austrian ecomomics and economic sociology: best buddies or mortal enemies?
In a 2006 review article for the Journal of Institutional Economics, I concluded that economic sociology might have much in common with heterodox economics. Let me spin this out for the case of austrian economics. Here’s a lengthy wiki primer, but, in a nutshell, Austrianism focuses on issues like disequilibrium, entrepreneurship, and viewing markets as rational, but spontaneously, emerging complex orders. It’s a strand of econonomics that casts markets as good social institutions based on acquring knowledge, learning, and problem solving.
Here’s the links:
- Austrians and economic sociologists share a strong taste for inductive learning from qualitative examples and a distaste for mathematical models.
- They both view markets as socially constructed entities. They both place much importance on actors who shake up the status quo by doing things that others don’t see. “Entrepreneurs” appear prominently in both theories.
- They both view equilibrium models as missing the point, or at least not where the action is.
- They both view markets as complex, decentralized moral orders, not mechanical asset sorting processes.
Now, here are some divergent points:
- Political disagreement: Austrians are very strong defenders of markets. Sociologists tend to be the opposite.
- Austrians reject statistics, but most sociologists accept statistics as an important form of theory testing.
- Austrians adopt a government “one drop” rule: any touch of state intervention interrupts the natural development of markets. Economic sociologists often view states as providing regulation or infrastructure.
- Austrians adopt the economically oriented individual as the basic model of human behavior, even though it’s not the same as the neo-classical homo economicus. Economic sociologists view both of these models as historically specific and not generalizable.
- Austrians view non-market actors (movements, states, interest groups, ethnic groups) with skepticism. Economic sociologists are more likely to see these folks in a positive light because they help establish what is legitimate and moral.
Connecting economic sociology is an interesting idea, because Austrianism is way more open to outsiders than neo-classical economics. I’d be interested in how economic sociology could better be integrated with Austrianism, or any other heterodox approaches.
Gertraude Mikl-Horke had a fascinating piece on this very topic published in Socio-Economic Review.
Austrian economics and economic sociology: past relations and future possibilities for a socio-economic perspective
Socio-Economic Review (2008) 6, 201–226
Cody
January 14, 2009 at 7:25 am
I couldn’t agree more with this post. I think its the extreme pro/anti-market positions of many on both sides which keep the two camps from learning from each other. I’d even go as far as to argue that the future of the Austrian School lies with economic sociology rather than neoclassical economics.
Of course, I’m probably the only one saying this.
Josh
January 14, 2009 at 10:07 pm
Nice post, Fabio. I agree that there are unexploited gains from trade here. A few quick comments:
1. Austrians don’t reject statistics, but the use of statistics for theory testing. They tend to treat theory as a priori but use quantitative empirical methods liberally in doing applied work in economic and business history. Austrian economics, rightly understood, is fundamentally “empirical” (see this).
2. As you note, the Austrian concept of “purposeful action” is different from the neoclassical economics idea of “rational behavior.” Austrians are trying to construct a logical theory of goal-oriented behavior, building on the logical categories of means and ends to understand empirical phenomena like value, exchange, and price. Austrian economics is generally safe from the criticisms that sociologists and psychologists (and behavioral economists) make about homo economicus assumptions.
3. What you call the “one-drop” rule is based on a specific theory (from Mises) about the dynamics of government intervention, namely that small interventions generate unintended consequences that bring forth further interventions that generate further unintended consequences, etc. It isn’t simply that a lone intervention disrupts the “natural order” of the market.
4. More generally, the founding Austrians tended to see economics and sociology as complements, not substitutes. Mises and Weber were good friends and had a great deal of mutual respect, for example. Note also that the English translation of Mises’s classic book on socialism is “An Economic and Sociological Analysis.”
Peter Klein
January 14, 2009 at 10:28 pm
Nice Post Fabio!
Thanks for the plug Cody. If you are interested, see Boettke and Storr (2002). American Journal of Economics and Sociology. “Post-Classical Political Economy: Weber, Mises, and Hayek.”
(Mises was also a member of the German Sociological Association.)
Brian Pitt
January 15, 2009 at 2:28 pm
Sometimes I think that mainstream economic sociology has more in common with heterodox economics than mainstream sociology proper. Reading Yonay’s The Struggle Over the Soul of Economics felt very reminiscent of debates between econ soc and neoclassical/mathematical economics.
Dan Hirschman
January 16, 2009 at 2:25 pm
Fabio, many thanks for this post. I’ve wondered about the connections here for some time, and even about research topics within my limited competency that might bridge the two, but you formulated the issues far better than I ever could.
Peter, regarding your first point above, I’m reminded of a long-ago post at O&M, specifically http://organizationsandmarkets.com/2006/11/17/more-on-quantitative-methods-in-social-science/, and its reference to issues Richard Sennett and R.C. Lewontin raised at http://www.nybooks.com/articles/1889. I’m curious how you would compare the Austrian use of statistics to what Sennett and Lewontin appear to think most appropriate for sociology.
Cliff Grammich
January 17, 2009 at 12:03 am
Cliff: I think that what Sennet/Lewontin raise is different than what the Austrians raise. Lewontin raises the issue that social science data is so flawed in some cases that it is simply unreliable. Lewontin was addressing the Laumann et al sex study and thinks that it is essentially junk science because it relies on bad data. Sennett seems to have an ideological ax to grind, which is beside the point for this thread.
The Austrians, on the other, hand don’t seem to mistrust social science data. I think they, as Peter mentions, seem to think that statistics can describe the world, but not directly test theories or hypotheses.
Or to summarize: Lewontin – sociologists produce garbage because they use garbage; Austrians – statistics is for describing the world, not assessing the logic of theories.
fabiorojas
January 17, 2009 at 3:35 am
(A student of mine, Martino Comelli, drew my attention to this blog.)
Interesting question raised by Fabio, excellent reply by Peter Klein: there are unexploited gains from trade. Some sociologists have put economists to shame by giving explanations of the functioning of markets and competition that economists have failed to provide: Harrison White and Ron Burt. Their network models are fruitful, and strangely enough the current interest of economists in networks owes little to these pioneers. By the way, Burt’s structural holes theory is an elaboration of Mises’ idea of entrepreneurship; again, Burt did not know about Mises when he first formulated his theory. One would say that gains from trade may be realized after some barriers between the two disciplines have been demolished.
Hayek said nasty things about sociology: it had nothing to add to what history can teach us. But that was based on a non-generous and probably wrong reading of Durkheim. Together with Ragib Ege I have addressed this and other questions about the relations between the two disciplines in “Two Views on Social Stability: An Unsettled Question”, American Journal of Economics and Sociology 1999
Jack Birner
February 4, 2009 at 8:29 pm