A socio-economic approach to market transactions.

Milan Zafirovski [*]

Behavioral sciences, Athens State University, 300 North Beaty Street, Athens, AL 35611, USA

Received October 1998; received in revised form November 1998; accepted December 1998

Abstract

The task of this article is to explore social underpinnings in economic exchanges. This exploration is undertaken within the frame of reference of socio-economics that centers on the multifarious social and cultural variables of economic phenomena. In particular, the socio-economic perspective on the market, focusing on the social setting of market exchanges, is utilized. As such, this exploration probes under the surface of (seemingly) cost-benefit induced exchange processes and uncovers a far more complex social structure and dynamics underlying these processes. Hence, these processes are analyzed as constituting socio-economic categories of the market. The social-cultural contingency of economic exchange, especially of its market varieties, is the key hypothesis of this article. This signifies that market exchange, just as production, distribution, and consumption, is a dependent variable on concrete social-historical conditions, rather than being a human universal. The approach proposed here provides an alternative to the purely economic conception, which treats exchange processes as strictly economic variables driven by an intrinsic logic and insulated from other social relations. The mainstream economic literature's lack of consistent applications of such an approach to market exchange contrasts with the richness of such applications in the field of socio-economics. The paper's aim is to contribute toward further elaboration and application of socio-economics. (c) 1999 Elsevier Science Inc. All rights reserved.

1. Introduction

A sociological-economic approach to market transactions and related processes is outlined and elaborated in the following pages. The framework of a theoretical-empirical socio economics (Etzioni, 1991) or economic sociology/anthropology is the epistemological foundation of such an approach. In general, the differentia specifica of socio-economics is the observation of economic variables as complex social phenomena (Sjostrand, 1993), i.e., as "sociological categories of economic action" (Weber, 1968, pp. 63). This implies assuming the incidence and salience of "sociological relationships in the economic sphere" (Weber, 1968, p. 63), including market exchange as well as production, distribution, and consumption. That exchange transactions and processes are socio-economic-cultural phenomena par excellence is the major premise of a socio-economics or/and "economic sociology of the market" (Boulding, 1970, p. 153), the perspective of which permeates this article. Rather than observing market exchange as a purely physical, technical, psychological or even economic phenomenon divorced from other social processes, this perspective is focused on the presence, multiplicity and relevance of social-cultural variables in that phenomenon. In contrast to the imputation of some intrinsic logic to it by pure economics, the perspective of the socio-economic of markets attributes an essential social constitution and rationale to market-economic exchanges.

The above preliminary considerations adumbrate the key assumption of this article: that of the social character, construction and contingency of economic exchange, above all of its market variants. More specifically, to show that market and (seemingly) cost-benefit-induced exchange, just as production, distribution, and consumption, is not a natural or social universal but rather a stochastic function of definite social structures and historical conjunctures--is this paper's main goal. Overall, the current literature in (especially) mainstream economics and rational choice sociology features a certain void in regard to coherently applying a socio-economic approach to market exchange, apart from treating the latter notion as the essence of the economy. This is in a stark contrast with the richness of applications of such an approach in socio-economics (recent applications in this journal can be found in Alvi, 1998; Buscher, 1993; Sjostrand, 1993; Tomer, 1998), in economic sociology (Smelser & Swedberg, 1994), including the sociology of markets (Lie, 1997), as well as in related heterodox economic and sociological endeavors (for recent examples and reviews, see Ackerman, 1997; Bowles, 1998; Hodgson, 1998; O'Boyle, 1993; Sciulli, 1996).

However, from the viewpoint of a socio-economic approach to the market and generally sociological economics or economic sociology as a broadly conceived alternative to orthodox economics, such a situation in the latter amounts to a fallacy of omission. This fallacy is found in the pure economic theory of exchanges in that it neglects the presence and importance of social variables in the market realm. In turn, this fallacy is further compounded by the fallacy of commission, as committed by rational choice sociology. The latter (mis) conceives the entire society as an exchange realm, a marketplace populated by mutants of the "species homo economicus" (Friedman, 1995, p. 3). Given such a curious state of affairs in the mainstream economic and sociological literature, this paper's intended contribution is primarily to help redress the above omissions in the analysis of market exchange, whilst rational choice sociology's commissions are largely outside the scope of this paper (for an attempt to specify the relat ions between socio-economics and rational choice theory, see in this journal Zafirovski, 1998). The overriding purpose of the paper is to make contribution toward further theoretical elaboration and empirical application of the discipline of socio-economics as pursued in this journal.

For that purpose, the structure of the article is the following. First, we present the general theoretical and methodological outlines of the socio-economic approach to economic exchange. Then we apply this approach in the rest of this article, by exploring the social conditions of economic exchange. Finally, we offer concluding remarks.

2. Outlines of a socio-economic approach to market exchange

In the following we attempt to show that economic exchanges, including seemingly cost-benefit induced market transactions, constitute special cases of social action. For that purpose we are using a socio-economic, especially a neo-Weberian, approach to the matter under examination. This implies suspicion if not tacit rejection of the opposite treating of social interaction as economic-type exchange or quasi-economic, social exchange, that is characteristic for much of so-called exchange theory in rational choice sociology. For to reduce all human (inter)action to exchange, economic or social, involves an untenable reductionism that grossly violates the real-life complexity by proceeding on the delusion of discovering simplicity in a complex socio-economic world. By misconceiving all social interaction as economic or quasi-economic exchange, social exchange theory like the entire rational choice model amounts to an over-ambitious, even trivial, "theory of everything [under the sun]" (Hodgson, 1998, p. 168), t hat "explains everything and nothing" (Ackerman, 1997, p. 663).

Hence, the idea of some ubiquitous social exchange is here regarded as only a metaphor or analogy at best. And as used by its proponents, this idea often boils down to an empty concept or "mathematic trick drained of any substantive content" (Margolis, 1982, p. 16), just as is an over-arching mono-utility function or cost-benefit model in which all human motives, preferences and emotions are lumped together (as critiqued by Elster, 1998; Etzioni, 1988). In essence, the problem with social exchange theorists is that they "do not always theorize exchange [but] rather than explaining markets and exchange, they employ markets or exchange to explain social and economic life" (Lie, 1997, p. 343). Thereby, they engage in (mis)construing all society as merely a marketplace presumably populated by cost-benefit human calculators driven by some inborn propensity to barter and exchange. In epistemological terms, such a (mis)conception of society indicates that all-embracing market theories, such as social exchange or ra tional choice, are not necessarily theories of the market (Lie, 1997, p. 343). For a theory of the market generally tries to explain the nature and functioning of markets, exchange, competition, and the like, and not to (mis)conceive nonmarket phenomena as markets, exchange or economic competition (for objections to this approach, cf., Etzioni, 1991; Yeager, 1997), as done by social exchange and other rational choice theories, especially public choice (Mueller, 1997).

Leaving aside social exchange theory as a mis-guided extension, especially in its rational-choice formulations, of the neoclassical theory of market exchange, we use a perspective that originates in socio-economics (or economic sociology), as an exploration into the social, historical, and cultural variables of economic phenomena, including production, distribution, consumption as well as exchange. Emphasis on the incidence, multiplexity and prominence of such variables in the realm of exchange relations and processes is a hallmark of the social-economic approach to markets as a special application of socio-economics. In the course of this analysis, we hope that the distinctive character of the socio-economic approach to market exchange and economic behavior generally will become obvious in relation to the purely economic approach.

Contrary to the explicit or implicit assertions of pure economists, market exchange as an ideal or actual type of social action represents not just economic or instrumentally rational action grounded in cost-benefit calculation or formal rationality. Within a social, Weberian framework, by virtue of its orientation to realizing certain ideal or transcendental values or substantive rationality regardless of cost-benefit ratios, such exchange also takes on the character of noneconomic or value-rational action. Furthermore, traditional and emotional action, driven by habits and other social rules and by Paretian residues and derivations (sentiments and their rationalizations), respectively, can also permeate what is on the surface cost-benefit induced exchange. Hence, probing more deeply under this surface, a sociocultural model of market exchange reveals the fallacy of misplaced concreteness and otherwise relaxes other failures of the purely economic approach used by orthodox economics (for a general critique, cf., Etzioni, 1988).

To put it in Weberian terms, that formal or instrumental rationality in cost-benefit induced exchange, just as in production or distribution, may often represent but an instrument, an intermediary, or a consequence of its substantial or value rationality seems ruled out by conventional economists' self-inflicted "veil of ignorance." This latter is exemplified by the celebrated residual, to which are relegated the unknown social and other variables, in the neoclassical production function (for a historical account, cf., Griliches, 1996).

Such a relationship between the two types of rationality is indicated by the historicalempirical tendency that what seems to be cost-benefit induced exchange is often no more than a means to ultimate realization of, for example, religious grace, social status, power, morality, identity, justice, and other nonmaterial ends. The typical or representative Protestant entrepreneurs provide a case in point for this. As elaborated later, these economic agents undertake and experience cost-benefit induced exchange as no more than an expediency in relation to the supreme goal of (knowledge of) religious salvation. In general, it is transcendent and otherwise noneconomic rather than economic ends (as indirectly acknowledged by Robbins, 1952) that are essentially sought by their engagement in rational, cost-benefit induced exchange in the market. In other words, value-rationality striving for religious salvation is, for these Protestant entrepreneurs, the ultimate orientation in relation to which the instrumental-ratio nality, as epitomized in their seemingly cost-benefit induced exchange and other economic activities, was merely an intermediate phase. At this juncture, immediate economic goals are to be viewed as performing a function similar to means of the latter (Alexander, 1982, pp. 72-4) relative to more ultimate noneconomic values, as the interrelations between the two, at least among these Protestant agents, are expressed in those between the instrumental and value rationality of cost-benefit induced exchange. Hence, far from being a natural state of affairs or an absolute or necessity, the spirit of capitalism associated with these cost-benefit induced exchange transactions has always been just a social-cultural and historical, i.e., relative category generated or influenced by such a religious (Protestant) ethic.

The above perspective on exchange sharply contrasts with the approach of conventional economics; we call this perspective socio-logics given its emphasis on the social nature and construction of market transactions. Conventional economics usually regards cost-benefit induced exchange as an invariant and strictly market activity devoid of nonrational and impure socio-cultural variables, including power, status, habits and traditions, religious ideals, ethical imperatives, as well as "animal spirits" (Keynes, 1960, pp. 161-162), emotions, and other irrational forces. All these variables and forces are generously handed over to sociology (Samuelson, 1983, pp. 90-92) and socio-economics, or relegated to the residual (Fararo, 1993, pp. 291-292) on grounds that they represent exogenous and irrational intrusions into rational processes- supposedly moved by an inner logic of their own. For example, most mainstream economists tend to "dismiss scholars that reject the rational actor paradigm as being outside 'economic s' and consign them to 'sociology'" (Hodgson, 1998, p. 189). A historical digression on the association of economics with the rational and of sociology and socio-economics with nonrational may here be in order. Namely, "these vigilantes of 'economic correctness' have to …