Economics and Sociology

Adolf Löwe

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136519604
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Arguing that the disciplines of economics and sociology are inter-related and vitally important to each other, this book discusses major issues such as the effects of urbanization, population growth, and the growth of various forms of nationalism from both economic and socio-political viewpoints. In addition the significance and limits of pure economics are examined, as are the sociological factors in modern economic theory, as well as power and economic law.

CHAPTER V

THE SOCIOLOGICAL FACTOR IN MODERN ECONOMIC THEORY

I

OUR considerations relating to a society of exchange have also disclosed the real foundations of the academic and practical preponderance of economics within the social sciences during the nineteenth century. This preponderance and, linked up with it, the claim of economic theory to autonomy of method corresponds to a social reality which was to assume the form of economic interrelationship. Certainly this kind of autonomy means the very contrary of suprasociological purity. Ultimately it points to no mere question of procedure but to the substantial facts of a definite social reality, or at least of the historical tendencies making for the materialization of such a reality, namely to the cogency of a self-acting circular flow of bargaining transactions. In the interpretation of this unique state of affairs economic and sociological analysis necessarily become one and the same thing.

The early classical writers, above all Adam Smith, were well aware of that twofold aspect of their investigations.¹ For them liberal society was still a postulate, and analysis was one of the weapons in the struggle for its realization. But the more the social life of the nineteenth century adopted some outward forms of the classical utopia, the more did methodic awareness diminish among their followers. Soon after Ricardo the idea arose that it is exchange order as such, irrespective of its particular social and technical environment, which makes for productivity as well as for stability in an autonomous circular flow. Perhaps one could have dispensed with profounder insight if social reality had not fundamentally changed. To be quite accurate, it was not so much a change which the social trend underwent during the rise of the industrial system, as a line of evolution entirely different from the prognostications of the classical writers, though some of their political and psychological postulates have been realized.

It is not within the range of this study to describe the economic and social transformation during the industrial age. But we can descry the essential features simply by going back to the general categories of economic behaviour and by reflecting on their peculiar stamp in modern times. The economic subjects, far from remaining homogeneous atoms, have linked themselves by new forms of large-scale organization and bargaining associations into widely differing social molecules. The order of means is characterized by a new type of capital-requiring and labour-saving technique whose dynamics effects complicated forms of substitution among the agents of production, discontinuous processes of adjustment and above all a growing immobilization of the forces of the market. The order of distribution shows no tendency at all towards equality but rather a plutocratic turn under the redistributive influence of the exchange process itself. And even the economic incentive has lost something of its classical distinctness. It is not exactly Gandhism and Trobriandism that more and more rivals Benthamism, but national, social and racial canons of behaviour which obscure the simple principle of money incentive. The ultimate result of all these transformations is the very opposite of the classical state of objective equilibrium; the deviations have become larger and longer-lasting, the readjustments slow and incomplete; the circular chain breaks periodically. Economic behaviour has ceased to be the model of perfect social interaction.

II

How has modern economics mastered this very unclassical world? How did it accommodate the simple exactness of the classical market laws to the complicated network of industrial dynamics? What has become of the spurious autonomy of realistic exchange theory, and of the frictionless unity of economic and sociological research?

This essay is not concerned with the history of economic doctrines, though a critical survey of these doctrines from the point of view of their sociological implications might well complete the existing systematic treatises. Such a survey would have to describe on the one hand an obstinate lack of realism among the dogmatic followers of the classical writers, on the other hand a long series of more or less revolutionary transformations of the classical system, starting about a century ago when French sociologists and German historians initiated a process of self-criticism. Though this process afterwards degenerated into the misconstructions of the “Methodenstreit”, its ultimate motives have not lost topical interest. We shall meet the lasting results of that discussion, if we now examine the position of modern realistic theory and its relations to sociology.

The main methodic ideas as to the analysis of the modern industrial system can be arranged in five groups:

(1) There are first of all the traditional post-classical writers. Protesting against the new reality rather than explaining it, they keep to the sociological preconceptions of the classical system to this day, even if they have abandoned most of its special doctrines. They believe in mobility and objective equilibrium as the true and permanent essence not only of the ideal but also of the real market process, an essence that, in their opinion, has been obscured and perverted by influences arising exclusively from the non-economic aspects of society.

(2) Refusing any modification of the classical assumptions these epigoni provoked the passionate opposition of the historical and institutional schools against any form of deductive theory. We are indebted to these empirical researchers for the creation of “economic sociology” in the descriptive meaning of the concept, that is, for enriching our knowledge with new facts and concrete data. But the surrender of analysis and the reduction of economic research generally to mere description, means not the reform but the abolition of theory.

(3) Tired of this methodic confusion, the schools of Vienna and Lausanne tried to turn all historical assumptions out of economic theory, and gradually established that body of pure generalizations we referred to above. It is obvious that the pure theorist as such cannot contribute much to the illumination of a concrete economic system like modern industrialism. All he may properly deduce from his categories is, as we have seen, the durationless subjective equilibrium, a snapshot of individual positions in which the continuity of objective processes is lost.

Certainly the pure theorist is not always consistent. By unconsciously introducing some socio-historical specifications, he sometimes falls into the lower stage of abstraction which corresponds to the classical reasoning. This overstepping of the methodic bounds usually happens as soon as the analysis of choice and value proceeds to a theory of prices. But even if he intentionally moves within the realistic sphere, the pure theorist hardly ever advances to analysing the main structure of the various historical manifestations of the exchange order. In principle he prefers instrumentalistic reasoning on possible individual constellations to outlining the general ground-plan and the basic forces of an economic “system”. If he speaks in terms of a system at all, he usually thinks of the logical arrangement of our analytical tools and of the unity of our machinery for the solution of problems (Schumpeter) rather than of the substantial reproduction of any historical reality. He does not recognize any useful findings intermediate between the universal categories and the individual phenomena of the economic world. And if he is blamed for disregarding the realm of the “middle principles” and of the “realistic system” in the sense of a structural analysis of various economic periods, the pure economist cites the natural scientist whose investigations, he claims, are equally restricted to the universal law on the one hand and to the individual case on the other hand.²

(4) The pure theorist with his methodological radicalism is rather a novelty in Anglo-Saxon economics. There the typical approach to our problem is represented by Marshall. He rather disliked the higher stages of abstraction, and generally kept to the intermediate sphere of classical deduction, with good reason calling himself a pupil of Ricardo. He was, of course—and that distinguishes him from the epigoni—too much of an expert in the real affairs of economy and society simply to rattle off the classical preconceptions. But he did not fundamentally alter the systematic position of the economic man or of competition. He modified these concepts step by step, whenever the flow of his analysis required re-shaping and completion. Therefore his writings are full of the finest instrumentalistic investigations into special problems, and there is nobody in the scientific world of economics during the last two generations who has contributed equally to the refinement of our analytical tools. That this very procedure is sometimes a stumbling-block for the essentially systematic mind, shows only the black side of his particular virtues. Maintaining in principle the classical framework but widening and refining it, his miniature-realism has almost achieved by putting the new wine into old bottles what the historical school has aspired to in vain: the construction of a totality out of perfectly analysed particles.

At that point certainly we touch the limits of his procedure. He resembles the pre-Copernican astronomers. As a matter of fact they solved many problems of their age, but only with the help of very complicated auxiliary constructions, thus obscuring the structure of the whole by keeping to obsolete principles. Now is there any Copernicus in the field of realistic theory?

(5) We are used to contemplating the analytical work of the last two generations from the point of view of the theory of value, and we tend to emphasize the subjective turn in all modern investigations. It is this line of thought which has produced pure economics on the one hand and the mathematical treatment of partial and general equilibria on the other hand. But at the same time in the realm of realistic theory a methodic transformation has been initiated, the results of which will perhaps prove even more important for the future position of economics as a social science.

The true originator of this evolution was Marx. I am not thinking either of his socialism or his Hegelianism or his historical materialism or even his theory of labour value. His great systematic achievement was the discovery that large-scale organization and permanent technical progress determine the structure and dynamics of the capitalist market process. On this basis he recast the classical system by supplanting some of its sociological middle principles by others. Thus he took up once more the investigation into the essential conditions of the market as an economic system and into its progressive tendencies. From the methodological point of view it does not matter whether Marx always proceeded correctly in detail. What makes him a pioneer is his idea of constructing another economic theory of circular flow and evolution at the same level of abstraction as the classical writers, but on substantially different assumptions, and the conscious tenacity of his hold on the sociological implications of his economic theory.

Marx’ methodic procedure has found various followers during the last generation, and within all schools of economic thought. If we take writers so diametrically opposed in their substantial ideas as Wicksell, Oppenheimer, Schumpeter and J. M. Clark, we find them agreed on one general principle. In their realistic systems they do not confine themselves to instrumentalistic reasoning on hypothetical constellations. All of them reconsider the circular process of the market as a whole on the assumption that one or more non-classical elements dominate the social order: banking organization or flight from the land, a dynamic type of economic man or the cost conditions of large-scale production.

III

The great methodological progress accomplished by these writers will be most easily understood, if we examine their procedure by an example, selecting Schumpeter’s Theory of Economic Development³ as a means of demonstration. Schumpeter’s basic idea is to complete the usual concept of a static state which describes equilibrium and small marginal variations by a “theory of capitalist change”. He builds up this dynamic system by combining the general data of an exchange order with some particular conditions, such as the existence of different types of economic men, of a specific kind of technique and organization effecting large and discontinuous alterations in the use of the existing productive factors, and finally of a credit system which makes for the financing of technical progress. This order of data once assumed, the market process deduced from them takes on a form which is very different from the classical moving equilibrium. By utilizing the existing technical and financial opportunities, the active group among the entrepreneurs brings about a rise in general business activity which gradually develops into a boom, but ultimately turns into the competitive fight of crisis and depression. This eliminates the marginal producers and effects a redistribution of industrial fortunes, paving the way for a recapitulation of the same process.

Obviously this analysis of technical progress implies more than the explanation of some special phenomena of the industrial system, and even more than a general theory of the trade cycle. It aims at the interpretation of industrial evolution as a whole and of its dynamic transformation. But at the same time the “intrusion into theory of views savouring of sociology”⁴ cannot be doubted. The particular subjective and objective elements on which the deduction of that unstable circular flow is based represent essential features of the social organization of industrial production during a definite historical period. Therefore the methodic procedure is the same as with the classical writers: the introduction of one or more sociological middle principles into the general categories of the exchange economy, and the derivation therefrom of a determinate system of substantial relations and objective processes. The fundamental difference between such an attempt and Marshall’s cannot be overlooked. Where he starts within the classical framework, modifying the details according to the circumstances of every individual case, Schumpeter—” before taking account of the full complexity of the ‘real’ phenomenon “⁵—starts with the substantial reconstruction of the ground-plan, believing that every historical epoch has a general structure which can be described as soon as the adequate middle principles are discovered.

Selecting these middle principles, determining their relative importance and arranging their order, is certainly a task for sociology. All these modern deductions of the total process of the industrial market we glanced at, though mainly presented by economic specialists, imply a sociology of the modern world embodied in reasoning on prices and volumes of services and commodities. Methodological awareness of these connections is required by the mere fact that up to the present the realistic theorists have not agreed on the social key-positions of the industrial system. Beside the rectification of paralogisms, only elucidation of these sociological premises will transfer discussion into those fields where the validity of the differing conceptions can be ultimately tested. Therefore Oppenheimer was thoroughly consistent when he gradually built up a whole system of sociology in order to account for essence, origin and verificability of his middle principles.

In the same way the institutionalists were right in their attempts at revealing the latent preconceptions of some orthodox doctrines. But they cast away the good with the bad when they rejected also the traditional method of reasoning. Discovering the sociological principles of Western industrialism is only the first step for the realistic theorist. As long as these premises persist in the qualitative form in which sociological research brings them to light, he cannot use them any better than the classical writers were able to use the subtle psychological reflections of Hobbes or Montaigne. His analytical work only starts when he does with the complicated material of modern sociological investigation what the classical writers did with their simple preconceptions: transforming them into computable magnitudes and relations. It does not mean very much for the explanation of the market process, if we state that positions of social power influence the functioning of exchange. Only after having transformed that sociological finding into the concept of monopoly, thereby expressing a qualitative structure of social relations by means of a quantitative order of prices and volumes, do we understand the economic significance of social power. In his Purchasing Power of Money Irving Fisher has based his explanation of the trade cycle partly on a peculiar mental constitution of the bankers. This statement first of all merely relates to social psychology and may there find its causal explanation. It became an economic element only when Fisher expressed it in terms of the supply schedule of money capital, of an increase or decrease of the rate of interest. Similarly political intervention as an economic datum means deflecting particular prices and quantities from the calculable level they are tending to, if we leave them to the free forces of the market. And a change of technique is an economic phenomenon as far as it is concerned e.g. with the substitution of certain productive factors for others, or with a change in the velocity of adjustment.

IV

With that our primary question as to the exactness of the quantitative relations ascribed to the modern market arises again. It is certainly more than a merely subjective equilibrium of individual valuations which is formulated by the realistic theorists in their statements of the modern circular flow. But obviously they are dealing with phenomena which are much more complicated than the simple movements and relations of the classical system. New analytical instruments are required in order to describe and explain the slowness of the individual adjustment, the numerous cross-currents between simultaneous movements, the large and sudden changes in the circular flow as a whole. Acceleration and retardation, lag and dispersion, superposition and generalization, express the objective characteristics of a state in which the economic subjects cannot restrict themselves to mere “reacting”, but are constantly “anticipating” from “expectations” rather than from knowledge, bearing “risk” and “uncertainty” for the sake of “entrepreneurs’ profit” and basing their calculations on the point of “minimum loss” rather than of coincidence between money costs and price.

All these conceptions are very inexact, if we want to calculate the future poin...

Table of contents

• Cover
• Half-Title Page
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Dedication
• Table of Contents
• Preface
• Foreword by Professor M. Ginsberg
• I A Plain Approach to the Problem
• II The Economic and the Sociological Aspect
• III Significance and Limits of Pure Economics
• IV The “Society of Exchange”
• V The Sociological Factor in Modern Economic Theory
• VI Economics and the Social Trend of Capitalism
• VII Power and Economic Law
• VIII Some Evident Conclusions