**2.2.1 Economic action, institutions, and structures**

In my opinion, economic sociology can learn a lot by critically assessing the notion of economic action and institutions outlined by Max Weber – whose rich work has not been fully explored yet (Swedberg, 2003a; Maurer, 2010). Weber is still important for economic sociology for two reasons: firstly, because his methodological premise is to start explaining social regularities from an *individual point of view* focusing on the *institutionalized social setting*; secondly, because of his well-known historical view, especially that on the overwhelming processes of *rationalization* in the modern western world in general and that of *rational economic actions*, *institutions*, and *structures* in particular. Weber focused on the *need for* and *existence of* institutions in the sense of socially shared expectations with regard to the individual's need for orientation in a complex social world. Connected with this, he especially highlighted their reflection on ends as well as on means-end relations. Weber assumed that mankind is able to act intentionally, but that real action is mostly a mixture of rational intentions as well as of traditional and emotional actions. But in order to provide explanations, it is best to start with the assumption of means-end oriented actions and reconstruct them in accordance to social evidence. Only if such an explanation fails, social scientists should assume value rationality, traditions, or affect as situational motivation; this is what Weber did in the "Protestant ethic" where he used the assumption of value-

<sup>1 &</sup>quot;Wirtschaftlich orientiert soll ein Handeln insoweit heißen, als es seinem gemeinten Sinn nach an der Fürsorge für einen Begehr an Nutzleistungen orientiert ist." (Weber, 1985: 31)

In his work, Weber puts economic action and economic institutions center-stage. To him: "(modern, A.M.) 'economic action' is any peaceful exercise of an actor's control over resources which is in its main impulse oriented toward economic ends" (Weber, 1978: 63).1 According to Weber, economic action in modern economy is thus defined as means-end oriented action in order to produce, consume, or distribute scarce goods and services. In Weberian sociology, it is most important to show what specific forms of production, consumption, or distribution are generated by this kind of action in modern societies and, secondly, by which social-cultural background they are caused. Especially the overwhelming rationalization of individual actions and economic structure is given priority in those analyses. Weber's notion of the mutual relation of "economy and society" is that they are strongly interrelated. For example, different processes of rationalization work on the level of cultural ideas (see for example the rational system of Protestant ideas), individual behavior (especially a systematic way of life and work), and social and economic institutions (authority systems, markets, firms, money, bookkeeping, etc.) work together when the modern rational capitalism comes into being (Weber, 1946; Weber, 1978). According to Weber, widespread rational institutions in economy like hierarchical organizations, especially large firms as well as large markets for consumer goods or money (Weber, 1978: chapter 2; Weber, 2000), are the result of the entanglement of a cultural belief system (that of Protestant sects) and the institutionalization of certain action patterns (that of systematic working and living) and specific social structures (primarily a rational state and a rational public administration). The main thesis states that through institutionalization the individual level and the macro level become interlinked, and different processes of

In my opinion, economic sociology can learn a lot by critically assessing the notion of economic action and institutions outlined by Max Weber – whose rich work has not been fully explored yet (Swedberg, 2003a; Maurer, 2010). Weber is still important for economic sociology for two reasons: firstly, because his methodological premise is to start explaining social regularities from an *individual point of view* focusing on the *institutionalized social setting*; secondly, because of his well-known historical view, especially that on the overwhelming processes of *rationalization* in the modern western world in general and that of *rational economic actions*, *institutions*, and *structures* in particular. Weber focused on the *need for* and *existence of* institutions in the sense of socially shared expectations with regard to the individual's need for orientation in a complex social world. Connected with this, he especially highlighted their reflection on ends as well as on means-end relations. Weber assumed that mankind is able to act intentionally, but that real action is mostly a mixture of rational intentions as well as of traditional and emotional actions. But in order to provide explanations, it is best to start with the assumption of means-end oriented actions and reconstruct them in accordance to social evidence. Only if such an explanation fails, social scientists should assume value rationality, traditions, or affect as situational motivation; this is what Weber did in the "Protestant ethic" where he used the assumption of value-

1 "Wirtschaftlich orientiert soll ein Handeln insoweit heißen, als es seinem gemeinten Sinn nach an der

Fürsorge für einen Begehr an Nutzleistungen orientiert ist." (Weber, 1985: 31)

**2.2 Max Weber's notion of "society and economy"** 

rationalization are enforced.

**2.2.1 Economic action, institutions, and structures** 

rationality and an ethically framed situation in order to explain the typical actions by members of Protestant sects. Therefore, Weber explained the overcoming of traditional economy by modern rational capitalism mainly as a result of value-oriented individual actions in a *specific institutional setting*.

Modern economic institutions and structural elements can therefore be regarded as much as a topic for sociologists as for economists because of their social foundations in specific religious ideas.

However, in his work, Max Weber primarily addresses the problem of social order explored as general need for social expectations when individuals act with regard to one another and try to realize certain intentions. As is known, Max Weber claimed to start sociological explanations by focusing on individuals and their reflected and rational intentions (Swedberg, 1998; Norkus, 2001). This is where the social context comes in – both as a restriction structure as well as an opportunity structure. Following Weber, the most important aspect of the social world is the existence of socially related individuals. That is why he asked how individuals are able to build up stable social relationships in a complex social world. Because of the complexity of the world and the various motives of individuals, social actions and social relationships need to be grounded in reasonable social expectations.

According to Weber, such social expectations get an objective chance only if they are framed by general rules – not only by interests or habits – that are acknowledged as legitimate by the individuals. In that case, there is a reasonable chance that everybody will orientate on them and can normally expect others to do the same.

General rules or a social order become legitimate because of three ideal-type beliefs. Firstly, legitimacy can occur due to a belief in the formal correctness of an order or of the process of defining it. Secondly, it can occur due to the belief in the sanctity of tradition. Thirdly, it can occur due to the belief in the extraordinary skills of the ruler (Weber, 1985: 124 ff). What is important to see is that Weber did not explain the objective chance with direct reference to individual interests, although it is assumed that a legitimate order responds to general interests. A very important point for Weber is that a legitimate end-oriented order, especially when guaranteed by bureaucratic staff, enables groups of individuals to act in a coordinated manner, and moreover, to build up stable organizations in social, political, and economic surroundings that allow an ongoing, rational coordination of actions.

The assumption of a collective principle of legitimacy implies that the ruled ones as much as the staff "normally" follow the order without reference to concrete individual interests or social interdependencies. In fact, this only allows us to interpret formal organizations like businesses as a formal institution providing coordination in every field and offering only positive results, that means they are seen free of negative or unintended by-products.

The well-known thesis of Max Weber that bureaucratic organizations like the modern business firm are the most rational form of coordination and therefore unavoidable in modern life is due to the assumption of a given collective validation. Ignoring organizations' tendency of threatening individual interests, Weber also did not examine problems of functioning and maintaining hierarchical institutions either in social or economic fields.

Economic Sociology: Bringing Back Social Factors 83

institutionalized social expectations are founded in collective ideas overlapping individual interests and other social constellations. We have to state that Weber's model of social or economic relations depends on an underlying framing of individual interests by collectively stated general rules. This is part of Weber's suggestion to work on the basis of a typology of action and the empirical evidence of motives. Concerning the Protestants, Weber argued that their main concern was to obtain "certainty of salvation", and the "Protestant ethic" was their means to gain it. But Weber has no general argument as to why individuals orientate themselves on normative rules, whether means-end oriented, according to

Secondly, the reconstruction shows that he used a very simple argument for transforming individual actions via institutionalized action patterns into structural effects: He deduced the macro-effects directly from the institutionalized patterns without any regard to social interdependencies. Because almost all Protestants save money, work in a systematic way, and maximize their profits, large firms producing for markets as well as an overall

Last but not least, we can see that institutions only matter if they are founded by collective ideas and show what is right or wrong in everyday behavior. In this case, institutions provide orientation for individuals. In particular, institutions, which are founded by a legal order and guaranteed by officials, are regarded as essential for rational, modern economies because according to Weber, they are the basis of rationally coordinated actions. This includes the modern business firm as well as political parties or even the national state. Thus, it becomes clear that Weber is mainly interested in discussing how stable expectations

The missing links in Weber's argumentation can be defined more precisely within the framework of an action-based, multi-level model of explanation based upon an action theory. The claim is to connect assumptions on the individual level with those of the macro level in order to explain social phenomena with regard to both. Secondly, it is stated that the assumptions on both levels should be enriched in order to provide more realistic explanations. Thirdly, there is a strong effort to improve and integrate our knowledge or theories about social reality; therefore, one action theory is proposed to be used as the foundation in order to build up a set of situation models that help to strengthen social factors in sociological explanations. My suggestion is to build up situational models centered on problems of social actions that make social expectations advantageous in general; this means that the underlying general assumption states individual intentionality. Within this approach, the underlying social problem as well as therefore relevant individual capabilities can be highlighted, thus increasing the necessity as well as the difficulty of solving the problem by finding (the most) appropriate institutional setting(s). This sociological perspective then focuses on the difficulties of establishing a 'good' institutional system with regard to particular social problems that individuals have to solve when living together as well as on the side effects that come along with this. That means that specific institutions as well as complex institutional settings, like that of markets, firms, or modern western capitalism are to be regarded as the result of both structure and action with regard

tradition, or through affects.

rationalization come into being.

are constructed and enforced generally.

to a concrete historical context.

**2.3 Institutions in action-based, multi-level explanations** 
