1 Introduction: Problems of Explanation in Economic Sociology 1
1引言：經濟社會學中的解釋問題1
In this book I present arguments about economic action and institutions that
emphasize social, cultural and historical considerations in addition to purely
economic ones. This may therefore be considered a contribution to “eco -
nomic sociology,” a subfield that has grown vigorously in the past thirty
years. 1 But more fundamentally, I hope to contribute to an understanding of
the economy in a way that transcends disciplinary boundaries and thus have
little concern about the intellectual origins of useful ideas.
In this introductory chapter, I set out general arguments on the nature of
social science; the meaning of explanation for economic action, outcomes,
and institutions; and the relation between social structure and the economy.
Subsequent chapters deal with important theoretical elements of my argu-
ment: the role of norms and other mental constructs in the economy, trust
and cooperation, power and compliance, and the interplay between institu-
tions and human purposive action. A sequel volume will treat a series of
empirical cases analyzed within the proposed framework.
I distinguish three levels of economic phenomena to be explained. The
first is individual economic action. Max Weber defines such action as occur -
ring when “the satisfaction of a need depends, in the actor’s judgment, upon
some relatively scarce resources and a limited number of possible actions,
and if this state of affairs evokes specific reactions. Decisive for such ratio-
nal action is, of course, the fact that this scarcity is subjectively presumed 2 S O C I E T Y A N D E C O N O M Y
and that action is oriented to it.” ([1921] 1968: 339). These needs, Weber con -
tinues, “may be of any conceivable kind, ranging from food to religious edifi-
cation, if there is a scarcity of goods and services in relation to demand”
(339). This closely parallels economist Lionel Robbins’s classic definition of
economics, reprised in most current elementary textbooks, as “the science
which studies human behavior as a relationship between ends and scarce
means which have alternative uses” (1932: 15). These differ only in Weber’s
insistence on the importance of the actor’s subjective orientation to the
means-end situation. 2
Having adopted this broad definition of economic action, I could then
logically discuss a wide range of subjects, including marriage, divorce, crime,
and the allocation of time, as in the program of “economic imperialists” such
as Gary Becker (cf. Hirshleifer 1985). Instead I confine attention to examples
that are “economic” in the usual sense of having to do with the production,
distribution, and consumption of goods and services—what we might call the
“hard core” of economic activity. But my goal is not the parallel one of “socio-
logical imperialism” but rather of understanding the economy with whatever
means and ideas are required, from whatever source.
A second level of economic analysis concerns patterns of action beyond
the realm of single individuals—what I call “economic outcomes.” Examples
of “outcomes” would be the formation of stable prices for a commodity or of
wage differentials between certain classes of workers. So these “outcomes” are
regular patterns of individual action.
A third level refers to economic “institutions.” These differ from “out -
comes” in two ways: (1) they typically involve larger complexes of action, and
(2) individuals come to see them as the way that things should be done. Insti-
tutions convey, as is well captured in the sociology of knowledge, a deceptive
impression of solidity, they become reified, experienced as external and
objective aspects of the world rather than as the products of social construc-
tion, which they are (see, e.g., Berger and Luckmann 1966). This social-
constructionist perspective is highly relevant for economic institutions.
Examples are entire systems of economic organization, such as capitalism
or, at lower levels, the way particular organizations, industries, or profes-
sions are constituted. Chapters 5 and 6 discuss the nature of institutions
more fully.Introduction: Problems of Explanation in Economic Sociology 3
These three correspond closely to what are usually called micro, meso
and macro levels of analysis. While each requires some principles that apply
exclusively to its own level, it is important to attempt a synthesis that brings
all these levels into a common framework and illuminates the way influ -
ences at one level affect results in others without giving one level causal
priority over the others. Roughly speaking, the substantive chapters, begin-
ning with Chapter 2, begin at the micro level of individuals, progress
through meso-level issues, and end with more macro-level or institutional
concerns.
1.2 “Human Nature,” Null Hypotheses, and Levels of Analysis: Beyond Reductionism
Null hypotheses, typically unspoken, lurk beneath most social science
accounts of the economy. I refer to underlying baseline assumptions about
how humans behave and how society is organized—the conceptual starting
point for scholars who try to understand a set of phenomena. These baselines
underlie much of the rhetoric of the social sciences and have a strong psycho-
logical effect on who is persuaded by which arguments (as eloquently argued
by McCloskey 1983).
Null hypotheses typically contain assumptions about “human nature,”
and because “nurture” trumped “nature” in most twentieth-century social
science, it looks old-fashioned to make such assumptions explicit; yet they are
pervasive, even when barely whispered. The null hypotheses of economists
and sociologists differ markedly. Most economists explain by assuming that
individuals pursue their interests, guided by quantifiable incentives. While
few endorse the stereotypical rational calculator, homo economicus, models
based on individual interests and explicit or implicit calculations still take
priority over those that invoke more “complicated” social factors not amenable
to simple and elegant models. As Elster points out, a typical practice in
“applied rational choice theory” is to construct a model in which “the
observed behavior of the agents maximizes their interests as suitably defined,
and one assumes that the fit between behavior and interest explains the
behavior.” But, he notes, without explicit evidence for a causal relation, the
“coincidence of behavior and interest may be only that—a coincidence” 4 S O C I E T Y A N D E C O N O M Y
(Elster 2000: 693). The null hypothesis in play here is so strong that the coin -
cidence is automatically assumed to reflect causality.
Sociologists are even less likely to make explicit their ideas about human
nature, but more than a century of social theory has disposed many to assume
that individuals are constituted by their social environment and cannot even
imagine what they are like or who they are without having absorbed impres-
sions of themselves from significant others as well as a more general sense of
where they fit into society, provided by socialization into a particular milieu.
Thus, sociologists portray individuals as guided by social influences, including
their own social circle and beyond, social norms or ideologies, social class, or
social institutions based on such social complexes as religion, economy, or
politics.
All scholars endorse parsimony in explanation, but criteria for what is
parsimonious are not objectively given. They follow from which null hypoth -
esis you favor, as this determines what levels of analysis you think critical, and
whether you consider reductionist projects in the social sciences feasible or
feckless. In the history of science, attempts to link disciplines frequently entail
such projects, which aim to show how one conceptual framework is more
fundamental than the other and can therefore subsume it. The successful
reduction of much classical biology to a molecular basis has encouraged
many other such attempts.
Though most sociologists still subscribe to Emile Durkheim’s turn-of-
the-twentieth-century insistence on society as a reality sui generis, sociolog-
ical arguments and theories are sufficiently diffuse to make the discipline a
popular takeover target. B. F. Skinner was perhaps the first psychologist to
argue that social life could be fully explained in terms of behavioral regulari-
ties induced by reinforcement contingencies, but this view has attracted
only a few sociological adherents (e.g., Homans 1971). Reduction of social
behavior to biology is one of the main projects of sociobiologist E. O. Wilson
and his followers (Wilson 1975), where the mechanism assumed to generate
social relations is natural selection at the individual genetic level and less fre-
quently (and more controversially) at that of groups. As I have noted, some
economists have framed their reductionist project as “economic imperialism,”
beginning with Gary Becker’s incursions into such sociological subjects as
love, marriage, crime, and the allocation of time (e.g., Becker 1976) and Introduction: Problems of Explanation in Economic Sociology 5
reflected in claims like that of Jack Hirshleifer that “economics really does
constitute the universal grammar of social science” (1985: 53).
Because of their alleged parsimony, reductionist projects attract more
adherents than their epistemological opposite, the projects of (w)holism,
which in various contexts have claimed that individual units in their disci-
pline are quite uninterpretable without an understanding of the larger con-
text in which they are found, including proponents of various flavors of sys -
tems theory and functionalism. 3
Kontopoulos (1993) shows that in many scientific fields, reductionism
and wholism have given way to far more complex and nuanced projects that
seek to understand how various levels of analysis in the phenomena under
study fit together and that argue that none should be privileged in explana -
tion. The reader should understand my book as such a project. At every point
in my argument, I will try to understand how micro and macro levels of anal-
ysis are connected and how what some have called a “meso” level of analysis
is critical in understanding the dynamics of such relationships. It is only
because of the criticality of this middle level of analysis that “social networks”
occupy at times a pivotal role in my argument. I want to emphasize that they
are not a privileged causal concept and by themselves have only modest
explanatory value in most situations. 4
1.3 Functionalism, Culturalism, and History
Because reductionism to the level of individuals is often unsatisfactory in its
explanatory power, its proponents typically supplement it with other argu-
ments. In the social sciences, two of the most prominent are functional and
cultural explanations. This is ironic since these might be imagined to belong
most appropriately to the toolkit of wholists.
“Functional” explanations account for a behavior, practice, or institution
by reference to the “problem” it solves. Thus, one might propose that the insti-
tution of limited liability in the corporate world can be explained by the fact
that few will undertake substantial entrepreneurship if their own private
resources can be entirely wiped out by a company’s failure. Separation of indi-
vidual from corporate resources “solves” this problem and makes entrepre-
neurship more likely. But any inference that this explains the origins of 6 S O C I E T Y A N D E C O N O M Y
limited liability cannot be sustained without a careful investigation of its
actual history and its consequences as well as comparison of entrepreneur-
ship between countries that did and did not develop such a legal pattern. In
this case, there is much more to the story, and some would argue that this
practice developed not as a way to improve entrepreneurship in general but
rather to serve a particular set of interests. 5 In Chapter 6, I offer the more
complex example of the medieval Florentine partnership system. More gen-
erally, it is hazardous to assume that every economic institution can be
explained as the solution to some problem. Thus, Schotter suggests as a task
for economists to develop an “economic theory of social institutions,” in
which understanding any institution requires that we “infer the evolutionary
problem that must have existed for the institution as we see it to have devel-
oped. Every evolutionary economic problem requires a social institution to
solve it” (1981: 2).
This proposal resembles the practice of sociobiologists, who explain any
feature of a species as having evolved to solve some problem in its environment.
Here, the creative scientific enterprise is to imagine what that problem might
have been. In their wide-ranging critique, Gould and Lewontin call such expla-
nations “adaptive stories” and comment that “the rejection of one adaptive
story usually leads to its replacement by another, rather than to a suspicion that
a different kind of explanation might be required. Since the range of adaptive
stories is as wide as our minds are fertile, new stories can always be postulated.
And if a story is not immediately available, one can always plead temporary
ignorance and trust that it will be forthcoming. . . . Often evolutionists . . .
consider their work done when they concoct a plausible story. But plausible
stories can always be told. The key to historical research lies in devising criteria
to identify proper explanations among the substantial set of plausible pathways
to any modern result” (1979: 153–154).
As Gould and Lewontin suggest for biology, one problematic element of
“adaptive stories” is that while in principle appealing to an historical account,
they actually skip over historical research by appealing to a speculative idea
about what “must” have happened. Similarly, when you explain an economic
institution in terms of the problem it “must” have evolved to address, you
implicitly choose to remain within the comparative statics of equilibrium Introduction: Problems of Explanation in Economic Sociology 7
states rather than studying the dynamics of how the institution was actually
created over time. The argument assumes, moreover, that the system is now
in equilibrium because a still-evolving institution could not reveal by inspec-
tion what problem it had evolved in order to solve.
This explanatory strategy is usually supported by explicit or implicit ref-
erence to a selection mechanism, such that units unable to solve the environ-
mental problem fall by the wayside, and only those with the observed institu-
tional solution remain. The classic exposition of this argument is in Milton
Friedman’s influential 1953 essay “The Methodology of Positive Economics”
(1953: 16–22). The argument has evolved in economics into the idea that
unsolved problems present the possibility of profit, and such opportunities
will always be taken by rational individuals. Inefficiencies are arbitraged away,
and part of the rhetoric of modern economics is that “you won’t find dollar
bills lying in the street.” 6 The assumption that one should explain an institu -
tion by showing in what way it creates efficiencies has entered the economic
lexicon especially in the New Institutional Economics, where “efficiency anal -
ysis” means telling an adaptive story about some institution. In part, this is a
reaction against the “old institutional economics,” which often gave legal,
sociological, or historical accounts of institutions’ origins. 7
Even in biology, where the genetic mechanism of Darwinian selection is
clear, Gould and Lewontin (1979) note that any particular adaptive story is
merely speculation and may in fact be quite inconsistent with what actually
occurred. They nicely catalogue the errors that result. In the economy, the
mechanism of selection would most plausibly be the discipline of competitive
markets; yet few markets entail competition so stringent that all inefficiencies
are rooted out and all problems solved. 8 Instead, I argue here that economic
action and institutions typically result from a variety of goals implemented by
complex networks of actors and that without an understanding of the histor-
ical sequence and networks of relevant actors, these outcomes can easily be
misinterpreted.
Cavalier invocation of Darwinian rhetoric careens toward a Panglossian
view of behavioral patterns or institutions. The pitfalls of functionalist expla -
nations have been catalogued many times (e.g., Merton 1947; Nagel 1961;
Hempel 1965; Stinchcombe 1968; Elster 1983), and rigorous accounts have 8 S O C I E T Y A N D E C O N O M Y
been given of the requirements that must be met for an explanandum 9 to be
properly explained by reference to problems it is claimed to solve. Rather
than recapitulating these accounts, I simply suggest a sequence of four prac-
tical questions one must be able to answer about a functionalist explanation
before it can be accepted. (1) In what sense was the “problem” really a
problem? If the problem a pattern is alleged to have solved was in fact no
problem at all, the explanation fails immediately. (2) Was the “solution” a
solution? Even if the problem is admitted to be genuine, the institution under
scrutiny had better really solve it; otherwise the functionalist account is not
persuasive. (3) Do we understand the process by which this solution has
arisen? To avoid this question is to assume that all problems that arise are
automatically solved, a proposition that, once stated, hardly anyone would
endorse.
Part of a functional explanation should thus be to account for why and
how the stipulated problem was indeed solved. But once we know how this
solution can arise, we also understand under what circumstances it cannot.
In practice, this means that the solution will not arise in all instances where
the problem does, but only in some. The explanation of the pattern then will
require us to know more than just the problem it solves but also the condi-
tions that are required for this solution to emerge. This leads then to (4) Why
this particular solution? What is the range of possible solutions for this
problem, and under what circumstances might others arise? Like the answers
to (3), a response to this question distances us from crude functionalist
accounts and reduces the gap between a static functionalist explanation and
one based on historical sequences.
Functionalist accounts often seem plausible because an economic insti-
tution appears well matched to its economic environment. But this may occur
because institutions have modified their environment so as to create greater
compatibility. Comparative statics will not reveal such a process and may
instead persuade the suggestible that environmental exigencies created the
institution. While economic environments certainly limit institutional con-
figurations, these limits may be wider than we typically imagine and encom -
pass multiple stable institutional equilibria. The historical trajectory of the
system may determine which of these occurs, making the study of dynamics
indispensable.Introduction: Problems of Explanation in Economic Sociology 9
Related arguments have been made for technology by students of eco-
nomic history under the heading of “path dependence.” Paul David, for
example, has argued that because of some specific initial conditions, the
highly inefficient QWERTY typewriter keyboard became the standard of the
industry by the 1890s, despite the existence of more efficient designs.
QWERTY became established as the technical standard and was “locked in”
by the large base of existing machines and users (1986). More generally, Brian
Arthur has proposed a stochastic model of how random events in the early
stage of a process can fix an outcome independent of its overall efficiency. In
these “path-dependent” processes, one sees increasing returns to scale since
once one of several competing technologies has a temporary lead in the
number of users, this lead makes it profitable for various actors to improve it
and to modify the environment in ways that facilitate further use. This fur-
ther use then again spurs improvements and reduces the profitability of
improving competing but less-adopted technologies. Eventually, technolo-
gies that were originally less efficient may be locked in by this train of events
(Arthur 1989).
To the extent this is so, only historical analysis can explain outcomes. If,
by contrast, we could assume diminishing returns to adoption of a tech-
nology, then static analysis would be sufficient; the outcome is unique and
does not depend on small events in market formation or the order in which
choices are made. “Under increasing returns, by contrast, many outcomes are
possible. Insignificant circumstances are magnified by positive feedbacks to
‘tip’ the system into the actual outcome ‘selected.’ The small events of history
become important. Where we observe the predominance of one technology
or one economic outcome over its competitors we should thus be cautious of
any exercise that seeks the means by which the winner’s ‘innate’ superiority
became translated into adoption” (Arthur 1989: 127)
These arguments mainly concern technology, but I argue in subsequent
chapters that many other economic outcomes and institutions are also
“locked in” by processes that need not be confined to random “small events”
but rather can be analyzed as evolving from purposive networks of action
mounted by interested actors rather than as solutions to problems. And what
appear to be “random” events from an economic frame of reference can often
be systematically treated in a sociological account. The technical concept of 10 S O C I E T Y A N D E C O N O M Y
“lock-in” is in fact analogous to the sociological idea of “institutionalization.”
Just as the technical developments that never took hold are forgotten or dis-
missed as technically inferior, institutional alternatives that did not occur are
forgotten, and adaptive stories are told about how the existing form was inev-
itable given the environment. A central question for a sociology of economic
institutions is under what circumstances such stories might be correct. In the
sequel volume, my account of the electricity industry in the United States fits
this description well.
It is notable that scholars who endorse methodological individualism in
general nevertheless often endorse functionalist explanations that rely on
homeostatic system properties only tenuously linked to individual action.
The attraction may be that by doing so, one avoids the need for detailed his-
torical accounts of how action and institutions evolve. A closely related
explanatory strategy, which may appeal for similar reasons, is the reliance on
cultural differences to explain outcomes and institutions.
The “culturalist” position does not derive from economic logic but rather
explains some outcome or institution by arguing that the group that pro-
duced it has cultural beliefs, values, or traits that predispose it to the observed
behavior. Building on recent theory, such beliefs are often characterized as
“social capital.” Groups characterized by a “Protestant ethic” will work harder
and produce more successful firms or other outcomes; those with a culture
oriented to cooperation in a hierarchical setting, where individuals are subor-
dinated to the society, will develop smoothly functioning industrial enter-
prises (as is often claimed for Japan, e.g., Ouchi 1981), and societies where
culture confines trust to a small circle of friends and relatives will have diffi-
culty managing economic enterprises of any substantial size (Fukuyama
1995). 10 At a sub-societal level of analysis, different organizations are said to
have distinct cultures that resist merger or at least raise its cost.
If groups really did behave in ways so closely determined by their cul-
tures, we could safely neglect the detailed historical evolution of institutions;
indeed, there would be little such evolution so long as the culture remained
stable. As with many functionalist arguments, however, this one hovers
uncomfortably close to circularity, since the causal tie between cultural beliefs
and observed patterns is usually inferred from behavior rather than shown
explicitly.Introduction: Problems of Explanation in Economic Sociology 11
Moreover, this treatment of culture as an influence on individual behavior
is static and mechanical: once we know the well-socialized individual’s social
location, everything else in behavior is automatic. Individual actors are
stripped of agency, which is odd for methodological individualists for whom
agency should be of prime importance. Culture is an external force that, like
the Deists’ God, sets things in motion and has no further effects. Once we
know in just what way one has been affected, purposive action and ongoing
social relations and structures are irrelevant. Social influence is all contained
inside an individual’s head, so in actual decision situations, he or she can be
as atomized as any homo economicus, but with different rules for decisions.
Yet more sophisticated analyses of cultural influences (e.g., Fine and Kleinman
1979; Cole 1979, Ch. 1; Swidler 1986; DiMaggio 1997) make it clear that cul-
ture is not a once-for-all influence but an ongoing process, continuously con -
structed and reconstructed during interaction. It not only shapes its members
but also is shaped by them, in part for their own strategic reasons. Thus, I do
not mean here to denigrate the importance of culture as a force in human
affairs, only to object to its misuse as a near-tautological and merely residual
explanation. I delve into these questions further in Chapter 2, on the influ -
ence of culture, norms, and other mental constructs on economic action, and
again in Chapters 5 and 6, which consider the relation between culture and
institutions.
1.4 Under- and Oversocialized Conceptions of Human Action
Null hypotheses and their associated conceptions of human nature lead to
unstated but consequential ideas about the nature of human action. When
pushed too far, such conceptions distort. The sociological conception of
actors as highly responsive to their social setting, for example, was famously
criticized by sociologist Dennis Wrong as the “oversocialized conception of
man in modern sociology” (1961)—a conception of people as so overwhelm-
ingly sensitive to the opinions of others, and hence obedient to the dictates of
consensually developed norms and values, internalized through socializa-
tion, that obedience is not burdensome but unthinking and automatic.
Wrong noted that it is “frequently the task of the sociologist to call atten-
tion to the intensity with which men desire and strive for the good opinion of 12 S O C I E T Y A N D E C O N O M Y
their immediate associates in a variety of situations, particularly those where
received theories or ideologies have unduly emphasized other motives. . . .
Thus sociologists have shown that factory workers are more sensitive to the
attitudes of their fellow workers than to purely economic incentives. . . . It is
certainly not my intention to criticize the findings of such studies. My objec -
tion is that . . . though sociologists have criticized past efforts to single out
one fundamental motive in human conduct, the desire to achieve a favorable
self-image by winning approval from others frequently occupies such a posi-
tion in their own thinking” (1961: 188–189).
To the extent such a conception was prominent in 1961, it resulted in
part from Talcott Parsons’s attempt, in his landmark book The Structure of
Social Action, to transcend the problem of order as posed by Thomas Hobbes
by emphasizing commonly held societal values (1937: 89–94). Parsons classi-
fied Hobbes in what he called the “utilitarian” tradition, which he attacked for
treating individual action as atomized, isolated from the influence of others
or from any broad cultural or social traditions. Yet a close reading of such
utilitarians as Hume, Bentham, and John Stuart Mill does not support such
a depiction. Rather, they do show considerable interest in how social insti-
tutions, norms, and interaction modify and shape individual action (see
Camic 1979).
Most of what Parsons alleged to be the case for the “utilitarian” and “pos-
itivistic” tradition does, however, describe classical and twentieth-century
neoclassical economics. 11 The orthodox theoretical arguments are reduc -
tionist and one might say “undersocialized,” disallowing by hypothesis any
impact of social structure or relations on production, distribution, or con-
sumption. In competitive markets, no producer or consumer noticeably
influences aggregate supply or demand or, therefore, prices or other terms of
trade. As Albert Hirschman has noted, such idealized markets, involving as
they do “large numbers of price-taking anonymous buyers and sellers sup-
plied with perfect information . . . function without any prolonged human or
social contact between the parties. Under perfect competition there is no
room for bargaining, negotiation, remonstration or mutual adjustment and
the various operators that contract together need not enter into recurrent or
continuing relationships as a result of which they would get to know each
other well” (1982: 1473).Introduction: Problems of Explanation in Economic Sociology 13
Classical economists mentioned social relations mainly as a drag on
competitive markets. Thus, Adam Smith complained that “people of the same
trade seldom meet together, even for merriment and diversion, but the con-
versation ends in a conspiracy against the public or in some contrivance to
raise prices.” His laissez-faire politics did not allow him to recommend anti-
trust measures, but he did urge repeal of regulations requiring all those in the
same trade to sign a public register, since “the public existence of such infor-
mation connects individuals who might never otherwise be known to one
another and gives every man of the trade a direction where to find every
other man of it” ([1776] 1976: 145). This lame policy proposal is less inter-
esting than Smith’s tacit assumption that truly competitive markets require
social atomization. This position survived into the twentieth century in stan -
dard texts like George Stigler’s The Theory of Price, which observes that “eco-
nomic relationships are never perfectly competitive if they involve any per-
sonal relationships between economic units” (1946, 24).
Though some classical economists like John Stuart Mill and others out-
side the main line, such as Marx and the German historical school, were inter-
ested in the general social conditions of economic action, a more rigorous and
quantitative tradition, beginning with David Ricardo, increasingly narrowed
the focus in a way that excluded noneconomic matters. 12 This exclusion was
extended by the triumph of the neoclassical “marginalists” over the German
historical school in the Methodenstreit of the late nineteenth and early twen-
tieth centuries. The marginalist approach, especially as codified by Alfred
Marshall, “solved” the classical problem of value by reducing it to the determi-
nation of market prices by supply and demand, which was to be understood by
the mathematics of maximization (see, e.g., Deane 1978, Ch. 7).
But the apparent contrast between oversocialized views and what one
might call the undersocialized account of classical and neoclassical eco-
nomics masks a critical theoretical irony: both share a conception of action
by atomized actors. In the undersocialized account, atomization results from
narrow pursuit of self-interest; in the oversocialized one, from behavioral
patterns having been internalized and thus little affected by ongoing social
relations. The social origin of internalized patterns does not differentiate
this argument decisively from an economic one, in which the source of
utility functions is left open, leaving room for behavior guided, as in the 14 S O C I E T Y A N D E C O N O M Y
oversocialized conception, entirely by consensually determined norms and
values. 13 Under- and oversocialized conceptions thus merge in their atomiza-
tion of actors from immediate social context. This ironic merger is already
visible in Hobbes’s Leviathan, where the beleaguered residents of the state of
nature, overwhelmed by disorder, surrender all their rights to an authori-
tarian power and then become docile and honorable; by the artifice of a social
contract, they lurch directly from an undersocialized to an oversocialized
state.
This convergence of under- and oversocialized views helps explain why
modern economists can so readily accept oversocialized arguments about the
causal force of culture, which are surprisingly consistent with a reductionist
view of human action in that once having absorbed the cultural prescriptions,
individuals can still be analyzed without further attention to their social loca-
tion or networks of interaction. Even economic models that take social rela-
tionships seriously (e.g., Becker 1976) typically abstract away from the his-
tory of relations and their position with respect to other relations. The
interpersonal ties they describe are stylized, average, “typical”—devoid of
specific content, history, or structural location. Actors are representative
agents, whose behavior results from their named role positions and role sets;
thus we have arguments about how workers and supervisors, husbands and
wives, criminals and law enforcers will interact with one another, but these
relations are not assumed to have individualized content beyond that given
by the obligations and interests inherent in the named roles. This procedure
is exactly what structural sociologists have criticized in the sociology of Tal-
cott Parsons—the relegation of the specifics of individual relations to a minor
role in the overall conceptual scheme, epiphenomenal in comparison with
enduring structures of normative role prescriptions deriving from ultimate
value orientations.
A fruitful analysis of any human action, including economic action,
requires us to avoid the atomization implicit in the theoretical extremes of
under- and oversocialized views. Actors do not behave or decide as atoms
outside a social context, nor do they adhere slavishly to a script written for
them by the particular intersection of sociocultural categories they happen to
occupy. Their attempts at purposive action are instead embedded in concrete,
ongoing systems of social relations. These networks of relations constitute a Introduction: Problems of Explanation in Economic Sociology 15
crucial meso level lying conceptually between individual action and social
institutions and cultures, and the way these micro and macro levels are linked
through this meso level is a central focus of interest here.
1.5 Social Networks and “Embeddedness”
The “meso” level of social networks is important because it helps avoid the
theoretical extremes of under- and over-socialization. More concretely, social
networks matter because people’s pursuit of both social and economic goals
invariably involve known others as a significant element. This argument that
networks of known others matter and should be analyzed has come to be
identified as the “embeddedness” perspective, in part because of the stream of
work that followed my 1985 article on this subject. Much of this work has
come to be identified as the “New Economic Sociology” (Granovetter 1985;
Swedberg and Granovetter 2011). But while many have identified ideas about
“embeddedness” with social network analysis of the economy, an identifica -
tion that my 1985 paper on “embeddedness” may have furthered, I use the
term more broadly here to mean the intersection of economic with noneco-
nomic aspects of society, including not only social networks and their conse-
quences but also cultural, political, religious, and broadly institutional influ -
ences. Social networks play a central mediating role between micro and
macro levels, and part of my work here is to develop further some of the ways
that networks relate to larger themes in the analysis of societies, such as trust,
power, norms, and values and the institutional level of analysis. It is precisely
because social networks are important in explaining such concepts that they
play an important conceptual role.
This book is not the place to spell out technical arguments or details
about social network analysis. Numerous excellent guides do so. 14 I assume as
general background that the reader has some elementary acquaintance with
ideas about social networks. It is helpful, however, to spell out several theoret-
ical arguments or principles about the interaction of social networks with
other social outcomes. Here I suggest three, which are not meant to be
exhaustive but are useful ideas that I draw on in what follows:
1. Networks and Norms. As I discuss in more detail in Chapter 2, norms—
shared ideas about normal or proper behavior in specified situations—are 16 S O C I E T Y A N D E C O N O M Y
clearer, more firmly held, and easier to enforce the more dense the social
network. 15 The classic argument for this proposition, from social psychology
(see, e.g., Festinger, Schachter, and Back 1948), relies on the larger number of
unique paths in denser networks along which ideas, information, and influ -
ence can travel among nodes. This makes norms more likely to be repeatedly
encountered and discussed and also makes it harder to hide deviance, which
is thus more likely to be discouraged. A corollary is that, other things equal,
larger groups will find it harder to crystallize and enforce norms because their
network density is lower. This is because people have cognitive, emotional,
spatial, and temporal constraints on the number of social ties they can
manage, so that larger networks must fragment into cliques (e.g., Nelson
1966).
2. The Strength of Weak Ties. New information is more likely to reach
individuals through their weak than their strong ties. Our close friends move
in the same circles that we do and thereby learn mostly what we already know.
Weak ties, or “acquaintances” as we usually call them, are more likely to know
people that we do not and thus receive more novel information. This is partly
because close friends are more similar to us than are acquaintances and partly
because they spend more time with us. By moving in different circles from
our own, acquaintances are our windows on a wider world than our closest
friends could reveal. Thus, when we need a new job, a scarce service, or some
vital bit of information for an investment or project, they may be a better bet,
even though our closer friends have more motivation to help. Social structure
may dominate motivation. This is what I have called “the strength of weak
ties” (Granovetter 1973, 1983).
At a more macro level of analysis, note that if each person’s close friends
know one another, they form a clique, and cliques are connected to one
another, if at all, through weak rather than strong ties. The configuration and
social location of weak ties therefore may be a central determinant of how
information diffuses in large social structures. This may be one reason, for
example, why high-tech regions with substantial job mobility diffuse cut-
ting-edge technical information more effectively than those with more
self-contained, vertically integrated firms (cf. Saxenian 1994; Castilla et al.
2000; Ferrary and Granovetter 2009).
3. Structural holes. Individuals with ties into multiple networks that are
largely separated from one another may enjoy strategic advantage. When Introduction: Problems of Explanation in Economic Sociology 17
such individuals are the only route by which resources or information can
flow from one part of a network to another, they have the potential to exploit
the “structural hole” in the networks that they sit astride (Burt 1992). Individ-
uals in this situation can be effective brokers and thereby enjoy substantial
“social capital” (cf. Burt 2005). I discuss in more detail the advantages of bro-
kers as part of a larger treatment of the relation between social networks and
power in Chapter 4.
These and other network principles are useful tools in talking about “net-
work embeddedness.” Economic action and outcomes, like all social action
and outcomes, are affected by actors’ social relations to others and also by the
structure of the overall network of those relations. As a shorthand, I will refer
to these respectively as the relational and the structural aspects of network
embeddedness.
By relational embeddedness I mean the nature of relations that individ-
uals have with specific other individuals. This concept is about pairs or, as
sociologists like to say, “dyads.” Relational embeddedness has typically quite
direct effects on individual economic action. How a worker and supervisor
interact is determined not only by the meaning of these categories in a tech-
nical division of labor but also by their particular personal relationship, which
is determined largely by a history of interactions. This is partially captured by
economists’ use of interdependent utility functions, where the utility of
another becomes an argument of your own utility function; in plainer lan-
guage, their welfare becomes part of your own. But this does not really cap-
ture the fact that our behavior toward others depends on a structure of mutual
expectations that has become a constitutive part of the relationship and, for
strong ties, of the actors’ own identity.
Not only particular dyadic relations may affect your behavior but also the
aggregated impact of all such relations. The mere fact of attachment to others
may modify economic action. Thus, you may want to stay in a certain firm
despite economic advantages available elsewhere because you are attached to so
many fellow workers. And the noneconomic value of such attachments partly
explains the tendency of employers to recruit from among those employees
know, even in the absence of purely economic advantages to doing so.
Some economists have emphasized certain elements of relational embed-
dedness, as when Harvey Leibenstein (1976) or Gary Becker (1976) empha-
sizes the norms and interests entailed in the roles that pairs of individuals 18 S O C I E T Y A N D E C O N O M Y
may enact, such as husband and wife or employee and supervisor. This
emphasis appears to soften the focus of economics on methodological indi-
vidualism. But because the behavior of such pairs is abstracted away from
their particular personal history and the way that history is embedded in
larger networks, I suggest that atomization has not been avoided but merely
transferred to a slightly higher level of analysis, the dyad, which is still seen as
unaffected by influences broader than that of internalized, prescribed roles.
Here we see again the use of an oversocialized conception—people behaving
entirely in accord with role prescriptions—to implement what is in effect an
atomized and undersocialized view of action.
By structural embeddedness I mean the impact of the overall structure of
the network that individuals are embedded in. Compared to relational
embeddedness, structural embeddedness has typically more subtle and less
direct effects on economic action. So, a worker can more easily maintain a
good relationship with a supervisor who has good relations with most other
workers as well. If the supervisor is at odds with the others, and especially if
those others are friendly with one another, they will make life very difficult
for the one worker who is close to the supervisor; pressures will be strong to
edge away from this closeness. If the other workers do not form a cohesive
group, such pressures can be mounted only with difficulty.
In saying this I draw on the principle that to the extent that a pair’s
mutual contacts are connected to one another, there is more efficient infor -
mation spread about what members of the pair are doing and thus better
ability to shape that behavior. Thus, in this situation of high network density,
a worker absorbs norms from the group that would make a close relationship
with the supervisor literally unthinkable.
Structural embeddedness also affects the behavior of individuals by its
impact on what information is available when decisions are made. Thus,
whether you leave your job depends not only on your social attachments but
also whether information on alternative opportunities comes to you. Whether
you buy a certain brand of soap can be determined in part by the structure of
your social network and the information and influences that reach you
through it (Katz and Lazarsfeld 1955). Whether workers believe that their
wages are fair depends on how they construct their comparison group, a
matter that depends not only on their position in a technical division of labor Introduction: Problems of Explanation in Economic Sociology 19
but also in noneconomically determined social networks that cut across work-
places (see Gartrell 1982), such as those of kinship or residential proximity.
This is a good example of how economic and noneconomic institutions inter-
sect, with consequences for both, which is the subject of Chapter 6.
At a different level of analysis from relational and structural embedded -
ness but also exceptionally important is temporal embeddedness. This is the
opposite of temporal reductionism, which treats relations and structures of
relations as if they had no history that shapes the present situation. In ongoing
relations, human beings do not start fresh each day but carry the baggage of
previous interactions into each new one. Built into human cognitive equip-
ment is a remarkable capacity, depressingly little studied, to file away the
details and the emotional tone of past relations for long periods of time, so
that even when one has not had dealings with a certain person for years, a
reactivation of the relationship does not start from scratch but from some set
of previously attained common understandings and feelings. This refers back
to the previous discussion of path dependence and extends its purview to the
history of social networks.
Structures of relations typically result from processes over time and can
rarely be understood otherwise. Thus, talking about strikes in factories with
large numbers of rural and “guest workers,” such as German automobile plants,
Sabel notes that “strikes by peasant workers . . . usually remain episodes, iso-
lated from the rest of the life of the factory and further isolating the peasant
workers themselves from other workers. Still, . . . they bring some few peasant
workers into contact with the outside society in the person of a union militant,
a sympathetic native worker, or a representative of management. . . . To the
extent that some of these contacts endure, they can shape the course of later
conflict” (1982: 136). By tracing out such relations, Sabel is able to make a new
interpretation of the turbulent industrial relations in 1970s Italy (1982, Ch. 4).
A good cross-sectional account might notice the importance of these contacts
as liaisons between the two groups but would be unable to contribute to any
general argument about the circumstances under which such a structure
arose. Without such an account, analysts slip into cultural or functionalist
explanations, both of which usually make their appearance when historical
dynamics have been neglected. This particular case also sheds light on some of
the debates on trust that I analyze in Chapter 3, since it displays trust as 20 S O C I E T Y A N D E C O N O M Y
emerging from a sequence of events rather than as a fixed trait inculcated by
families or culture, as in some recent economic arguments.
1.6 A Vocabulary of Individual Motives
To find a viable path between an account based entirely on individual inter-
ests and one that presumes those interests always subordinated to some larger
social entity requires further discussion of individual motives. I suggest three
important distinctions regarding such motives: Behavior may be instrumen-
tally rational or not, it may be ego-oriented or not, and it may be economi-
cally or socially oriented.
The first of these distinctions involves whether behavior can be well
described as a use of means to achieve specified ends. The issue is sometimes
framed as instrumental versus consummatory behavior, the latter being action
pursued for its own sake rather than in order to accomplish something else.
Such pursuit may range from simple hedonism to the purest of value commit-
ments but is distinctive in not entailing explicit or implicit calculation of conse-
quences of an action. Social theory gives short shrift to this kind of action,
which is often headlong and thoughtless. One case is what Max Weber calls
“value-rational” action: “Examples . . . would be the actions of persons who,
regardless of possible cost to themselves, act to put into practice their convic-
tions of what seems to them to be required by duty, honor, the pursuit of beauty,
a religious call, personal loyalty, or the importance of some ‘cause’ no matter
in what it consists . . . value-rational action always involves ‘commands’ or
‘demands’ which, in the actor’s opinion, are binding on him.” Such action is not
rational in the usual instrumental sense because “the more unconditionally the
actor devotes himself to this value for its own sake, to pure sentiment or beauty,
to absolute goodness or devotion to duty, the less is he influenced by consider-
ations of the consequences of his action” (Weber [1921] 1968: 25–26). Weber
also distinguishes between this and another type of action not oriented to means
and ends, namely “affectual” action, driven by the emotions. Some examples he
offers are behavior that satisfies a “need for revenge, sensual gratification, devo -
tion, contemplative bliss, or for working off emotional tensions” (25).
In the history of economic thought, the distinction between instrumental
and noninstrumental action has sometimes been confused with whether Introduction: Problems of Explanation in Economic Sociology 21
behavior was oriented to economic or other aspects of action—a strange
proposition once examined, since rational action for noneconomic goals and
nonrational approaches to the economy seem common enough. Albert
Hirschman (1977) has traced, for example, over several centuries, the distinc-
tion between the “passions” and the “interests,” in which the latter, referring
to economic motivations, came to be assumed the province of calm, rational,
and benevolent behavior. Noneconomic motives were gradually subsumed to
the category of “passions” with the accompanying assumption that their pur-
suit was not a matter of rational action and therefore not suitable for eco-
nomic analysis. By the time of Adam Smith, this distinction was firmly fixed;
it is so clear in the writing of Pareto that his economics and his sociology are
separate, so that one could read one without paying attention to the other. 16
Influenced by Pareto, Paul Samuelson thus commented in his Foundations of
Economic Analysis that “many economists would separate economics from
sociology upon the basis of rational or irrational behavior” (1947: 90). 17 One
kind of trouble that the equation of economic action with rational and gentle-
manly behavior caused for economic argument is that it deflected attention
away from the analysis of deception and fraud in the economy.
A second line of demarcation is whether action is “selfish” (“egocentric”)
or not. Some versions of rational choice theory discount the possibility of
altruistic behavior by asserting that any action can be theorized as achieving
some personal goal for the actor, whether or not she would agree. Sen (1977
refers to this circular argument as “definitional egoism.” The issue for social
theory, and in particular for economic theory, which Sen’s well-known article
addresses, is whether the circularity that forbids altruism is useful. Sen sug-
gests it is not, since there are many important examples where people act
contrary to their own interests in order to honor “commitments” that they
have to some principle or value or the welfare of some social entity beyond
themselves. To make behavior egoistic by definition forecloses the possibility
of understanding these important cases. Sen’s examples of “commitment,”
however, remain within an instrumental, means-end framework, as when he
distinguishes between the egoistic motive of someone who acts to stop
someone from being tortured because it makes him sick and another who
stops the torture because he thinks it is wrong, even though such action may
be dangerous and reduce his own utility. In both cases, however, there is an 22 S O C I E T Y A N D E C O N O M Y
end in view (stopping the torture), and the actor is not depicted as pursuing
a purely consummatory agenda.
A third distinction is less fundamental from the point of view of human
motivation but very important for the discussion of this book, and that is
whether an action pursues an economic purpose only, a social (i.e., noneco-
nomic) purpose only, or a mixture of these. For the remainder of this chapter,
I home in on this third distinction and its consequences. In Chapter 2, I will
assess the second question of how action in the economy is affected by com -
mitments—shared conceptions of what is proper, just, and fair, that transcend
the pure pursuit of individual interests. The first question, about whether
behavior is best conceived in a means-ends framework or not, is in a way the
hardest of all to address and will come up from time to time in specific con -
texts, especially as I spell out some implications of a pragmatist epistemology.
In addition to economic motives, by which I mean the quest for wanted
goods and services, people in all cultures seek, in varying degrees, the non-
economic goals of sociability, approval, status, and power, which are available
only in a social context through networks of others. Given the importance of
these social motives, people could hardly be expected to seek their economic
goals in an arena utterly cut off from the chance to achieve social goals, as
would be the case were economic life impersonal and atomized. It is thus
common, as we will see in later chapters, for economic relations that begin in
a neutral, impersonal way to develop noneconomic content as people try
actively to prevent economic and noneconomic aspects of their lives from
being separated. This progression was already clear to Emile Durkheim and is
a central theme in his Division of Labor in Society: “Even where society rests
wholly upon the division of labor, it does not resolve itself into a myriad of
atoms juxtaposed together, between which only external and transitory con-
tact can be established. The members are linked by ties that extend well
beyond the very brief moment when the act of exchange is being accom-
plished” ([1893] 1984: 173).
I argue in subsequent chapters that many even purely economic goals are
most efficiently achieved through contact with known others. But since many
people seek economic goals at the same time as sociability, approval, status,
and power, it is likely that they will prefer to channel their economic activity
through networks of friends and acquaintances, where all the goals can be Introduction: Problems of Explanation in Economic Sociology 23
simultaneously pursued. Separating these goals would be not only inefficient
but alienating. Especially for those who devote much of their life to economic
pursuits, we could hardly expect them to segregate these from the noneco-
nomic needs that so strongly shape human identity. Conversely, the fact that
so much economic activity occurs in social networks of known others makes
it more difficult for individuals to separate their economic from their noneco -
nomic goals.
That people pursue economic and noneconomic goals simultaneously
presents a daunting challenge for economic analysis that focuses only on one
and for sociological analysis that focuses only on the other. Current social
science theories of action offer little insight as to how individuals mix these
goals. It is insufficient to characterize the challenge as one of calculating how
individuals trade off the noneconomic for the economic outcomes. This may
sometimes be apt, but it is highly misleading to presume that the rational
economizing mode can be applied to all sets of motives, since some goals are
experienced as incommensurable with others (see Ch. 5) and action is not
always instrumentally oriented.
A simple case that illustrates some of these issues is the impact of labor market information flow through social networks. Some sociologists analyze this case by making instrumental arguments about how best to manage one’s networks for economic advantage (cf. Boorman 1975 on investment in weak versus strong ties and Burt 1992 on the use of “structural holes”). But despite the value of such arguments, it is difficult to stay within a simple framework of instrumental rationality even in this apparently straightforward case. My empirical study (Granovetter 1995) shows that to imagine job information as always being the result of “investment” in contacts is profoundly misleading.
One reason for this is that, as Peter Blau argues in discussing the limits of the
concept of “social exchange,” positive responses from other people (who are
perhaps “investing” in you) are only experienced as rewarding insofar as the
recipient does not think that they were intended as “rewards” (Blau 1964:
62–63). People want to be liked and admired. Insincere approval is better
than none (as sycophants well know) but pales in comparison to approval
without ulterior motive. As I have argued elsewhere, “though some ‘investors’
in social relations may achieve great skill in simulating sincerity, as shown by
the success of ‘confidence rackets,’ the desire of recipients for true approval,
24 S O C I E T Y A N D E C O N O M Y
and the vigilance of most in ferreting out its opposite, sharply bound the role
of calculated instrumentality in social life” (Granovetter 2002: 37).
In the normal course of events, as opposed to the world of social theory,
mixtures of motives between economic and social or between instrumental
and consummatory activity are routine. For example, people often go to par-
ties with nothing more in mind than having a good time, and yet information
about jobs can and does pass among partygoers (Granovetter 1995). Labor
markets and weekend socializing are separate institutions whose intersection
does not depend only on the action of individuals. The dynamics of such
intersections are an important topic to be considered in Chapter 6. How dif-
ferent institutions interpenetrate one another has a big impact on when
people carry mixed and multiple motives into their social situations.
As this theme of institutional interpenetration suggests, that economic
and noneconomic activity occur together and may be inextricable is of
interest not only because it complexifies the explanation of individual
behavior but also because it has consequences beyond the level of individuals.
In particular, noneconomic activity affects the costs and the techniques avail-
able for economic activity. Economists have typically seen only the negative
side of this equation. For example, a culture in which corrupt practices are
common may impose high economic costs on the normal production of
goods and services. Such a case is usually characterized pejoratively as “rent-
seeking” (see esp. Krueger 1974). But the other side of the story is that eco-
nomic costs are often reduced when actors pursue economic goals through
noneconomic institutions and practices to whose costs they made little or no
contribution. Thus, when employers recruit through social networks, they
need not—and probably could not—pay to create the trust and obligations
that motivate friends and relatives to help one another find the most suitable
employment. This trust and obligation result from how a society patterns its
institutions of kinship and friendship, and any economic efficiency gains that
result are a typically unintended by-product of action pursued by individuals
seeking sociability, approval, and status. By recruiting through networks,
employers use their superior position of power to create a situation in which
people’s economic action and social action are intertwined. So it is misleading
to suppose that such mixing of activities is purely the result of individuals’ isolated and personal situations (cf. Granovetter and Tilly 1988).
Introduction: Problems of Explanation in Economic Sociology 25
I will revisit these themes in Chapter 2, 5, and 6 and in my sequel volume
in my discussion of “corruption.”
In the next chapters, I lay out some general principles and arguments
about some of the most important conceptual tools, issues, and debates rele-
vant to understanding the economy in its social setting. Chapter 2 develops
some arguments about norms, moral economy and culture, and what the vig-
orous disputes about the role of these in the economy may tell us about ana-
lytic strategies. Chapter 3 builds on this discussion and reviews and com-
ments on the voluminous literature on trust in the economy. Chapter 4
considers what place power plays in economic processes, and Chapters 5 and
6 put all these concepts into motion for the important cases where social
institutions impinge upon and help to shape economic action. These chapters
set the stage for the more detailed empirical chapters in my sequel volume,
which try to show how the toolkit of ideas developed here can illuminate a
wide range of actual cases.
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