The ‘Great Decades’: 1890-1940

By the end of the nineteenth century, political economy was in a critical situation. First, a debate on method was started by the German Historical School, whose centre was in Germany but which, since German universities attracted many scholars from Europe and the United States, had international influence.

It is in this context that economic sociology appeared to be a possible solution. Three different strategies were then proposed: Emile Durkheim (1858-1917), a French phi­losopher by training and sociologist, suggested a strategy in which political economy would be superseded by economic sociology. Pareto (1848-1923), trained as an engineer, became the successor of Leon Walras in Lausanne. He proposed a strategy of progres­sive complexification, going from pure political economy to applied political economy and then to economic sociology. Finally, Max Weber (1864-1921), an economist from Schmoller’s Verein who became a sociologist in the very last part of his life, suggested a strategy which would connect abstract theory to the empirical data given by history. Each strategy was grounded on a complex set of methodological and theoretical state­ments on the one hand, and empirical research on the other.

Durkheim had initially oriented his research on issues related to economic life. His dissertation was on the division of labour (On the Division of Social Labour, Durkheim 1893). He then devoted his attention to corporations and their regulatory functions in order to find a solution to what he saw as the unsatisfactory situation of industrial society, which was riven by periodic crises. He also lectured on socialism, a topic of great interest to economists of the time, and on the role of government in industrial society. At the end of the nineteenth century he turned from economic issues to the sociology of religion, pointing out that economic events should also be connected to their religious underpinnings - but he did not himself explore this hypothesis (Steiner 2011: chs 2 and 5). As a philosopher he was well versed in the methodological problems that plagued politi­cal economy at the end of the nineteenth century, as illustrated by the German debate on method. Concepts and abstraction are necessary tools in social sciences, explained Durkheim, and sociology should develop its own abstract conceptualization and follow specific rules on method (definition, classification, comparison of series of facts in order to reach an explanation of social facts according to the sequence set up in his Rules of Sociological Method, 1895). Nevertheless, Durkheim was not satisfied with the concepts used by economists: these concepts were not inductively grounded, and therefore they were nothing but normative statements. They expressed what a rational actor should do in order to be rational, not what these actors actually do in their economic life. A second fundamental critique appeared in one core chapter of his dissertation, where Durkheim criticized Spencer’s view of industrial society, in which social intercourse would be primarily founded upon free contractual relationships. This was impossible, argued Durkheim, since the increasing number of contractual relations would exceed the capac­ity of individuals to bargain and monitor contracts; instead, individuals had to rely upon ready-made contracts in which duty would, to a great extent, impinge upon contractual freedom.

Durkheim did not develop these methodological critiques; instead the task was taken up by two of his disciples, Franςois Simiand (1873-1935) and, to a lesser extent, by Maurice Halbwachs (1877-1945), who were at the head of the “Economic Sociology” section of the Durkheimian journal, L’Annee sociologique (1897-1913). Simiand had a polemical turn of mind that led him to criticize both the German Historical School for its lack of clear theoretical underpinnings, and also the neo-classical school, math­ematical economics included, which was found wanting in its approach to empirical data (Simiand 1912). Rejecting “theories without facts and facts without theories”, he tried to fill the gap with a theory of economic action (effort versus routine and increase of profit versus status quo) which he put at the basis of his work on business cycles (Simiand 1932). He became a leading French economist of the so-called economiepositive school, arguing for a political economy founded upon statistics and history on the one hand, and sociological theory on the other.

Pareto is mainly known for his outstanding achievements in the domain of pure political economy. However, throughout his academic life he warned his colleagues of the epistemological pitfalls that he thought plagued political economy considered as a separate science. This twofold dimension of Pareto’s thinking was clearly present in the introduction to his Manuale di economia politica (1906, translated into French in 1909 with a substantial appendix on mathematical economics) where he explained that pure political economy was a powerful but limited tool of enquiry, in the sense that its subject matter was strictly limited to the behaviour of rational actors considering nothing but the economic aspect of the social world.

Weber was trained as an economist and a jurist, and was not formally appointed as a sociologist before 1919, when he accepted a chair in Munich, one year before his death. Schumpeter’s view was that Weber made no contribution to economic theory, but had important methodological views on the work that economists did, as can be seen in his comments on the debate over “value freedom” in political economy. Nonetheless, his contribution to economic sociology was of very first order in designing a strategy combining economic history and economic theory. Weber always considered that eco­nomic theory, at least the Austrian version of neo-classical economics with which he was familiar, was crucial to the understanding of empirical data - those who were not happy with it, he wrote, have to provide a better theory - and to causal imputation.

Weber did not only provide this conceptual apparatus. His famous essay on The Protestant Ethic and the Spirit of Capitalism is a case in point: he explained the birth of the rational economic ethos (that is, economic behaviour based upon deeply internal­ized values) through a careful analysis of the religious reformation of the seventeenth century, before Puritanism came “to its dissolution into pure utilitarianism” (Weber 1920 [2002]: 122). In this essay, Weber explained how religious change in the sixteenth century (primitive Puritanism) created an economic ethos fitted to the development of modern capitalism. The religious dimension of this explanation came from the idea that many Protestant sects considered that Christians must continuously look for confirmation of their religious status in the daily business of their life. Accordingly, owing to their value-rational behaviour, the Protestant ethos legitimized behaviour that fostered the accumulation of wealth and, finally, the instrumental rationaliza­tion of the entire life of believers to the point where Weber considered that “[...] the Quaker is a kind of ‘walking law of marginal utility” (Weber 1920 [2002]: 116). This essay is thus a remarkable demonstration of the interconnection between the various spheres of social life and of the role of (religious) institutions in the develop­ment of crucial elements of economic activity and theory, namely utility maximizing behaviour.

These three scholars died in the early years of the twentieth century. Who was to continue the work that they had begun as founders of modern sociology, and also of economic sociology?

In the case of Durkheim, the heirs came from the group of scholars created around his journal L’Annee sociologique. Simiand, Halbwachs, and Marcel Mauss (1872-1950) devoted a large part of their scientific work to economic sociology in the interwar period. Simiand was very active in the domain of the economic theory of wages and business cycles, whereas Halbwachs focused on consumption and demography (Halbwachs 1912). Mauss should also be acknowledged here for his pathbreaking contribution on the gift (Mauss 1925).

In the case of Pareto and Weber, the situation was quite different, since they did not create a “school” in the way that Durkheim had done. Pareto was certainly the less fortunate and had no direct followers. His approach may be pragmatically considered to be a dead end, even if Talcott Parsons (1934, 1935) made him one of the four pillars of his general theory of action (Weber, Durkheim and Alfred Marshall being his three other references), aiming at a general approach to economy and society. Weber fared much better; he became the reference-point par excellence for the sociological domain, and a large part of the research conducted in contemporary “new economic sociology” is influenced by Weber’s method and approach. Joseph Schumpeter’s own approach to economic sociology complements that of Weber, as his definition of the subject in his famous History of Economic Analysis (Schumpeter 1954) makes clear. After distinguish­ing economic history, statistics and theory as techniques of political economy, he added a fourth element:

It is easy to see that when we introduce the institution of private property or of free contract­ing or else a greater or a smaller amount of government regulation, we are introducing social facts that are not simply economic history but are a sort of generalized or typified or stylized economic history... Borrowing from the German practice, we shall find it useful, therefore, to introduce a fourth fundamental field to complement the three others, although positive work in this field also leads us beyond mere economic analysis: the field that we shall call Economic Sociology (Wirtschaftssoziologie). (Schumpeter 1954: 20-11)

Furthermore, Schumpeter himself devoted a large part of his work to studying connec­tions between economic and social events, whether in the domain of monetary theory, fiscal policy or of the entrepreneur. This last concept deserves a specific comment, for while it is crucial, economists have had difficulty using the idea. The entrepreneur is central to the evolution of a market economy, but his behaviour does not enter easily into the economic man’s rigid form of rationality. Schumpeter thought that the entre­preneur was led by a “super rationality” and the desire to create an economic empire; Pareto for his part had suggested that the entrepreneur acted in a non-logical way, since his action, guided by the desire to make a profit, brings the economy to an equilibrium in which profits are nil; Marshall (1907) emphasized the “chivalric” dimension of the entrepreneur, and suggested that they should be honoured with rewards for their con­tribution to the progress of societies. In brief, the entrepreneur is a central character of economic theory, and also a central one for economic sociologists when they claim that non-economic motives and ultimate values must be taken into account for explaining the behaviour of key economic actors.

The emphasis put on institutions by Durkheim and the Durkheimians, on the one hand, and by Schumpeter, on the other, makes it necessary to introduce an important development of American political economy at this point. The old institutionalist school, elaborated first by Thorstein Veblen, then by John Commons and Wesley Mitchell, has striking similarities to economic sociology (Gislain and Steiner 1995). Mitchell trans­lated and summarized various passages from Simiand’s book on the critique of the method of “orthodox” political economy, and pointed out many similarities between the Durkheimian approach and Veblen’s views. Later, Commons toyed with the idea of labelling his main book “Economic Sociology” instead of Institutional Economics (Commons 1934 [1959]: introduction).

However, as the “years of high theory” spread over political economy in the 1930s, economic sociology lost its grip on the profession. The disciplinarization of the social sciences compounded this situation and for some decades created a major divide between

economists and sociologists. This was acknowledged in the opening pages of Talcott Parsons and Neil Smelser’s essay:

The work of Marshall and Weber, considered together, constituted a level of rapprochement between economics and sociology which has not been matched since. From a somewhat differ­ent point of view, Pareto also made a notable attempt at synthesis which has greatly influenced our thinking... But the initiative of these men failed to gain momentum. Indeed, we feel that there has been, if anything, a retrogression rather than an advance in the intervening half century. (Parsons and Smelser 1956: xvii)