Lecture: The Economic Sociology of Capitalism: An Introduction and an Agenda, Richard Swedberg, 2003
Keywords: Business, Capitalism, Culture and Economy, Globalization, Karl Marx, Max Weber, Religion and Economy
University of Delhi
Bachelor of Arts
Economy and Society
Reading to be covered: Swedberg, Richard, 2003, The Economic Sociology of Capitalism: An Introduction and An Agenda, Cornell University, Revised Version, July 27, 2003
Course Structure
Important points to be kept in mind while study he article/ study material
Expected outcome
0.1 General Introduction
0.2 A Basic Model of Capitalism
1. The Sociology of Distribution
2. The Sociology of Production
2.1 Factor of Production 1: Labour
2.2 Factor of Production 2: Capital
2.3 Factor of Production 3: Technology
2.4 Factor of Production 4: Organisation (Marshall)
3. The Sociology of Consumption
4. The Sociology of Profit
5. Factors Influencing the Basic Model of Capitalism 1: The Role of Law
6. Factors Influencing the Basic Model of Capitalism 2: The Role of Politics (Including the State)
7. Factors Influencing the Basic Model of Capitalism 3: The Role of Cultural in the Economy
8. On Efferent Attempts to Analyze Capitalism and the Need for a Neo-Classical Sociology
9. Concluding Remarks: Adding Complexity
Important points to be kept in mind while study he article/ study material
What is the relation between society and economic process and how it becomes the decisive factors of the social relationship and the social structure? What are the different types of economic activities and how it affects society, social behaviour and social structure? How does the economic system work? How capitalism is working in modern society.
Expected outcome
Students will be able to understand the relationship between economic activities, society, and social systems. They will also be able to understand how economic activities are affecting social behaviours and function.
Introduction
There is debate on Division of Labour among sociologist and economist, and its relations and effect on the Market.
However, the basic questions are:
(1) Where do markets come from?
(2) How is economic action emended in social relations?
(3) What role do norms and trust play in the economy?
These set of the question were answered in the new huge research which is known as “New Economic Sociology” in mid-1990.
In the business school and in the other institutions they are tacking capitalism as a granted. The contributions to the study of capitalism that one can find in Marxist sociology have, for example, not been much explored by contemporary economic sociology.
However the subject matter of capitalism is no longer a sociological subject, this has come a subject of economics.
The introductory section is dealing with the agenda for the sociology of capitalism.
There are TWO REASONS to call it sociology of capitalism-
(1) The main emphasis is on capitalism as an economic system. How economic institutions are working? This is how this article is tacking the ECONOMIC in the Economic Sociology. THIS IS NOT STUDYING the social effects of capitalism.
(2) We have no (sufficient) theory to study the social dimensions of the capitalist machinery. This is how this article is tacking the SOCIOLOGY in the Economic Sociology.
A study of capitalism as an economic system should consist of two parts-
(1) First part is about the study of individual, middle-range phenomenon need to be made. Indeed, this constitutes by far the most important task of economic sociology of capitalism. The basic connection between different parts of the economy is how the whole economic process hangs together. How the various parts of the economy are working together?
(2) Adam Smith (1723-1790) was aware that there is a system exist which is called an economic system. Moreover, the individual actor is not (often) aware of this (economic) system(s). Through the logic of unintended consequences capitalism not only produces individual wealth but also social wealth.
MUST KNOW LITTLE MORE ABOUT. Adam Smith (1723-1790) was a Scottish Economist, Philosopher, Moral Philosopher, a Pioneer of Political Economy, and an Author. He is also considering as “The Father of Economics” or “The Father of Capitalism.” He wrote two classical books ‘The Theory of Moral Sentiments’ (1759), and ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ (1776). The latter, often abbreviated as ‘The Wealth of Nations’. He also introduced his theory of Absolute Advantage.
A Basic Model of Capitalism
The reference to Adam Smith leads in a national way to the next step in this argument, namely to the analysis point of departure for economic sociology of capitalism. This consists of the proposition that interest drives the action of the individuals, and the interests come together in a very specific way in capitalism.
The actor in the society is driven by various interests such as – political, economic, and legal and so on. And these interests are plural in nature. They divert and complex in nature.
Often we are ignoring the role of social relationships in the economic interests. Even we cannot define the institutions without the social role of social relations and economic interests.
All economic institution have their social and economic interests, just like in any other institution even family as an institution.
Therefore the basic model for capitalism will now be presented which draws on a mixture of sociology and economics.
Max Weber is using two categories for the economic activities, (1) household work, and (2) profit-making work.
Karl Marx has said two things about economic activities (1) use-value, and (2) exchange value.
Aristotle was too has said the same thinks (1) household management, and (2) money-making.
Karl Polanyi has given the three concepts of economic activities (1) redistribution, (2) reciprocity, and (3) exchange. Here only the third concepts of exchange have the capability of the dynamic economic system which is called capitalism.
Figure 1. Capitalism and Other Ways of Organizing the Economic Process ad Economic Interests
Please see the study material Page No. 10
Please Note: For better understanding please also refer to the Domestic Mode of Production which we had seen in an earlier class.
Please also Refer: Page number 11 to 12 to understand the figure 1 (A, B, C, D) on page number 10 and 11 along with the relation between different mode of production and capitalism.
1. The Sociology of Distribution (Page No. 12)
The capitalist system consists of three basic processes which are all interdependent and shaped by the fact that they are parts of a dynamic system – these threes systems are (1) Production, (2) Distribution, and (3) Consumption.
The distribution is more important from both economic and sociological perspectives, which is happening in the form of exchange in the market, this exchange is called the economic process. This is the reason that the all economic debated starts from the distribution.
The exchange in the market is related to private property. And the property is related to the social relationship.
Max Weber explained this that, the property can be conceptualized as a specific form of a closed social relationship.
This also represents a relationship between two actors from the opportunity to use item/s. This also promotes the inherited and transfer of the property. If there is dispute the respective become applicable.
The above view is very close to the economist view of property as a collection of enforcement property life. 13
The exchange is possible only if the people have private property. The driving force in exchange is always that both parties will be better off by trading with each other than by not doing so. It simply means that when people are exchanging the thing then it becomes profitable for both parties, then in no exchange situation.
The market is a continuous process which gives the exchange opportunity. The market is driving and controlling social relations and institution in the market. Typically this market creat the network by interacting the market actors.
Here for better understanding the market, economist need to understand the role of the social relations in the market and sociological need to understand how prices are formed and what reflects there have on the economy.
The price drives much economic change in capitalism but they also do so via a social structure in which interests are embedded, and where quite a bit else is going on as well. 15
Max Weber has pointed out that the bureaucracy and competition is an integral part of capitalism. Without bureaucratization, the capitalist system cannot run. They can essential part of the system and structure of the operation. Even we know that they are alien to the idea of profit-making.
MONOPOLY, COMPETITION, AND CAPITALISM: In general the society sees the monopoly in negative. However, in the context of capitalism Max Weber has said that “if individual firm and capitalist are not stopped in their attempt to create a monopoly, capitalism may wither away because there will be no competition to keep it [market and capitalist system] alive.”
Therefore we can say that the efforts to make monopoly read competition in the market which keep alive the capitalism.
Max Weber has also emphasized that inside the marker the economic force is dominating. However, there are many other social forces is also making an impact on the market. The market is also getting influenced by the many other nonmarket forces.
FOR EXAMPLE, you can take an example from the recent Corona Virus. The Corona Virus is not a market entity or the marker force. This is a disease. But because of this disease, we are in the epidemic situation. The entire world is suffering. And this non-market entity or element is making an impact on the market.
ANOTHER EXAMPLE Because of the locked-down many daily wages migrates labourers are forced to go back to their home. Because of these labour movement, the demand for the commodities in the maker has gone down. First because of the labours are going back and second because of thy lost their purchasing power.
ONE MORE EXAMPLE The Indian society is very diverse. Many societies are living in bad social condition. They are out of the market competition not by choice but by coercive force. This is a non-market element and impacting on the market in a negative way.
2. The Sociology of Production (Page No. 18)
The next major things in economic sociology are PRODUCTION.
No, any society can live without continuous production.
FOR EXAMPLE, these days because of the CORONA VIRUS the major problem occurs is material production. The idea of WORK FROM HOME is not applicable to all kinds of job, especially when it is related to the production of the goods.
We have two factors of the production, (1) Traditional and (2) Modern. The traditional factors of productions are land, labour, capital, technology and organization. While the modern factor of production is also included the role of the managers and financial institutions including the government policies.
The factors of productions have a distinct sociological profit.
Page No. 19
In relation to the basic model of capitalism, the factors of production can be conceptualized as input into production.
Students are advised to see the illustration on Page No. 20
Different organisation and thoughts are emphasizing of different organisations. For example for Marxist, the labours are important, and for capitalist the engineering and technology are important.
2.1 Factor of Production #1 Labour
Labour as a factor of production typically passes through two stages. (1) The first stage takes place before labour entre into production, and (2) Second stage, the institution which is central to labour, before into production, i.e. are at home and the school.
At the home as a child we learn the value, discipline, interests, and also we have some social and cultural capital.
At school, we learn some skills.
Labour, Class and Status Page 21
Modern capitalist society has three types of labour, (1) worker, (2) professional, and (3) managers.
Labour have their own class that is labour class, however, some of them may come from the different status groups. Their status is defined by the social status in the society.
FOR EXAMPLE in India apart from the word our status are also define and determined by the caste and Verna system, region, religion, and gender.
22, From the sociological point of view, this is a matter that to what extent can labour, before it entering into the process of production, ass to slow down or block the wheels of capitalism. How social status, social capital, and skills making an impact on capitalism.
MAX WEBER ON SOCIAL STATUS AND CAPITALISM
Max Weber argues that the (social) status groups are inherently anti-capitalist since they set to honours and other non-economic values before profit-making. FOR WEBER STATUS GROUPS are antagonistic to the market since the market disregards the value that its member holds dear. The more that labour feels the impact of the market; on the other hand, the more individual actors will accept its logic: the need for efficiency, profit-making and constant reinvestment.
2.2 Factor of Production # 2: Capital
Economist and sociologist have a different approach towards production. Economists pay by tradition much attention to the role of capital in the process of production, while sociologist tried to pay more attention to the role of the outside of the production that is the social factor of the production.
The social factors of the production are the role of social groups and social thoughts on the production.
These social groups and social thoughts are making an impact and controlling the production in society.
On the other hand, different social groups have different thought for economic activities. These different thoughts are coming from different social structure and social location.
Aristocrats, for example, have traditionally had contempt for merchants and so have warriors.
However, this is also a fact that the sometimes merchants are tacking more risk than the others.
CONTROL OVER THE PRODUCTION: Here the economist sees this from the approach of agency however the sociologist see this as the approach from structure perspectives.
The agency theory of economist can be enriched by the sociologist by adding the analysis of the capital and social structure.
A corporate can acquire the capital in a variety of ways – from the bank, venture, capitalist and others, however, each of these institutions has a distant social structure and history which sociology can help to analyze.
2.3 Factor of Production # 3: Technology
The technology is of crucial importance to the capitalist process, primarily because it helps to increase productivity.
The science and technologies are also essentially are to be understood as forms of social construction, but maybe less relevance to understanding the economic process. However, there is also a history of the role of economic relevance technology to grow the capitalist society. 24-25
Apart from the technology the social organisations to have an important role in accelerator impede the emergence of new technology. We can understand it by the study of Max Weber
MAX WEBER on CASTE, RELIGION and CAPITALISM
After the study of religion in India, Max Weber notes that the caste system blocked innovations by forbidding change in the tools of the artisans. Since the penalty for a change of this type was religious, Weber’s examples also illustrate how religious interest can be used to block an economic interest.
2.4 Factor of Production # 4: Organization (Marshall)
2.4 Factors of Production # 4: Organization (Marshal), Page 26
In general, the land, labour, and capital are considered as factors of production. But Alfred Marshal in his book Principal of Economics has said that the ORGANISATION SHOULD ALSO CONSIDER THE FACTOR OF PRODUCTION.
BY ORGANISATION Alfred Marshal means a number of phenomena including the individual firm as well as a dynamic collection of firms in the same geographical area, which he termed “industrial district”.
The role and importance of the organization have already discussed earlier.
3. The Sociology of Consumption, Page No. 28
Adam Smith wrote in his book “The Wealth o Nations” that consumption represents the end product of production. For him “consumption is the sole end and purpose of all production”.
The production process has dome by the labour therefore the consumption is affecting the labour, their utility, wages, and the production.
Page No. 29, Human body needs to satisfy their material need, and these material need can only satisfy by the material production.
However, it can also be speedup, slowed down or blocked through the impact of various forces – and thereby the capitalist machinery. The government does this by tax and trade control. And sometimes it is getting controlled by the climate, for example, we are using woollen clothes in winter and have different types of food in summer. The consumption is also controlled by some unexpected situation, for example, these days because of CORONA VIRUN many types of consumption are suspended, for example travelling, etc,
4. The Sociology of Profit Page No. 30
In simple word, profit means surplus production which is left after all expenditure or input or the coast.
For an economist, this is not affected by the external or the social factor.
For the sociologist, this is hard to calculate the profit, and it is very hard to calculate the marginal profit.
However, this is also noted that the social relationship is affected by the profit, motivation of profit and share of profit.
Regardless of the actual size of profit, however, it is the opportunity for more profit that drives the capitalist process forward. According to Weber, capitalism is primarily characterized by “the pursuit of profit and forever renewed profit”.
Kael Marx expressed his idea of surplus value in his famous M-C-M formula, were M= Money, C= Commodity, and M= Money. By this formula, Kar Marx simply means that the production starts from the money for end on the money.
Page No. 31. The profit is also linked with the social, cultural and religious values.
FOR EXAMPLE Max Weber in his book “Protested Ethics” observed that “Protestant businessman withheld very little for their own consumption and reinvested most of the profit. Their religion allowed them to make a profit since this meant that God looked favourably at their activities. They were not, however, allowed indulgence their sense.”
Max Weber is also saying that the profit is socially constructed. It may be socially differently assumed than how the tax department is assuming.
In some societies, it is said that “you cannot serve both God and Money” therefore they see making a profit is against God or they treat this as sin. This is just opposite to the religious philosophy of Protestant.
5. Factors Influencing the Basic Model of Capitalism, # 1: The Role of Law, Page No. 32
There are many factors are affecting capitalism. We will them one by one.
Role of Law in Capitalism
The modern society is run by the law. It does not mean that earlier we did not have the law. In the primitive or pre-modern society, we had a law in terms of culture, morals, religion, custom, value and other.
Law is typically a part of the political machinery. We will the political machinery in the next section.
The law is giving the opportunity to run a smooth business.
In reality, the political decision often has to be translated into legal language and interpreted by the legal expert.
The individual actors have to act according to the law.
PLEASE NOTE: Here the meaning of the actor is a person having a social action. And the meaning of action is doing anything which has meaning. The meaning and effect of action may negative or positive.
The law is also important because resident have to obey the rule and the judiciary may not be independent of the state.
The basic relation between law and the economy are as follow –
(1) Since the private property is the precondition for the capitalist society, so is the law about private property.
(2) Conflict always emerge in the society, and it can be the economic conflict therefore we need economic law.
(3) Law also helps to predictability, which is essential for an advanced capitalist society. It simply means that all of us know the consequences of our action.
(4) Law is necessary to prevent certain economic activity in the society, for example, control of drugs, and other illegal activity. Or even they control the legal economic activities.
6. Factors Influencing the Basic Model, # 2: The Role of Politics (Including the State) Page No. 34
The role of politics in capitalism is very complex. The capitalist state has to solve what has been called “the fundamental political dilemma of an economy”. In the capitalist state, the state has too strong enough to enforce private property rights. The modern state cannot exist without economic resources of its own, especially the modern capitalist state.
Democracy and Capitalism
This is a much-debated topic in the modern era.
S.M. Lipset has said that this is very difficult to know the relationship between capitalism and democracy.
Max Weber has said that the relation between capitalism and democracy is changing from time to time.
Moore and other also found that the countries which have been industrialized under the leadership of the bourgeoisie tend to become democratic, as opposed to countries which have been industrialised under the leadership of a class of landlords.
DEAR STUDENTS: The traditional popular kinds of literature are saying that capitalism can only develop in the democratic state. You may also find the communist literature that those who are supporting the open democracy actually they are supporting capitalism. They described this is thing negative term. HOWEVER, we can have an example of CHINA who emerged as a capitalist country without having democracy.
7. Factors Influencing the Basic Model # 3: The Role of Culture in the Economy Page No. 37
Cultures including religion are playing an important role in capitalism. The culture is shaping and controlling human economic activity.
Max Weber has done am important work in this field.
Cultural element of an economic action says that any economic activity is negative or positive.
This is happening because the “concept of culture is a value-concept” – Max Weber.
According to Max Weber societies have good and bad trade ethics according to their cultural beliefs. And this is a matter in business and capitalism.
DEAR STUDENTS, this is not given in your study material but you may know that in Indian some society or castes are thought that trade is bad things. Or getting interested in money lending is a sin. On the other hand in India, we also have a trading caste who primarily trading in India. This is happening because of religious and cultural beliefs. However, these days these old beliefs are getting faulted. Max Weber is saying that because of the religious believes Protestant Christians led the capitalist movement where Catholic Christian, didn’t, similarly he has also said that the because o the religious-cultural believes, India and China was not a capitalist country.
8. On Deferent Attempts to Analyze Capitalism and the Need for a Neo-Classical Sociology.
Karl Marx was dominating the theory of capitalism. But we need to look at his theory critically. Karl Marx sees culture and law, as a part of the superstructure, which is created by the economic forces and which has no power to influence the economy on its own. His theory is rejected by saying that culture is also affecting the economy. This is the two-way process.
DEAR STUDENTS, PLEASE NOTE: The neo-Marist or neo-Marxism is accepting the importance of the culture in the field of economy.
Max Weber in his book ‘The Protestant Ethic’ and ‘Economy and Society’ has shows that religious and cultural beloved are affecting our economic behaviour. For him, these behaviours are playing an important role in capitalism.
Max Weber also saying the capitalism is not a singular process and capitalism is not a singular, we have many types of capitalism.
Types of Capitalism: Max Weber
(1) Rational Capitalism
(2) Political Capitalism
(3) Traditional Capitalism
Max Weber emphasised the role of culture in capitalism by saying that “Protestant attitude and social relations in a more methodical direction.”
For Max Weber, the social dimension of the Protestant Christian is also responsible for bringing capitalism by them.
Other Theory of Capitalism
Immanuel Wallenstein and their followers have theorising capitalism as a kind of world system. The capitalist system is not created by any person or society. The capitalism system goes beyond the boundaries of empires and nation-state.
9. Concluding Remark: Adding Complexity Page No. 45
“MATERIAL AND IDEAL INTERESTS DIRECTLY GOVERN MEN’S BEHAVIOUR” – MAX WEBER
THE SOCIOLOGY OF RELIGION
We have already have seen that production, exchange, consumption, and profit should constitute the four main themes in economic sociology of this type and to this must be added the impact that law, politics and culture have on these.
We have seen that all these economic activities are governed and affected by social variables such as culture, religion, law, rules, government, and politics. These entire phenomenons are deeply influenced by the culture and religion, these things have deeply discussed by the German social scientist Max Weber.
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