**2.2.2 The spirit of Protestant ethic: The cultural foundation of modern capitalism**

Weber's religious studies of ascetic Protestantism can be seen as an adaptation of the general argument of an overall rationalization of ideas and institutions. In particular, *The Protestant Ethic and the Spirit of Capitalism* (Weber, 1958) can be interpreted as an institution analysis.

In *The Protestant Ethic and the Spirit of Capitalism* Weber concretely shows that some Protestant sects believe that they cannot be sure to be elected by God, so they follow the rational rules set by ascetic Protestantism in order to find signs of God's blessing in the real world. In other words, Weber explained the behavior of a specific group of actors in a specific historical situation by elaborating the normative power of the Protestant ethic.

While a group of people follows the systematic, rational, and world-oriented rules of Protestantism, typical patterns of behavior can be deduced. More precisely, Weber outlined that:


created powerful social institutions that changed former traditional behavior in economic life.

Regarding Weber's argument within a framework of multi-level explanations, differentiating assumptions on the individual and the macro-level, he explains patterns of actions for a group of people with regard to individual intentions (both interests and values) that can be read in the mirror of socially defined principles. The underlying explanatory strategy firstly implies that, because of the institutionalized frame patterns of actions arise and gain structural effects and secondly unintended consequences due to social interdependencies as a matter of various kinds of social relationships are neglected.

Therefore, rational structures and elements of modern capitalism – big business firms, rational organizations, rational calculation, and the systematic profit-maximization – are explained as the result of the actions of Protestants or, more general, of collective ideas.

However, Weber also argued that once established and successful in everyday economic life, these institutions are self-stabilizing and have no more need of their former basis, the religious background.

Whereas the institutionalization of rationalized and economically relevant patterns of behavior is explained due to individual interests, their functioning and maintaining is not. It seems as though Weber described the functions and maintenance of institutions once established without any regard to individual interests and social interdependencies, for example reactions from non-Protestants.

### **2.2.3 Some critical remarks on Weber**

Let me sum up what we have seen and what we are missing. First of all, it can be said that Weber focused on the *need for institutions* by regarding the individuals' intentional acting in a complex world and taking others into account. But the validity of social institutions is explained by given *principles of legitimacy* or a given *religious ethic*. In both cases, the

Weber's religious studies of ascetic Protestantism can be seen as an adaptation of the general argument of an overall rationalization of ideas and institutions. In particular, *The Protestant Ethic and the Spirit of Capitalism* (Weber, 1958) can be interpreted as an institution analysis. In *The Protestant Ethic and the Spirit of Capitalism* Weber concretely shows that some Protestant sects believe that they cannot be sure to be elected by God, so they follow the rational rules set by ascetic Protestantism in order to find signs of God's blessing in the real world. In other words, Weber explained the behavior of a specific group of actors in a specific historical situation by elaborating the normative power of the Protestant ethic.

While a group of people follows the systematic, rational, and world-oriented rules of Protestantism, typical patterns of behavior can be deduced. More precisely, Weber outlined

created powerful social institutions that changed former traditional behavior in economic

Regarding Weber's argument within a framework of multi-level explanations, differentiating assumptions on the individual and the macro-level, he explains patterns of actions for a group of people with regard to individual intentions (both interests and values) that can be read in the mirror of socially defined principles. The underlying explanatory strategy firstly implies that, because of the institutionalized frame patterns of actions arise and gain structural effects and secondly unintended consequences due to social

Therefore, rational structures and elements of modern capitalism – big business firms, rational organizations, rational calculation, and the systematic profit-maximization – are explained as the result of the actions of Protestants or, more general, of collective ideas.

However, Weber also argued that once established and successful in everyday economic life, these institutions are self-stabilizing and have no more need of their former basis, the

Whereas the institutionalization of rationalized and economically relevant patterns of behavior is explained due to individual interests, their functioning and maintaining is not. It seems as though Weber described the functions and maintenance of institutions once established without any regard to individual interests and social interdependencies, for

Let me sum up what we have seen and what we are missing. First of all, it can be said that Weber focused on the *need for institutions* by regarding the individuals' intentional acting in a complex world and taking others into account. But the validity of social institutions is explained by given *principles of legitimacy* or a given *religious ethic*. In both cases, the

interdependencies as a matter of various kinds of social relationships are neglected.

that:

life.

• a systematic way of life,

religious background.

example reactions from non-Protestants.

**2.2.3 Some critical remarks on Weber** 

• systematic work behavior (calling),

• and especially a very good feeling by profit maximization,

**2.2.2 The spirit of Protestant ethic: The cultural foundation of modern capitalism** 

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 tradition, or through affects.

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 rationalization come into being.

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 are constructed and enforced generally.

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

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 to a concrete historical context.

Economic Sociology: Bringing Back Social Factors 85

The sociological perspective results from explaining institutions by reviewing social constellations (or more general, social situations) from an individual point of view as a problem of expectation. The guideline for building up institutional analyses is to make assumptions about how the individual figures out problematic constellations that make

By using the concept of institutionally differently defined situations combined with the same assumption on the micro level, it is also possible to explain which intended and unintended social structures will arise due to specific institutions and individuals. Subsequently, the main effort is to show how institutions work and thus reproduce social situations like social constellations, market structures, etc. Mainly, social situations that are defined by *complementary interests* should be taken into account by *economic sociology* because they provide typically good reasons for economic actions when exchange is possible (Weber, 1978, chapter 2). As New Economic Sociologists assumes, economic exchange mostly needs certain institutions, especially when markets do not work.2 However, the perspective can be broadened by taking into account not only the exchange of private consumer goods, but also that of social or public goods because then not only markets but also hierarchies, cultural belief systems, or social networks come to the fore. Consequently, economic sociology needs to analyze not only markets but also networks, hierarchical organizations, or cultural beliefs as an institutional setting that may frame economic actions, but is mostly defined in social contexts. This means we need to look closer at the conditions that may help to run them. In order to do so, situational models should focus on cultural beliefs as well as on social relationships (authority, friendship, family, etc.) and explain how they are combined with

The heuristic of an action-based explanation for economic sociology and institution theories lies in ascertaining social interdependencies that make specific mutual expectations advantageous for individuals. In response to general types of social interdependency or problems of social acting the need for social institutions is shown for social as well as economic life. In my opinion, the most exciting problem for economic sociology is the need for social expectations when producing and trading goods and services. We can generally call this the trust problem. In other words, in contrast to the assumption of neo-classical economics, it is assumed that voluntary transactions need credible commitments when markets fail. In contrast to the general, classical focus on 'complexity', I suggest giving precise arguments about when and why social expectations are useful and therefore helpful for individuals in economic life, and to explain the consequences they might have. In doing so, it can be shown that the general problem focused on by Weber can be described more precisely by looking at least at three types of social interdependencies focusing on interest constellations. This leads us to analyses that feature more realistic and precise theses about what kind of institution could help, what institution can be constructed given certain situational and individual aspects, and, last but not least, what kind of social effects may

2 Therefore, it is helpful to start with the assumption that individuals try to realize their intentions that are mostly defined by the need for consumer goods in the economic sphere, but can also be defined by the need for social reputation (Smith, 1950), or by a general "ideal" orientation on what needs are

important and what means are therefore adequate (Weber, 1946, chapter 1; Weber, 1978).

particular social institutions or institutional settings helpful.

problems of social action in the economic sphere.

arise. 

Institutions are to be explained as a result of intentional actions in specific social situations in order to create social expectations and therefore help to stabilize 'good' social relations or orders. In the next step, institutions can also be regarded as a social *situational factor* which frames individual actions and leads to particular – intended as well as unintended – structural effects like "the spirit of Capitalism", revolutionary movements, stratification of resources, etc. Therefore, we need a model that illustrates how institutions work. According to the arguments given above, it should be possible to answer the question of the construction, the stabilization, and the change of institutions by intentionally acting individuals.


Institutions are to be explained as a result of intentional actions in specific social situations in order to create social expectations and therefore help to stabilize 'good' social relations or orders. In the next step, institutions can also be regarded as a social *situational factor* which frames individual actions and leads to particular – intended as well as unintended – structural effects like "the spirit of Capitalism", revolutionary movements, stratification of resources, etc. Therefore, we need a model that illustrates how institutions work. According to the arguments given above, it should be possible to answer the question of the construction, the stabilization, and the change of institutions by intentionally acting

1. It is mostly suggested to use an action theory, which assumes that all individuals act on the basis of intentions, and to combine this assumption with models of social situations. Such sociological situation models should predominantly focus on social interdependencies in order to point out how social factors become relevant in economy (see Weber, 1978, chapter 1). The main variable of the action theory should pick up relevant aspects of the situation and should provide an argument as to how a certain factor influences the actions of an individual (for example, by stating that individuals need orientation and therefore scan situations for helpful and relevant information like

2. At the very core of the argument a description of the underlying social situation is to be found: e.g., a type of social interdependency, power relations, market structures, etc. Only with regard to a social situation, it is possible to say what concrete intentions are working, and moreover, what the possible actions are. For example, if one started with a situational description that focuses on 'bad governance' from the viewpoint of individuals trying to realize a "good life", it can generally be stated that there are three types of actions: a) to keep quiet (loyalty or resignation), b) to raise one's voice, c) to leave (exit) the system (see for example Hirschman, 1970; Lindenberg, 1989). So it is highly recommended to start with a simple action theory, for example, the assumptions that individuals act in regard to (private) interests and by being able to evaluate the results of actions and situations in response to their intentions, because then it is possible to explain, in which situations individuals act in which way. But this action theory should also be broadened by taking into account common interests or belief systems as intentions or by specifying the individual's capacity to interpret situations in the light of private or public interests as well as shared cultural belief systems (North,

3. As mentioned above, a theory of rational action uses a general selection rule by stating that rational individuals choose the action providing the best or at least adequate result in accordance to social structure and the concrete intentions (for example consumer utility, value orientation, minimizing fear, etc.). Only this allows us to *explain* the

4. The great challenge is the third step, in which the explained individual actions need to be transformed into collective effects, such as market or organizational structures. If we use the notion of institutions, at this point, we are also able to state the validity or changing of particular institutions. Such transformations can be achieved on the basis of formal rules (selection rules, simulations), by pure aggregation (as it is done in Weber's Protestantism thesis), with response to institution theories, social mechanisms, etc. (for

an overview, see Coleman, 1990; Maurer & Schmid, 2010, chapter 3).

traditions, cultural symbols, pure information, etc.).

1977; Schelling, 1978; Coleman, 1990; Lindenberg, 1994).

typically chosen action in a particular social setting.

individuals.

The sociological perspective results from explaining institutions by reviewing social constellations (or more general, social situations) from an individual point of view as a problem of expectation. The guideline for building up institutional analyses is to make assumptions about how the individual figures out problematic constellations that make particular social institutions or institutional settings helpful.

By using the concept of institutionally differently defined situations combined with the same assumption on the micro level, it is also possible to explain which intended and unintended social structures will arise due to specific institutions and individuals. Subsequently, the main effort is to show how institutions work and thus reproduce social situations like social constellations, market structures, etc. Mainly, social situations that are defined by *complementary interests* should be taken into account by *economic sociology* because they provide typically good reasons for economic actions when exchange is possible (Weber, 1978, chapter 2). As New Economic Sociologists assumes, economic exchange mostly needs certain institutions, especially when markets do not work.2 However, the perspective can be broadened by taking into account not only the exchange of private consumer goods, but also that of social or public goods because then not only markets but also hierarchies, cultural belief systems, or social networks come to the fore. Consequently, economic sociology needs to analyze not only markets but also networks, hierarchical organizations, or cultural beliefs as an institutional setting that may frame economic actions, but is mostly defined in social contexts. This means we need to look closer at the conditions that may help to run them. In order to do so, situational models should focus on cultural beliefs as well as on social relationships (authority, friendship, family, etc.) and explain how they are combined with problems of social action in the economic sphere.

The heuristic of an action-based explanation for economic sociology and institution theories lies in ascertaining social interdependencies that make specific mutual expectations advantageous for individuals. In response to general types of social interdependency or problems of social acting the need for social institutions is shown for social as well as economic life. In my opinion, the most exciting problem for economic sociology is the need for social expectations when producing and trading goods and services. We can generally call this the trust problem. In other words, in contrast to the assumption of neo-classical economics, it is assumed that voluntary transactions need credible commitments when markets fail. In contrast to the general, classical focus on 'complexity', I suggest giving precise arguments about when and why social expectations are useful and therefore helpful for individuals in economic life, and to explain the consequences they might have. In doing so, it can be shown that the general problem focused on by Weber can be described more precisely by looking at least at three types of social interdependencies focusing on interest constellations. This leads us to analyses that feature more realistic and precise theses about what kind of institution could help, what institution can be constructed given certain situational and individual aspects, and, last but not least, what kind of social effects may arise.

<sup>2</sup> Therefore, it is helpful to start with the assumption that individuals try to realize their intentions that are mostly defined by the need for consumer goods in the economic sphere, but can also be defined by the need for social reputation (Smith, 1950), or by a general "ideal" orientation on what needs are important and what means are therefore adequate (Weber, 1946, chapter 1; Weber, 1978).

Economic Sociology: Bringing Back Social Factors 87

are to meet in New York but have not made arrangements as to where and when. Then simple common knowledge can help and can build up to institutions by used private or common knowledge; for example to meet at the most famous place in town and the usual

The challenge for economic sociology is to figure out situations that make social interaction or exchange useful for individuals, but cause the need for stable mutual institutions at the same time. Thus, by analyzing the structure of interests we can describe the problem and ask what sort of institution might be necessary and possible. If formal institutions guaranteed by hierarchies are to be explained, we can say that unintended by-products are to be expected caused by the conflicting interest structure between rulers and staff as well as

But this is not the overall case when focusing on *coordination problems* – most important in modern economic life – because successful social coordination benefits from complementary interests and therefore needs only to restrict the individual's scope of action in order to gain the positive effects of specializing, labor division, or agency. Coordination is a general problem in modern societies and economies because of the socially guaranteed rights of individuals to act and the formally defined property rights (including the formal right to enter into a contract, e.g. a market or an employer-employee relationship). Ergo, we can consider the problems that come along with such social relations and look for adequate social institutions that help to stabilize them, causing intended as well as unintended social and economic effects. In this framework, the often mentioned general trust problem can now be considered more precisely either as a problem of one-spot exchange by strangers or as a long-term exchange within a group that shares social norms or as a long-term exchange within a conflict arena and therefore making opportunism and strategic action relevant. To shape typical coordination problems in the economic sphere, it is helpful to consider firstly situational aspects and add special individuals' skills (to strengthen coordination problems, it is helpful to reflect which capabilities would help but are missing, e.g. to have the right information, to have complete information, to have and reflect ends logically, and, most of all, to act rationally with regard to intentions or ends like consumer utility, profit, common interests, and so on). Coordination problems are essential in modern economic life because both market exchange as well as employer-employee relationships can be regarded as a general problem of coordination, but with a specific logic (see paragraph 3.2 and 3.3). Whereas market exchange is mostly driven by trust problems that result from incomplete information (about the others, e.g. either private consumers, firms, the state, or, above all, about the commodities), social relations within business firms are a kind of trust problem that goes along with employees acting on behalf of their employers and their employers' interests. It is not so much the exchange of goods and services that makes intra-firm relations problematic, but the wide range of conflict patterns like opportunism, agency problems, strategic action, etc. Therefore, it can be stated that such social institutions are advantageous that firstly solve the coordination problem and secondly help to frame the conflict structure. Privately-owned firms in modern economies can be viewed as an institutionalized answer to the problem of controlling and determining the actions of others. Business firms have to be explained by analyzing the incentives given in and by hierarchical

time.

structures.

between rulers and obedients.

This can be seen as a starting point for an integrated approach that focuses and systemizes social situations which, in the sense of social expectations, make institutions advantageous for individual actors, but also looks for their intended and unintended consequences.
