Is Economic Sociology Institutional Economics Mark II?

So, last weekend I had the distinct pleasure of reading Yuval Yonay’s (1998) The Struggle Over the Soul of Economics: Institutional and Neoclassical Economists in America between the Wars. Yonay attempts an Actor-Network/Latourian history of the debates within economics in the U.S. around 1920-1940. The book is a fun read, and I think does an excellent job of portraying the positions taken by the neoclassicists and institutionalists respectively. One of Yonay’s central goals is an intervention in the historiography of economics to argue that institutionalism was not a minor dead-end that never had much importance. Yonay shows that institutionalism was a vibrant research program/paradigm/whatnot during this period and that institutionalism eventually lost out not to the neoclassicists but rather to the mathematical economists that arose in the immediate post-War period. While the mathematical economists claimed the neoclassicists more strongly than the institutionalists, Yonay argues fairly convincingly that the post-war mathematical econ/Keynesian consensus represents quite a break from both camps.

As a (budding) economic sociologist, I was struck by the familiarty of the arguments advanced by the institutionalists against the neoclassical orthodoxy. For example, institutionalists advanced three main critiques of homo economicus: 1. People have “nonmaterial and nonselfish interests”, 2. “Irrational behavior” exists as humans are “social creatures” and 3. “Labor is not only a pain which must be endured, but also a source of satisfaction.” (Yonay 1998, 102) All three points resonate with the contemporary economic sociology literature. Here’s an amazing list created by Paul Douglas as the beginning of a classification of “non-commercial incentives”:

1. The desire to benefit humanity.
2. The fascination, or joy, of work itself.
3. The desire to project one’s own personality in the work at hand.
4. The desire to be esteemed by one’s fellows in the same field of activity.
5. The desire for the esteem and approval of the general public.
6. The craving for notoriety.
7. The desire for power over men and over things (Douglas 1924, 188, quoted in Yonay 1998, 102).

And here’s an extended version of point 2 from the instutionalist Edie which goes as far as calling individualism itself a historically specific cultural phenomenon:

“For long, philosophers assumed that individualism meant perfect freedom to set independently of all restraints. However, more recent social thinkers look upon individualism as a form of domination wherein the subjects are commonly ignorant of the taboos, customs, and precepts which dictate their conduct. The so-called freedom of laissez-faire has too often been in reality merely a slavish obedience to traditional standards of choice and outworn institutional arrangement. (1927, 436)” (Yonay 1998, 105)

The third point, that work is potentially a source of satisfaction as well as misery, strikes me as a possibly powerful critique not often examined by economic sociologists (though perhaps that reflects more my unfamiliarity with work in the intersection of econ soc and occupations/work). The normative implications are pretty striking: if work can be a source of utility itself, then maximizing the outputs of labor must be balanced against maximizing the pleasantness of work. Can we imagine an economics that started with the pleasantness of work as one of its principles?

I have written before that economic sociology makes two broad claims: that individuals are not atomistic (Granovetter) and that markets are built and sustained by government intervention and thus cannot be disembedded from the social or political realms (Polanyi). I think both of these claims could find antecedents in the institutionalist critiques of neoclassicism. To what extent can we say that economic sociology is the heir to the institutional economics of the pre-WWII U.S.?



  1. Very interesting, you’re right about the dept towards institutional economics. But this similarities point somehow to the fact that in this shared critique of neoclassical economics there is after all an economist’s unconscious (institutional or otherwise). People have different preferences (social ones included) and respond to different incentives (altruism and irrationality included). But they have such a thing as endogenous ex-ante preferences that identify them as stable agents with potentially calculable response to incentives. Probably, one kind of economic sociology that would claim that preferences are at most an on-spot construct (not an ex-ante drive) and that there is a great deal of economic conduct that has absolutely nothing to do with response to incentives would show far less concordance with institutional economics.

  2. Two thoughts: First, I agree that certain parts of sociology would deny any sort of ex-ante preferences, even ones as non-selfish as “the desire to benefit humanity”. That being said, I wonder if institutional economists of this era had a rigorous understanding of preferences, or if it was more of a heuristic similar to how the concept is used in sociology. For example. the quote from Edie suggests that even preferences for (so-called) individual freedoms are socially conditioned, and only ex-ante in the sense of having been constructed, not in the sense of being innate or transhistorical. Many economic sociologists, if not most, would go that far.

    Second, if you look at some of the ‘killer apps’ of economic sociology and organizations (Granovetter 1974, 1985, DiMaggio and Powell 1983, Fligstein 1990 to name a few of the most cited), the explanations of behavior are mostly instrumental. For example, Granovetter argues that actors use their social networks and are influenced by them, but the actions are still purposive and calculating. DiMaggio and Powell argues that organizations adopt similar behaviors because: 1. it makes economic sense to do so (competitive isomorphism), 2a. they are forced to do so by another actor with power over them (coercive isomorphism), 2b. some professional group comes to believe that practice is best (normative), or 2c. acting under uncertainty the organization mimics its reference group (mimetic). 1, 2a and 2c all look like incentive-driven, preference-having action. 2b could probably be fit under the same story; I’m having trouble only because no clear example is coming to mind right now. Long story short, I think a lot of the stories econ soc tells are about instrumental, but non-atomistic, action, and those stories seem utterly consistent with the precepts of institutionalist economics as laid out by Yonay. Other bits of sociology more directly confront the possibility of instrumental action with ex-ante preferences (say, ethnomethodology), but econ soc does not do so in the same way.

    Do you think that’s fair?

  3. Yes, yes, yes. Very much to the point.

  4. Diogo

     /  December 6, 2008

    It seems that many sociologists are reluctant to admit this heritage explicitly(given, for example, how rarely Veblen is cited outside of the works that deal directly with the history of economic thought). More importantly, it seems that the barriers to interdisciplinary work remain, despite the recent efforts by the SASE. There still seems to be little collaboration with the evolutionary economists of the Hodgson circle, or the ideational approach of the political scientists, as sociologists still seem to be much more focused on organizations, and as Mizruchi et al pointed out, particluar forms of isomorphism.

    Personally, if I had to cite the two greatest influences Ive ever had, one is Polanyi, and the other is Veblen’s “Why is Economics Not an Evolutionary Science”