Socio-economics

Toward a New Synthesis

Amitai Etzioni, Paul R. Lawrence

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315490113
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This work is organized in seven sections around major themes of socio-economics. The first section outlines socio-economics in an historical perspective, drawing on the "Methodenstreit" in the German school of economics at the turn of the century. Four additional essays view economic behaviour from the perspective of psychology, sociology and values outside the realm of economics. The second section of the book explores the process of choice and goals made by the variety of economic factors, among them factors that influence choices, values and motivations outside economics. The next two sections, each containing three papers, examine executive leadership and entrepreneurship from the broader socio-economic perspective. Section five includes papers that deal with the role of institutions in the modern political economy. It develops an institutional theory of markets, firms, human values in economic behaviour and investment in ethnic goals and morality. Section six focuses on the modern corporate culture considering collective human capital. The final three papers examine the boundaries that embrace the processes and activities of firms. They consider the bonds and relationships that develop between firms and organizations in the modern political economy.

II
Socio-Economics—A General Approach

3
“The Battle of the Methods”

Toward a Paradigm Shift?

RICHARD M. SWEDBERG

In order to understand what socio-economics is—in the version of Amitai Etzioni as well as in its earlier, less well known Weberian version—one clearly has to look at the historical circumstances in which it has made its appearance. This is generally true for any complex of ideas, but in this case it is especially true. The reason for this is that socio-economics is basically a response against something else, namely, the narrow vision of mainstream economics. Socioeconomics, in brief, is a reaction against today's neoclassical economics as well as an attempt to go beyond it. In his recent book on socio-economics, The Moral Dimension: Toward a New Economics, Etzioni (1988, p. ix) writes: "We are now in the middle of a paradigmatic struggle. Challenged is the entrenched utilitarian, rationalistic-individualistic, neoclassical paradigm which is applied not merely to the economy but also increasingly to the full array of social relations, from crime to the family."

What is at the center of this new "paradigmatic struggle" (which is roughly the current American term for what the Germans used to call "Methodenstreit") is in other words the relationship of economic analysis to other kinds of social analysis. The key issue is not necessarily so easily presented, since what is at stake is exactly what the term "economics" is to denote. Is there, for example, a nonsocial, purely "economic" area, that is surrounded by institutions? Or is it rather so that "the economy" consists exclusively of social institutions? Several other positions, as we soon shall see, are possible as well.

From a historical perspective, it is important to distinguish between several distinct phases in the way social dimensions have been included in the economic analysis. Before presenting these, a caveat, however, has to be inserted: being a sociologist, I will basically equate "social analysis" with "sociology" in this article. This is of course not entirely proper, since "social analysis" also includes history and political science, as well as social psychology and social philosophy. For a full view of what is currently going on in today's paradigmatic struggle, the relationship of each of these sciences to economics has to be investigated. This represents a fascinating task, where many pieces of information are still missing. Take, for example, political science: according to Albert O. Hirschman (1980, p. xv), Machiavelli chose deliberately to exclude economics from the analysis in The Prince, a choice that was to have a profound impact on political science. Or take philosophy: according to Amartya Sen (1987), the kind of ethical-philosophical concerns that one can find in early economics have been more or less eliminated from contemporary economics, with its exclusive emphasis on an "engineering approach." Also, psychology has lost contact with twentieth-century economics. This happened around the turn of the century, when the link of economics to utilitarian psychology was deliberately cut off by such people as Joseph Schumpeter, whose first major work, Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie (1908), reads in this aspect like a veritable Monroe Doctrine for economics: there are to be no links between the new science of economics and the Old World of utilitarian psychology (Schumpeter 1908, pp. 541-47). Note also that this break with psychology took place before modern psychology had had its scientific breakthrough. Economics, in other words, never had to face theories, like those of Freud and Jung, where it is more or less taken for granted that human behavior is not always rational.

The phases that can be distinguished in the relationship between economics and social analysis are roughly the following:

1. The Time of Political Economy (late eighteenth century to late nineteenth century). During these years economists knew about many other aspects of society than economics, and there was an easy mingling in their books of institutional analysis, philosophical reflections, and straightforward economic analysis. According to John Stuart Mill, "A person is not likely to be a good economist who is nothing else. Social phenomena acting and reacting on one another, they cannot rightly be understood apart" (Mill as cited in Marshall 1891, p. 72).

2. The Methodenstreit, or the First Paradigmatic Battle between Economics and the Other Social Sciences (1880s-1910s). This is the period in modern economics when the transition from "political economy" to "economics" is made. This entails the radical separation of economics from history as well as from sociology, and it leads to the birth of economic history as a separate science. The motto of the winning side in the Methodenstreit now became the very opposite of what Mill had said: "A person is likely to be a good economist who is nothing else. Social phenomena acting and reacting on each other, economics can still be best understood apart."

3. Mutual Ignorance and Distortion in the Social Sciences (1920s-1960s). During these years modern economics comes into its own and is mathematized. The result is a series of successful analyses. The nonexisting relationship between economics and the other social sciences, which had been proclaimed in the Methodenstreit, is now routinized. Interdisciplinary interest among economists is replaced by ignorance in the other social sciences. The noneconomic social scientists, in their turn, stay away from economics. All of this has a distorting influence on the social disciplines.

4. Economic Imperialism and the Challenge of Redrawing the Boundaries in the Social Sciences (1970s-). Today we are witnessing two tendencies in the mainstream economic community vis-à-vis the other social sciences. On the one hand, economic analysis is turning even further inwards. But on the other hand, the economic approach is being used to analyze a host of topics that by tradition have been dealt with by only the other social sciences, such as the political system, the family, and law. This "economic imperialism," which represents a radical attempt to redraw the boundaries in the social sciences, is becoming increasingly accepted by mainstream economists, who were at first skeptical and hostile to it. It has also led to the emergence of alternative ways of redefining the boundaries between economics and the other social sciences.

Now, what Etzioni calls "socto-economics" belongs to the last of these periods and can be seen as both a response against the aggressive inroads of economic imperialism into the other social sciences, and as a reaction to the incapacity of economics to include any kind of genuine social dimension in its analyses of economic phenomena. In the rest of this article we shall devote much space to economic imperialism, since this movement represents something of a revolution in the history of economics, since it represents the first attempt since the turn of the century, insofar as economics is concerned, to redraw the map of the social sciences and end the isolation between economics and its scientific neighbors. Through the aggressive way in which it proposes to do this, it also threatens to unleash a new Methodenstreit or paradigmatic battle. The three main theses of this paper are (1) that such a new battle of the methods is on the horizon; (2) that it can easily become as destructive for the social sciences as the original Methodenstreit; and (3) that socio economics represents a creative and reasonable response to this threat. In order to show this, we need first to take a brief look at the German Methodenstreit. An additional reason for going back to this famous incident, it can be added, is that it was during the original battle of the methods that the idea of a broad synthesis of the social sciences called "socio-economics" was formulated for the first time. As we shall see, it was Max Weber who invented "socio-economics" or "Sozialdkonomik," to use the original German term. Weber's thoughtful comments on the destructive potential of the Methodenstreit and the need for a new synthesis of neoclassical economics and the other social sciences, are part of the tradition of modern social science and should therefore be taken into account today when we are on the verge of a new Methodenstreit.

The First Methodenstreit—and the First Appearance of Socio-Economics

In hindsight, it has been agreed that the Methodenstreit should never have taken place. People like Knut Wicksell, Joseph Schumpeter, and others who have studied the battle of the methods all feel that what was to become the key issue—should one only use abstractions or rather rely on detailed historical facts when doing economics?—was really a pseudo-issue (see, e.g., Wicksell 1904; Schumpeter 1954, pp. 814-15; Hansen 1968; Bostaph 1976, 1978). Still, the fight between the neoclassical economists and the historically oriented economists did take place—and with quite disastrous consequences for economics and the social sciences in general.

The battle broke out in the early 1880s and the two main protagonists were Gustav von Schmoller (1838-1917) and Carl Menger (1840-1921). Schmoller was professor of economics in Berlin and a singularly powerful figure in German academics (e.g., Bostaph 1976; JITE 1988). He was the founder and leader of the Younger Historical School of Economics, which was an outgrowth of the work of an earlier generation of historically oriented economists. German economics had been historical in nature from the very beginning, drawing on and adding to the tremendous prestige that surrounded history as an academic field in the young German nation. Schmoller saw economics as an ethically oriented science that focused on the community as opposed to the individual. Economic activities were an organic part of the life of the nation and. could therefore not be separated out. Schmoller disliked the abstract, theoretical style of British economics. He also detested laissez faire capitalism and was a strong advocate of state intervention in the economy. Economics, Schmoller felt, had to be treated as a historical science, where one patiently studies the myriads of historical facts. On the basis of studies of this sort, one could then in principle advance general laws. He also felt, however, that this was all in the future; as he used to complain, "You see, gentlemen, it is all so infinitely complicated!" ("Aber, meine Herren, es ist alles so unendlich compliziert"—Gay 1953, p. 411).

Carl Menger, Schmoller's great opponent, was professor in Vienna, the capital of the Austro-Hungarian Empire (e.g., Hayek 1934; Schumpeter 1951). The academic status of a chair in Vienna was high, but considerably lower than the status of one in Berlin, which was the center of German-speaking academia. In 1871 Menger published Grundsätze der Volkswirtschaftslehre, or Principles of Economics, and thereby became—together with Walras and Jevons—one of the originators of the marginal utility revolution. Menger's work was clearly in the tradition of British economics in the sense that he saw the formulation of general, abstract theorems as the main task of economics. He did not do any historical research himself, and he felt that historical economics represented an outmoded way of doing things.

Menger's epoch-making work from 1871 did not get a good reception in Germany, where it was either ignored or misunderstood. Schmoller, for example, did not review it in the journal he controlled, Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft. This angered Menger, who now sat down to write a justification of his method. This ended up as a general treatise on methodology in the social sciences with special reference to economics, Untersuchungen über die Methode der Sozialwissenschaften und der Politischen Ökonomie insbesondere (1883) (Investigations into the Method of the Social Sciences with Special Reference to Economics). In this work, which was to become the opening shot in the Methodenstreit, Menger argued that the exclusive emphasis on history in German economics was blocking all progress in economics. A historical approach might be useful in economics, if one wants to understand the development of a specific economic institution or of a specific country, but there has to be room for a theoretical perspective in economics—"theoretical economics"—which looks at more general economic phenomena, such as exchange...