higher indifference curves will lie tangent at some point to one of Crusoe's; and further that these points of tangency will themselves describe a curve which Edgeworth called the contract curve. It takes the form of the quarter circle which could be drawn from the ordinate to the abscissa from a center lying below and to the left of the origin as shown in Figure 2. As the negotiation between Man Friday and Crusoe develops, numerous terms may be suggested on both sides as the bargainers discover new points from which they may both derive greater benefits than from previously enumerated points. This process of negotiation will continue until they hit on one of the points of tangency, whereupon further haggling will prove fruitless. Once they have gotten onto the contract curve the game becomes necessarily zero sum such that any further gain to one will impose a loss on the other. Neither party will budge from the spot and the deal will be struck on those terms. The arc of the contract curve lying between the indifference curves, in other words, represents a region of indeterminacy within which the model is powerless to yield any greater precision.

As a socialized human being, Professor Edgeworth was aware, of course, that bargaining in bilateral monopoly would embody a tendency toward mutual dissimulation. But as a neoclassical economist he was accustomed to thinking of individuals as possessed of a capacity and will to become fully informed before making a final choice. As Shackle notes, "Full knowledge is essential if a man is to be able to demonstrate that his choice of action is the best by some public and objective criterion" (1971, p. 142). Following Shackle, one might say that Edgeworth did not altogether fail to recognize the logical flaw he had exposed in the very fabric of neoclassical thought. Rather than explore its implications then and there, however, he turned his attention elsewhere. To have acted otherwise might have destroyed the neoclassical paradigm in its infancy. When Peter Blau set about adapting this model to social exchange some eighty years later, all efforts to repair the logical difficulty which afflicted Edgeworth had only served to underscore its indelible nature. These efforts had caused more than a few to abandon the model.


Blau's work serves up illustrations which traverse a wide spectrum of human relationships, but his primary analysis deals with the exchange of expert advice in the workplace for an obeisance most commonly labeled compliance. His creditable account of negotiations between lovers explains that each party is motivated "to conceal his or her affection from the other and possibly also from himself or herself' (1964, p. 77).(9) Yet, on the following page, we read "that the individual whose spontaneous affection for the other is stronger must accede to the other's wishes and make special efforts to please the other." Like Edgeworth before him, Blau was alive to the human tendency toward dissimulation in bilateral bargaining. As he took up his concern with the work place traffic in advice and compliance, he readily acknowledged that "The man who reveals his great need for advice may have to pay more compliance for it than the one who successfully conceals it." "The point reached on the contract curve," as he said, is influenced by "the skills of each in concealing how much he would be willing to return for the benefits obtained if he had to" (p. 176). As Blau could identify whose spontaneous affection was stronger, or which person had the greater need for advice - he never explained how the social scientist as outside observer could make this determination nor how the parties to the bargaining relationship itself could figure it out.

Blau's only attempt to answer these questions is given in a brief discussion of bluffing. Noting the human inclination to dissimulate, which he said is probably ubiquitous, he concluded that "outright bluffing is undoubtedly more prevalent in casual encounters than in enduring groups." "Bluffing in group situations," as he said, "involves great risks, since there are recurrent opportunities for discovering deceptions," and the individual who is caught in a bluff will surely suffer a "loss of respect" (p. 74). He cited the illustrations of a poker game, wherein the calling of bluffs is provided by rule, and self-reports of physical prowess, which are likely to elicit a challenge in quarters where such claims can be taken seriously. Blau did not rule out the incidence of dissimulation in group situations, but he put the reader on notice of its unimportance to the main line of his theoretical intentions.

The basis of Blau's discussion, where this main line is taken up, is pure Edgeworth in all respects save that his figure (p. 175) conforms to the more contemporary style of the Bowley-Edgeworth Box Diagram (see note 7). He embellished this basis with a foreign element which he called the "exchange opportunity line." According to Blau, this latter represents "A fair rate of exchange, based on accepted social norms of what is a fair return (in compliance) for expert advice" (p. 174). Adapted to the Edgeworth format, exchange opportunity can be represented by a straight line drawn from the origin through a point of intersection with the contract curve as shown in Figure 3.(10)

The reader should be forewarned that the conflicting paradigms overlaid one on top of the other in figure 3 will require discontinuities in discussion as Blau's attention shifts from Edgeworth's neoclassical model to the Durkheimian ideas embodied in the exchange opportunity line. Commencing with the latter, one might have expected Blau to offer the exchange opportunity line as the solution to the indeterminacy problem which had so offended Edgeworth. Individuals who conform to "accepted social norms" that establish prices have no need of bargaining. Departure from "accepted norms" is in fact the essential meaning of the verb "to bargain." Probably without intention or even a realization of what he had done, Blau cut right through the paraphernalia of multiple indifference curves, negotiation, dissimulation, and all that these entail, to arrive at a conclusion which was empirically inadequate, even on his own terms. He was aware that the "accepted social norms" of the work group are generally ignored. This sudden Durkheimian thrust, which will be more fully explored momentarily, created a world in which "actors," if they could still be given that designation, would find their preferences restricted to a minuscule sub-set of orderings; a condition which Arrow referred to as dictatorial (e.g. 1963, p. 59).(11) Only in such a world could an exchange rate specifying terms of constant proportionality be found. In the familiar world, from the constricted spaces of bilateral monopoly expanding outward toward the ideal of a market setting, it would be the rare merchant indeed who neither expected nor gave "discounted" prices to motivate larger transactions.

The importance of normative elements, whether internalized by the whole population or not, is fully accounted for in the neoclassical model. The preference orderings we encounter there as indifference curves, embody powerful normative and value components. It is these elements above all else which account for the shapes of the curves. It is as if Blau disaggregated some original set of indifference curves, culling from them the "price norm influences" he needed for the exchange opportunity line, which he then presented in his Figure 2 (p. 176) with a new set of indifference curves redrawn to display their shapes net of the normative influences. There is no logical accounting for the disaggregation, but it may be worthwhile to ask what purpose an operation of this sort might serve. For the critic it illustrates the striking logical inconsistency between the theoretical elements Blau was attempting to meld. What it may have represented for Blau, however, remains to be seen.

The major sociological concern with exchange has been closely bound up with unequal exchange, and in this Blau's work poses no exception. The burden he assumed in writing Exchange and Power was the establishment of status and power as the indistinguishable fruits of voluntary social exchange (e.g., pp. 14, 22). Though he recognized coercion as power (e.g., pp. 22, 92, 122, 124, 322), he claimed that it differed only in degree "from the power that rests on the supply of needed benefits" (p. 125).

To accomplish his purpose, which amounted to equating the voluntary to that which is coerced, Blau or any other theoretician must ultimately abandon the conceptual distinction. Circa 1964, Blau may still have been willing to pay it lip service, but its voluntary side was so effectively submerged as to replace action itself with an array of stimuli. There is a peculiar way in which the exchange opportunity line serves both to facilitate Blau's shift of paradigm and at the same time conceal the nature of his undertaking. To get at this more directly it is necessary to put a series of questions. First, for whom must Blau's "fair rate of exchange" appear as fair?(12) Fairness can, and presumably must, be based on "accepted social norms" which define a return as fair. Having stated the proposition, however, Blau turns immediately to an extended neoclassical analysis of the exchange process which offers no scope to fairness and in which the exchange opportunity line is nowhere to be found. Fair exchange, it would appear, seldom appeals to anyone. As Blau said, "Even in bilateral may be, and often is, to the advantage of both parties to depart from the fair rate of exchange" (p. 174). To sharpen Blau's point only a little, he affirms that the fair rate of exchange is often inadequate to people's needs. If there were a need for fairness, however, wouldn't that have to be taken into account? And hence we must ask, who could decide that it needed to be taken into account, and finally, who would do the accounting? We find ourselves at this point paraphrasing Durkheim who held that "The agreement of parties cannot render a clause just which by itself is unjust, and there are rules of justice whose violation social justice prevents, even if it has been consented to by the interested parties" (1893, p. 216). Viewed in a Durkheimian context which demands that an individual be forced "to act in view of ends which are not strictly his own (1893, p. 227), Blau's exchange opportunity line no longer appears so out of place. It becomes less important how many, or even if any, of the co-workers accept the normative standards embodied in the line, in so far as it represents a vision standing "outside of and above individual and local contingencies," which "sees things only in their permanent and essential aspects" (Durkheim 1915, p. 444).(13) If it accomplished nothing else of a positive nature for Peter Blau, the exchange opportunity line could serve as a representation of the Durkheimian paradigm which competed for his attention, even as he unfolded an otherwise neoclassical account of social exchange.

The abolition of action combined with a grant of Durkheimian insight are sufficient to establish unequal exchange as empirical fact. Durkheimian powers alone, however, still will not solve the problem of locating indifference curves. For this Blau had recourse to the rational action perspective. The "theoretical model of social exchange" (pp. 179-194) which Blau unfolded immediately after having presented his diagram of indifference and exchange opportunity is unremarkable in its faithful adherence to the practices outlined and recommended by Boulding (1955). Variables such as proportion of experts, complexity of tasks, and the significance of social status are presented as independent variables for the prediction of changes in the status differentiation of working groups. He concedes that imperfections in specification will allow only probabilistic predictions, but there is no doubt, at least in Blau's mind, as to his model's empirical reference.

Some of his variables, proportion of experts and complexity of tasks, for example, may be readily operationalized. Others, however, such as the significance of social status and particularly his dependent variable, present problems which are not sufficiently acknowledged. Superficially at least, the operational definition of the dependent variable may seem straightforward. Reduced to its simplest terms, the intensity of status differentiation increases with the "price" of expert advice. As Blau put it, "An increase in the rate of compliance per unit of advice strengthens the power of experts over others and intensifies the differentiation of social status in the group" (p. 187). It was noted earlier that the utilities of Man Friday and Crusoe are not functionally related to such material entities as ounces of silver and tons of rock. Blau evidently acknowledged this distinction by allowing the significance of social status to vary. But if experts collect more compliance which is less valuable to them, are they getting a higher price? Keynes' warning about theories that are "one equation short of what is required to give a solution" (1937, p. 222) has lost none of its relevance over the years. Ultimately, the missing equation must be made good in the form of yet another assumption supplied by the researcher.(14)

Aside from Blau's particular operational problems, if the additional necessary assumption is made consciously, the empirical reference of the theory will give way to the a priori methodology developed by Mises (e.g., 1949, 1957, 1962, 1976), in which the propositions Blau treated as "hypotheses" are accepted as true. The researcher who applies this method will attempt to determine which of the theoretical elements can be used to explain historical changes in a dependent variable. As Rothbard explained, the only test of such a theory "is the correctness of the premises and the logical chain of reasoning" (1975, p. 4). The complexities of tests "by historical and statistical fact" are such that empirical failures of confirmation are as likely to elicit cognitive dissonance as to lead to meaningful theoretical revisions (e.g., Festinger, Riecken, & Schachter, 1956).

If the assumption which must stand proxy for some missing equation is made unconsciously, it simply produces bad theory. Shackle, to whom we will appeal in the following section, amplified the consequences of the deed with an eloquence sufficient to justify extended quotation (1979, p. 151).

If we were allowed to...introduce from somewhere outside of the evidence which we actually possess, some additional premisses...we have to ask: May not some different conclusion be able to suggest itself, for which some different additional premiss would serve...and thus provide us with a rigorous demonstration of a conclusion contradictory to our initial one? May there not, indeed, be an infinity of conclusions, different from our first proposal, which could be attained by additional premisses which we could invent? If so, on what ground could we prefer one rather than another of these conclusions?


Hayek (1937) pointed out well over half a century ago that the social scientist must accept the responsibility of explaining how actors come by the knowledge they employ in everyday life. Shackle's task in approaching bilateral exchange was to discharge this responsibility by opening up the Edgeworth model to the potentials of human action. His initial impulse to this end was to investigate the policies an individual might choose to employ in the arena of possible gains from trade. He proposed two alternative policies identified as "the possible loss of face" and "the possible breakdown of negotiations." He also developed a third alternative, referred to as "the combined policy," which incorporated elements of both of the former. His "combined policy" will be omitted in the following.

There are two possibilities for gain which have to be weighed against each other in any situation of potential exchange. The first and more obvious is the immediate gain of transaction. The resolve made prior to negotiations, to realize an immediate gain from trade, is what Shackle called the "possible loss of face policy." The person adopting this policy will certainly bargain in the hope of realizing a larger rather than a smaller gain, but is willing, should the need arise, to "lose face," as it were, by allowing his or her gambit bid to be driven lower and lower, practically to the edge of indifference. Individuals in dire need might be expected to favor such a policy(15) as would people who find themselves among strangers.(16)

Blau demonstrated at least some sensitivity to this latter when he asserted that "outright bluffing is undoubtedly more prevalent in casual encounters than in enduring groups." Blau's terms, like those of many social scientists, tend to lack precision, but it seems reasonable to suppose that "outright bluffing" could be a reference to radical alterations of bids in negotiations leading to trades. This is only to say, however, that the observer of negotiations between strangers would see more concrete evidence of bluffing than would the observer of negotiations between members of "enduring groups." The conclusion which Blau drew from this, that bluffing is rare in negotiations between the members of enduring groups, does not follow logically from its premise. In effect, Blau committed to a rule whereby things undetectable to outside observers are considered not to exist. As if to reassure himself of the virtual omniscience of outside observers, he immediately explained the supposed infrequency of bluffing in enduring groups by the "great risks of detection" he thought it entailed. In advancing this claim he was, of course, merely reiterating his faith in the infallibility of outside observers.

Blau would have done better to ask why bids and offers are successfully challenged with such frequency in the negotiations between strangers. The reason, which Shackle had already provided, is that actors choose to allow it. The absence of any realistic prospect for long-term gain frees actors to concentrate their attentions on the immediate chance. The prospect of losing face, which can only be momentary under the conditions posited, is not likely to bring the individual to walk away from an equally fleeting opportunity for gain. If human beings were limited, somehow, to the possible loss of face negotiating policy, the world would be as Peter Blau described it. The essential device of the rational action theorist is to constrain the choices of individuals to a range so narrow as to obviate even the possibility of action. In assuming away the practicability of bluffing between the members of enduring groups, Blau also eliminated the practicability of negotiation itself. This restrictive assumption was, of course, made only by implication, but we have come to understand that it is the implicit assumptions - that ramify "into every corner of our mind" (Keynes, 1936, p. viii) - that pose the greater danger in social scientific endeavors.

Shackle's second alternative, the possible breakdown of negotiations policy, had become invisible to Peter Blau by virtue of the implicit assumptions to which he had previously committed. This policy is chosen by actors who conceive realistic opportunities for long-term gains which they feel free to pursue. The prospect of these future gains must, of course, be weighed against the more certain prospect of immediate gains.(17) The risk of exposure which Blau took to be so great in the enduring group was strictly an artifact of his paradigm. Exposure is impossible for anyone who refuses to allow it.

Competition, as Hayek said, is most fruitfully viewed as a discovery procedure (e.g., 1948, 1978, 1979) though which individuals attempt to fill in as many as possible of the missing pieces of information upon which their expectations about the future must depend. In the case of bilateral monopoly, the discovery process is a simple one. Through a series of gambits, both of the parties participating in a negotiation attempt to discover as much as possible about the shape of the other's indifference curve while concealing the shape of her own or his own. If we can assume that the preferences and endowments of the two parties are at least momentarily fixed, then the negotiation serves no other purpose.

The reader will recall that the Edgeworth model assumes that negotiations will continue until the parties stumble onto the contract curve whereupon a contract will be made. As Blau put it, echoing Edgeworth's earlier complaint, "The point on the contract curve that is reached depends on the bargaining strength of the two parties, in other words, on factors outside the theoretical model" (p. 175). The neoclassical argument that Blau embraced stipulated that each of the parties to a prospective exchange would know when the negotiations had struck a point of the contract curve, and would therefore also know that the other would be better satisfied with a contract on those terms than with no contract at all - and further - that the other would be better satisfied with that contract than with one struck on terms lying anywhere off the contract curve. Hence, making the contract became inevitable to both parties, wherever along the contract curve they might have landed. Knowledge of location came quickly as one or both parties refused the offer to move to any other point, and the rest followed immediately from the pure logic of choice.

It is interesting to note, therefore, that in matters of pure exchange, "bargaining strength" can have no other referent than the information each party is seeking. Once this is acknowledged, the inadequacy of the neoclassical model is starkly revealed. Interaction leading to specific contracts could not help but reveal the indifference curves of all the players, thus making a nullity of bargaining strength. An individual caught up in such a situation who refused a contract out of boredom or sheer frustration would thereby "invent" the possible breakdown policy.

If Blau had tried to think of a reason why an actor might risk forgoing gain in the present moment, his serious interest in the possible "investment significance" of social exchange must surely have led him to the most obvious conclusion; that an actor might be led to do this by the prospect of some larger and continuing future gain. The route to this future gain is, of course, to allow negotiations to break down - thus renouncing the present gain - in the hope of convincing the other party, along with as many bystanders as possible, that one's own indifference points describe a much sharper curvature than may have been imagined by the other, and also thereby, to convince the other and all potentially interested parties that the present offer does not lie on the contract curve.(18) When negotiations are carried on in this fashion the term "bargaining strength" becomes meaningful in the sense of the degree to which an actor may be able to distort the public perception of his or her indifference curve.

The possible breakdown policy is a true investment strategy. In formulating an action plan, which includes the adoption of a bargaining policy, the individual can discount to the present moment the gain expected from either. "The opportunity-cost of adopting the possible breakdown policy," as Shackle said, is plainly the sacrifice of the best hope the individual could have entertained, "under the possible loss of face policy." Alternatively, the opportunity cost of the loss of face policy is the sacrifice of the best hope of future gains attainable through the possible breakdown policy (1970, p. 146). In comparing the Edgeworth model with his own, Shackle called attention to "the crippling and misleading effect" on analysis which results from neglecting "the question of what people can know and how they can come by their knowledge" (1970, p. 147).


Thomas Kuhn pondered the difficulties we encounter in attempting to grasp two conflicting paradigms at the same moment. In considering individuals as different as Galileo and Aristotle, Kuhn asked, "Did these men really see different things when looking at the same sorts of objects?" (1962, p. 119). Shackle put it more directly when he said that "what is seen," in the sciences of human action, "is built upon what is thought" (1972, p. 66). It is hoped that the power of these ideas has been adequately demonstrated in the above.

One of Blau's chief aims in writing Exchange and Power in Social Life was to show that exchanges were in fact investments which accounted for power and status differentiation in human groups. Drawing an analogy between power and prestige, on the one hand, and capital on the other, he concluded that "the person whose superior social status is pronounced and secure" can live on its interest without using it up (p. 134). Blau did cite Keynes' General Theory of Employment Interest and Money secondarily through Kenneth Boulding (p. 300, note 19), but he evidently missed Keynes' famous assertion that whereas "interest has been usually regarded as the reward of fact it is the reward of not-hoarding" (1936, p. 174). Hoarding, as Keynes went to some trouble to point out, generates no return. Given the reliance Blau obviously placed on the Keynesian views taken from Boulding, he could not logically have disagreed with Keynes' ideas about hoarding. The former views were based on the latter. Suffice it to say that Blau's misunderstanding of the nature of capital proved instantly fatal to his analogical reasoning.

Direct examination of the phenomenon of social exchange makes it obvious that the individual who stores up claims for favors only to recall them at some future time is merely hoarding. Blau's own assertion that "The power to demand compliance is equivalent to credit, which a man can draw on in the future to obtain various benefits at the disposal of those obligated to him" (p. 22)(19) negates his premise given a page earlier, that the supplicant "has nothing to offer." Insofar as this kind of exchange is not a credit arrangement, we are left with the alternative that compliance, in the form of flattery which may be bestowed upon experts as the price of their helpful advice is immediately enjoyed by its recipients as a consumer good.

As we have already seen, Blau's thinking was heavily influenced by the concept of unequal exchange which had probably been reaffirmed as a mainstream theoretical concept by Gouldner's then recent publication of "The Norm of Reciprocity." Therein, Gouldner stated quite matter-of-factly that objective value equivalence between things exchanged could be "measured by economists or other social scientists" (1960, p. 172). Gouldner did not identify these "other social scientists," but so far as the economists are concerned, his information was sadly outdated (see the sources cited in note 8). The objective measurement to which Gouldner alluded requires the services of an outside observer, to be sure, but it also implies a universal objective ordering of preferences which the outside observer can read. To this day, the concept of unequal exchange lies as a blight upon sociological theory. Its wretched existence is extended from one generation to the next of practitioners, who, like Gouldner, simply accept it as a concept that must long ago have withstood some rigorous test that raised it above all criticism.

With some oversimplification, it is convenient to summarize with the observation that Blau's vision of unequal exchange grew directly out of his glossing of the distinction, previously discussed, between what is voluntary and what is coerced. If one treats this difference as one of degree, unequal exchange will be likely to appear to the investigator wherever he or she misses or refuses to acknowledge the coercive elements which are so often present in human interaction. As emphasized throughout, the Peter Blau of 1964 was attempting to mix together two logically dissimilar paradigms. His implicit acceptance of the outside observer entailed a paradigm shift from the subjective to the positive. With this in view it is perhaps easier to grasp that the distinction between the voluntary and the coercive loses relevance for the simple reason that the voluntary, which is to say action, vanishes altogether. It leaves only behavior eliciting stimuli which could as well be called "coercers" of larger and smaller degree.

Blau never provided an argument by which social exchanges of the type he described throughout his work could be shown to have an investment significance. Given that neither he nor anyone else could show logically that uninvested dollars produce an income, he assumed the burden demonstrating how the services which pass back and forth between interacting individuals can be said to generate some' future value which would be greater than the value that might have been realized in the absence of the action calculated to bring it about. The crippling and misleading effect of which Shackle warned completely thwarted his efforts to assign an investment significance to any aspect of social exchange.

If that were not enough, Blau's efforts also contributed greatly to the solidification of an important pitfall which continues to damage empirical research. The researcher who accepts the restrictive assumption by which Shackle's possible breakdown policy is eliminated will see a contract curve in the terms upon which any social exchange contract is struck. Contrarily, of course, where negotiations prove unavailing, alert observers will have no choice but to conclude that the parties were unable to locate a contract curve. Putting this more pointedly, it appears virtually certain that the outside observer will be less well equipped to interpret on-going action than the least informed of the naive subjects.

Subjects who, during the observational phase of research, may be investing in the hope of strengthen their bargaining positions will appear to the researcher as ineffective players, particularly if they have been coded as supplicants. Blau never fully acknowledged the symmetry of the social exchange relation. His redundant reference to "needed benefits," quoted earlier, carries with it the none too subtle suggestion that non-experts will negotiate from disadvantaged positions. Every party to a social exchange is both buyer and seller and there is no reason whatever to expect that bargaining skill will be the monopoly of expert advisors. Finally, the "quality" of goods exchanged will be confounded with the fruits of successful past investments in bargaining strength. The outside observer who applies the neoclassical model is provided no legitimate means for assessing bargaining strength and will thus necessarily perceive it as an aspect of quality difference. The conclusions which the observer is disposed by the model to accept, in other words, will coincide exactly with the self-serving claims of the bargainers themselves.

Where the "knowledge" question is left unattended, outside observers of social exchange will consistently see both more and less than actually meets their eyes. To think theoretically at all, of course, means committing to a point of view, but the peculiar fault so conspicuous here derives from the inconstancy of the commitment. Persons are presented-as "actors," on the one hand, while, on the other, they are deprived of the most essential acting abilities and the carefully guarded secrets of individuals unaccountably become known to the outside observer. Cobbling together Durkheimian positivism with rational action, on the back of the theory of human action has placed the observer beyond all rational limits - which is to say - beyond the boundaries of social science itself.


The terms subjective and objective have been variously defined in the social sciences. In sociological writings addressed to method, subjectivism is often confused with philosophical solipsism and thus is said to deny the existence of an external reality (e.g., Trochim, 1997). No subjectivist in the tradition stretching from Karl Menger (1871) to the present day has ever made this claim. As Mises explained some thirty-five years ago, "it is not possible to question the real existence of matter, of physical objects and of the external world. Their reality is revealed by the fact that man is not omnipotent." Human beings who wish to survive in this world, he added, "must proceed according to methods that are adjusted to the structure of something about which perception provides...some information" (1962, p. 6).

Sociologists have also claimed that the fallibility of measurement including observer biases of every description make inevitable the acceptance of some degree of subjectivity. Trochim (1997), again, describes the sociological research process as a triangulating and pluralistic effort to get at a truth which apparently underlies or stands above or beside the noisy error of human endeavor. Describing a perspective identified as post-positivist critical realism, he rejects "the idea that any individual can see the world perfectly as it really is" (1997). In claiming this he has glossed the confusion embedded in the forms of the verb "to be." The subjectivist will agree that noise and error will defeat the individual in his or her quest to "see the world perfectly as it really was," but the bar to seeing it "as it really is" completely outstrips the feeble constraints imposed by measurement errors.

The essence of the objective/subjective distinction employed here follows directly from Blau's discussion cited in the essay's second paragraph. A theory which makes provision for the "outside observer" is an objective theory. One which does not is subjective. Objective theory is necessarily either static or employs a mechanical conception of time. Subjective theory, on the other hand, must attend to the difference between what is past and future. The critical distinction between ex post and ex ante was first introduced to the social sciences by Gunnar Myrdal in 1931. His work was translated into German in 1933 and finally into English in 1939 as Monetary Equilibrium. It is probably not familiar to more than a handful of sociologists. What is "seen" ex ante is subjective by reason that it has not yet occurred and is thus quite removed from empirical scrutiny.

However they may differ as to particulars, all definitions of social action contain a future reference which, by the above, gives action theory a subjective reference. Compare the definitions given by two individuals as different as the anarchistic Murray Rothbard and Talcott Parsons - who evidently believed that centrally planned economies could function efficiently (e.g., Weber, 1968, p. 207, n. 17).

All action aims at rendering conditions at some time in the future more satisfactory for the actor than they would have been without the intervention of the action (Rothbard, 1962, p. 3).

The concept end always implies a future reference, to a state which is either not yet in existence, and which would not come into existence if something were not done about it by the actor or, if already existent, would not remain unchanged (Parsons, 1937, p. 45).

These definitions, of course, imply that the future is not determined and that actions, therefore, derive from individual decisions or choices which are neither illusory, as they would be in a determined world; empty, as they would be in a world of perfect knowledge; nor powerless, as they would be in a chaotic world (e.g., Shackle, 1961, pp. 3-7). The sociological mainstream evidently accepts only the last of these provisos as it persists in the oxymoranic exercise of researching the "determinants of choice." Subjective theory can accommodate as much influence from nature and nurture as might shed light on the circumstances in which actual choices are made - so long as the inquiry stops short of determining claims. The minimum requirements of subjective theory in this regard were eloquently described by Isaiah Berlin who wrote that

Freedom to act depends not on absence of only this or that set of fatal obstacles to actions - physical or biological, let us say - while other obstacles, e.g. psychological ones - character, habits, 'compulsive' motives, & c. - are present; it requires a situation in which no sum total of such causal factors wholly determines the result - in which there remains some area, however, narrow, within which choice is not completely determined (1954, p. 27, n. 1).

The past is, of course, completely determined. There is no disagreement over that, despite every species of revisionism and the Orwellian suggestion, total and perpetual domination by revisionists could be more than a fantasy. We may not be able to find out as much as we would like about past events but social scientists will not waste their efforts trying to convince each other that only one set of events actually transpired. Therein lies Trochim's truth. The future is altogether different and the present, however strongly it might be influenced by the past, exists for us only in the form of expectations which cannot be tested in the present moment. This is important to sociologists, because action is always directed toward the future and can only occur in the present. Within the parameters of subjective theory, it is not wrong to inquire as to the truth value of an expectation in the present moment; it is meaningless. There is no truth in the future.

It follows from this that whatever the outsider observes cannot be human action. Peter Blau may have been oblivious to this implication in 1964 when he published Exchange and Power in Social Life, but he had evidently grasped the essential point by the 1970s (e.g., 1973, 1977). The outside observer who has risen to this level of sophistication and can thus avoid careless and offhand references to action and actors, can indicate some species of past event "by what characteristics one might recognize the thing so designated," as Durkheim recommended (1895, p. 25), "then classify its varieties, investigate by methodical inductions what the causes of its variation are, and finally compare these various results in order to abstract a general formula." Under the best of conditions, however, such abstract general formuli may be indistinguishable from metaphysical principles.


1. Autistic exchange (e.g., Mises, 1949, p. 196) is not included as a species of social exchange.

2. To avoid what would amount to a lengthy digression at this early juncture, an appendix has been provided "On the Distinction Between Objective and Subjective in Sociological Theory." Given the ambiguity of "subjectivity" in social scientific usage it might be well to consult this appendix at an early stage.

3. No attempt can be made here to do justice to the corpus of Blau's work, nor even his micro theoretical position at mid-career.

4. To label these sometimes great edifices as social philosophies and to recognize them as such is surely not to denigrate, and such is not the purpose here.

5. This is not to slight other contributors to the edifice, of which the have been many. All, however, have shared a common body of essential defects.

6. Blau's discussion of indifference relies on Stigler (1942) and Boulding (1955). Edgeworth was never mentioned.

7. For the benefit of economists who have grown accustomed to the Bowley- Edgeworth Box Diagram, it should be noted that the figures presented here follow Edgeworth's original presentation. In the former, of course, bargainers are given separate origins, at the lower left and upper right corners of the box. This modification has the effect of making the indifference curves intersect at two points in the interior of the box to create a lozenge shape which corresponds to the area between the indifference curves shown below as Figures 1-3.

8. The logical impossibility of comparing utilities interpersonally was undoubtedly a very difficult constraint to swallow, but the mainstream of social scientists from one end of the ideological spectrum to the other has accepted it for nearly sixty years (e.g., Robbins, 1938; Bergson, 1938; but see also Coleman 1990, pp. 769-784).

9. All subsequent citations to Blau will refer to Exchange and Power in Social Life.

10. The Edgeworth model is "neoclassical," in the sense that it fully accepts the subjectivity of marginal utility while insisting on the rationality of human action. As a matter of convenience here, such models will be identified as "rational action" perspectives. This label is only intended to designate reliance on the assumption that actors employ perfect relevant information in decision making.

11. Scholars interested in so-called status economies will recognize immediately that there is no reason why "exchange opportunity" should be restricted to a single line. The number of exchange opportunity lines will be limited only by the number of castes (n) which make up the system as per the formula ([n.sup.2] - n)/2. In Burundi, to take a well studied example, ingabire is the term used to describe goods and services which are received from superiors, while the goods and services offered to superiors are designated as ingorore. Even if the goods and services are materially identical, ingabire take on additional value by virtue of their classification (e.g., Trouwborst, 1961).

12. The "substantivist school," collected around the late Karl Polanyi, employed the term reciprocity to designate the exchanges Blau is here calling fair. The importance of this terminological difference was underscored by Walter Neale who admonished us to bear in mind that "Reciprocity means that members of one group act towards members of another group as members of that group or a third or a fourth group act towards them. There is no implication of equality, justice, or the golden rule" (1957, p. 222, italic added).

13. Having failed, through the course of his long career to root out every subjective element still afflicting the collective conscience, even Durkheim himself did not claim the ability to read it as an open book. The impression he left us, however, is that professional sociologists such as' himself would know more about it than anyone else. His presumption in this regard was twin to the priestly prerogatives vouchsafed to the sociologist by August Comte.

14. Keynes' criticism was directed at such neoclassical practices as treating the interest rate as a function of the marginal efficiency of capital, when in fact, the marginal efficiency of capital could only be defined in terms of the interest rate. Blau's problem is strictly analogous. The intensity of status differentiation will remain undefined until a value for the significance of status is given. For social exchange in general fully half of the relevant data are missing. If one knew the relative status positions of two people engaging in trade, that information could be used to derive the value of goods exchanged. Contrarily, if one knew the value of the goods exchanged, that information would allow derivation of the relative status positions of the negotiators. But as neither of these pieces of information is known, one or the other must be invented by the investigator. There is truth in Clyde Coombs' assertion that "we buy information with assumptions" (1964, p. 5), but the coin of implicit assumption is seriously debased. It can only thrive under color of authority. Blau always "knew," somehow, that it was the girl who manipulated the boy and not the other way on - or neither. As a social scientist he was not entitled to that information.

15. Depending upon the urgency of one's immediate need it becomes progressively more difficult to focus on anything else. The "shortsightedness" of the needy therefore provides no reliable information about their perception of opportunities for future gains. There is no objection to supposing that the needy will always adopt a possible loss of face negotiating policy so long as it is recalled that need cannot be measured in objective terms.

16. The term "stranger" will be used to denote negotiations between individuals who hold no expectation that they will subsequently enter into new negotiations, or who do not expect to negotiate again under the same conditions. This latter can be illustrated by a salesperson who needs one more sale to meet an important quota.

17. Shackle gave due consideration to the uncertainties which are inescapable in the formulation of action plans. His initial exposition of the theory of a non-distributional uncertainty variable with its associated concepts of possibility (as distinguished from probability), ascendancy, and the standardization of focus gains and losses first appeared in Expectations in Economics (1949). Its most fully developed expression, which included a clarification of the subtleties of the neutral outcome concept was published a dozen years later as Decision Order and Time in Human Affairs (1961).

18. It should be noted as a technical point that an actor must assume that the other party to a negotiation is not dissimulating in order to feel that he or she is considering terms which actually lie on the contract curve.

19. Blau's repeated acknowledgments of the hoarding significance of stored favors, included a citation to Homans (Blau, 1964, p. 135, n. 26) who wrote that "To ask a man to do something and refer, if only indirectly, to the favor you did him earlier is to admit that the favor was only done in order that it should be returned; and to lay bare your calculation in this way is to destroy your moral superiority" (Homans, 1961, p. 299).


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Date:Sep 1, 1998
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