and Human Agency in Economics and Sociology:
Exploring the Weber-Austrian
Peter J. Boettke
Department of Economics
Riverdale, NY 10471
An earlier version was presented at the Egon-Sohmen Foundation Ninth Symposium on The Merits of Markets--Critical
Issues of the Open Society, August
29-30, 1997. The ideas in this paper were originally stimulated
by my participation in the 1992 summer faculty seminar on Economy, Culture and Values at the Institute for the Study of Economic
Culture at Boston University, and from my graduate seminar on Economic Sociology at New York University
in the fall of 1996. I would like to thank Peter Berger and Robert Hefner for providing me with the opportunity at ISEC, and to the
students at NYU for interest in a broader conception of economics and political economy than is currently practiced within
the mainstream of academic economics. In addition, I would like to thank Jeffrey Friedman, Israel Kirzner, Alan Peacock, Mario
Rizzo, Uwe Siegmund, and the participants at the Egon-Sohmen Foundation symposium for their comments and suggestions for revision.
I gratefully acknowledge the financial assistance of the J. M. Kaplan Fund and the Egon-Sohmen Foundation. The usual caveat
has been a growing interest in the past decade or so in the intersection between economics and sociology. Much of this literature
derives from a perceived disappointment by either economists or sociologists of the methods and approach to social questions
of the other. Roughly, economic-sociology is motivated mainly by the economist's perception of the lack of rigor in sociology.
Social questions, it is argued, are too important to be left to poor methodological treatment. Thus, economic imperialism
and rational choice sociology result.
the other hand, sociologists criticize economists for ignoring the social dimension within economics. Economic science is
sterile and, as such, cannot address the real issues it purports to examine. The treatment of individual actors as disembodied
from institutional and historical context fails to account for how the social environment shapes individual desires and perceptions.
Socio-economics is proposed as a paradigm to replace neoclassical economics.
Both of these trends ignore an important historical school of social thought which sought neither to colonize
sociology with economics nor eliminate universalistic economics with sociological analysis. Instead, economics and sociology
were seen as existing within a symbiotic relationship. The project of Max Weber and the Austrian School
of Economics as represented by Carl Menger, Ludwig von Mises and F. A. Hayek is seen as the foundation on which the proper
relationship between economics and sociology should be grounded.
paper highlights the Weberian roots of Austrian economics, and the Austrian roots of Weberian sociology. Menger (1871 and
1883) influenced Weber (especially 1922) on two counts. First, the important distinction between levels of analysis (e.g.,
pure theory, applied theory, economic history) is seen in both Menger and Weber. Second, the project of the social sciences
as one of examining the origin and evolution of institutions characterizes both the Austrian and Weberian research programs.
Weber's project of constructing a unified interpretive social science was picked up by Ludwig von Mises and his development
of praxeology. Mises's Human Action (1949) was his most advancement statement, but this Weber-Mises connection has not been
fully explored in the contemporary literature despite Ludwig Lachmann's excellent treatment of the subject in The Legacy of
Max Weber (1971).
Lachmann sought to articulate in that slim volume how the troublesome aspects of Weber's Idealtypuis could be
set aside by the substituting the notion of the plan. Human action, according to Lachmann, exists in the form of plans --
projects designed to achieve imagined futures. The social scientist is able to provide an "intelligible account" of human
society because of the centrality of the plan to human action, and it is precisely the notion of the plan which lies beyond
the grasp of the natural sciences and vindicates the plea for the methodological autonomy of the social sciences. Lachmann
continues his argument by linking the foundational concept of the plan to the praxeological project, and by further arguing
for the central role of "orientation" of human action by aid of institutions -- as opposed to determinateness --for any causal-genetic
theory of social processes, especially as they relate to the theory of economic growth and development. "A praxeological theory
of society constructed on the firm basis of purpose and plan, such as emerges from Weber's work," Lachmann states earlier
on in his essay, "is evidently not compatible with a functionalist view of life in society" (1971, p. 7). Unfortunately, the
further development of this praxeological research project, as traced out by Lachmann, did not emerge -- even with the crisis
of positivism in the philosophy of science, and the resurgence of the Austrian School
of Economics within the economics profession that has occurred over the past few decades.
conjecture that the reason for the failure in the modern literature on economics and sociology to deal with the Weber and
Austrian connection is three fold. First, Weber's project was misunderstood in the Anglo-Saxon context because of the "translation"
of his project by Talcott Parsons. The Alfred Schutz--Talcott Parsons debate concerning this issue will be briefly discussed
to tease out this point. Schutz, in fact, is the key component in this alternative account of the relationship between economics
and sociology. The Schutzian phenomenological recasting of both Weber and Mises offers an alternative path for sociological
inquiry as a humanistic discipline concerned with meaning. In so doing, Schutz was able to demonstrate that only by protecting
the individualist-subjectivist point of reference would the social analyst be able to offer meaningful explanations for social
the basic anti-classical liberal (anti-individualist) strand of much of 20th century sociological thought prevented scholars
from overlooking Mises's classical liberal polemics and examining the substance of his thought. This development is due to
Emile Durkheim, and, once again, Talcott Parsons's restatement of the Durkheimian program which juxtaposed non-individualist
sociology against individualist economics. Here, as Viktor Vanberg has pointed out, there was a confusion of substantive and
methodological criterion in social thought (1994, pp. 1-8). There is no reason whatsoever to believe that methodological individualism
cannot account for the presence and importance of social institutions. In fact, as will be argued it is precisely here where
the Weber-Austrian connection reveals its greatest potential for contributing to the contemporary discussion by avoiding either
atomism or functionalism. There has also been an unfortunate tendency to conflate methodology and ideology. Methodological
individualism is not the same as political individualism, and the failure to distinguish between these two different projects
is a major shortcoming of much of 20th century sociological thought. This problem persists today in the modern communitarian
and liberal dialogue.
subsequent developments within the Misesian tradition did not explore the sociological heritage to which Mises's system belongs.
Praxeology was treated exclusively as a methodological program, rather than the substantive, and comprehensive, program of
study which it represented in Mises's mind. Praxeology is a term which simply means "the study of human action". Mises made
certain justificationist methodological arguments in the attempt to ground this project (apriorism and deductive reasoning)
and other pragmatic arguments about the appropriate methods for praxeology (the method of imaginary constructions and the
compositive approach).(1) But the overarching scientific vision which Mises had was not limited to
methodology and the analytical methods. Rather, Mises's vision was the completion of Weber's project in interpretative sociology.
Mises sought to demonstrate that the human sciences were at once distinct from the natural sciences, yet were also distinct
from history. Praxeology promised a unified social science that could strive for conceptual universalism for the purpose of
improving particularistic historical understanding. The modern Austrian school has been myopic on two fronts--a reading of
praxeology as exclusively a methodological position, and a narrow fixation on praxeology as catallaxy (or economics). This
paper will try to redress this state of affairs by way of attempting to place the praxeological project within the modern
discourse on economics and sociology.
The Modern Discourse
social sciences have been in a state of turmoil for over 30 years. An uneasy tension between the various heterodox schools
of thought and the mainstream of social science is evident. Sociology, for example, has split between classic sociology and
modern quantitative and formal sociology (see Alan Wolf 1992). Economics, which may appear less vulnerable, has nevertheless
suffered a crisis of thought (see, e.g., McCloskey 1985 & 1994; and Heilbroner and Milberg 1995). The real reason for
this state of affairs is the crisis in the philosophical status of the social sciences and modernity in general. Post-modern
developments in thought challenge the hegemony of mainstream formalist and positivist thought across the disciplines. The
inertia of institutional forms is all that has prevented the complete fracturing of academic disciplines conceived along positivistic
interpretative turn in social thought demands a fundamental re-thinking of the basic questions that are to be asked and what
are to be judged as acceptable answers. But, the modern discourse concerning economics and sociology seems stalled at this
point--concentrating on the merits or demerits of the rational choice framework for social analysis (see Swedberg 1990).
sociology came late to the academic table. It was left only the scraps of the social world. History claimed the past, and
anthropology claimed the exotic. Psychology dealt with the mind, economics dealt with the market, and political science dealt
with the state. The family, crime, race, gender and other social problems were left for sociology. This division of labor
was an arbitrary and unstable equilibrium. Trespassing was inevitable.
founders of modern sociology, for example, differentiated themselves from the other social sciences by claiming that the "social"
was in everything. Social forces, stratification, systems effects, class analysis, etc., became the hallmark of sociological
analysis. Emile Durkheim, for example, insisted that social study required an examination of the social (as opposed to individual
or psychological or material) causes of all phenomena. His famous studies of the division of labor, and suicide, as well as
his interest in religion and morality all reflect this imperialistic project of Durkheim (1893 and 1897). The general overriding
principle was that religious, juridical, moral and economic phenomena must be explained in reference to the particular social
milieu within which they are found.
Weber, on the other hand, represented a different approach to sociology. But, modern sociology did not develop along Weberian
lines that I will highlight. Weber's project was a causal-genetic program of research which employed ideal-type methodology
to aid the task of interpretive sociology. But Durkheim's influence dominated sociological thought. Even with the developments
pioneered by Talcott Parsons, social systems explanations dominated sociology, i.e., functionalism. Functionalism seeks to
examine the consequences of social patterns and practices without really addressing their underlying cause. In examining family
relations and monogamous marriage in Western society, for example, a functionalist approach would contrast this form of family
system with alternative forms and investigate the consequences with regard to the wider social milieu of Western civilization.
analysis is not necessarily in conflict with causal-genetic analysis, but the way it was practiced by modern sociology forced
a split between these two traditions of social analysis. Economic theory, which at heart is a causal theory, was forced into
conflict with sociology.
Gary Becker (1957) first decided to use economic tools to examine subjects that were the domain of sociologists, such as discrimination,
his work was met with great skepticism. Becker provided something which the traditional sociology did not--a theory grounded
in the rational behavior of individuals. Discrimination was a non-pecuniary "taste" which within market interaction generated
pecuniary costs. Discrimination in the market place by any group reduces their own real incomes as well as the real incomes
of the minority. Becker's study was not only theoretically coherent, it appeared to be consistent with the data.
choice studies of the investment in human capital (education, skills, etc.) followed with the same kind of results. Crime,
politics, family relations, and social interaction in general all came to be examined using the tools of economics. The economic
approach became synonymous with the study of human behavior in all walks of life and realms of society.(2) Becker defines the economic approach as the relentless and unflinching use
of the combined assumptions of maximizing behavior, market equilibrium and stable preferences (1976, p. 5).
economic imperialism has been criticized for an "under socialized" view of the individual. Classic Durkheimian and (Karl)
Polanyian themes of social systems of rules and values, the embeddedness of culture, etc., have been resurrected in a modern
sociological critique of the neoclassical view of the individual. Non-rational processes, it is argued, form the basis of
our choices. The influence of our parents, our situation within the community, the religious morals of that community form
the basis of human behavior, not rational choice (see, for example, Etzioni 1988). With that shift away from utilitarian rational
choice, comes an entire package of reassessment from social science methodology to discourse within the polity to public policy.
Granovetter's alternative project, for example, focuses attention on the social structures, organizations and groups within
which economic activity is embedded, including the state in its capacity of shaping ownership, authority, and financial relationships
between business groups. Granovetter's intent is to overcome both the problems of under- and over-socialized view of the individual
that is evident in standard economics and standard sociology. "Actors do not behave or decide as atoms outside a social context,
nor do they adhere slavishly to a script written for them by the particular intersection of social categories that they happen
to occupy." (Granovetter 1985, p. 487) But this does not necessarily imply a rejection of rational choice theorizing. "Insofar
as rational choice arguments are narrowly construed as referring to atomized individuals and economic goals," Granovetter
states, "they are inconsistent with the embeddedness position presented here. In a broader formulation of rational choice,
however, the two views have much in common" (1985, p. 505). In this statement Granovetter's program of research is quite consistent
with the one I associate with the Weber-Mises formulation of methodological individualism, but Granovetter's actual argument
proceeds as if the arrow of influence runs in only one direction--from the social context to the individual. That individuals
are the source of institutions is not an avenue that is pursued, and, thus, the meaning of these structures remain incomplete.
A sophisticated version of methodological individualism would see institutions as both the product and shaper of individual
choice. In this perspective, the problem with the modern discourse is that while sociology asks the interesting questions,
it remains hobbled by a lack of analytical structure. On the other hand, while economics possesses an analytical structure,
it remains hobbled by an undue restriction on the questions it can ask and answer. Praxeological reasoning requires a more
flexible form of thought, which does not mechanically "close" the system as in equilibrium styles of reasoning, but nevertheless
enables us to establish the boundaries of action. The task before us is one of simultaneously broadening the questions and
yet retaining structure. Granovetter's concern with embedding individual action within a social context is an important first
step, but it is neither enough in itself not is it unique to him.
its best economics is caught between being the "dismal science" and the "worldly philosophy" without becoming exclusively
either. The research program here is one which recognizes that the best contributions in political economy combine the analytical
rigor of economic theory with methodological and philosophical sophistication, and political theory. In the intersection between
politics, philosophy and economics--whatever ideological perspective--the truly interesting work in the social sciences takes
place. By myopically pursuing only the formal aspects of the discipline, economics was reduced to its present state, in which
we continually know more and more about less and less. The narrowness of modern economics, combined with the imperialistic
tendencies of the formalist and positivist program of research, has led many to not only resist "economism" but to launch
organized intellectual and political efforts to overturn individualist and market-oriented economics (see, e.g., Coughlin
1996). It will be useful for our purposes to invoke this socio-economic and communitarian project as a foil, with which to
contrast the alternative Weber-Mises project for social inquiry that is being advocated.
the most ambitious project to coordinate the efforts of those who find rational choice social science particularly lacking
can be found in the activities of Amitai Etzioni. The Etzioni project of socio-economics, however, possesses some serious
intellectual problems. First, several social theory projects are conflated where they should be differentiated. An appreciation
of the dynamic adjustment qualities of markets does not automatically translate into a spirited defense of rugged individualism
and radical libertarianism. It may, but it also may not. Second, this conflation is based on questionable readings of the
various scholars in question. Not all understandings (or defenses) of the market order are based on an isolated view of the
individual. Moreover, classical liberalism should not be contrasted against a concern with civil society. Instead, classical
liberalism is a political theory of grounded in the voluntarism that is reflected in a vibrant civil society. The rather simplistic
categories which scholars are placed in within this literature does not aid the task of serious social inquiry and engagement
over important issues. Third, the stated choice of economic imperialism or sociological imperialism is a false choice. Fourth,
the communitarian ethos needs to be critically debated not simply asserted. It is not at all clear that the project can successfully
steer between moral authoritarianism and spirited individualism.
III. An Alternative to the Modern
great problem in social theory is to steer a course between either an under socialized or over socialized view of the individual.
Whereas the under socialized view eliminates the social context within which preferences are formed and choices are made,
the over socialized view eliminates the power of human agency to shape the social world. Neither approach is very fruitful.
classic historicist/institutionalist critique of economics is that culture and history are core concepts that have been eliminated
in the strive for universalistic explanation. What standard economists assume as characteristics of human nature are instead
behavioral regularities that are specific to time and place and persist because of enculturation. Outside of the particular
time and place and the enculturation processes of the specific historical period, and the assumptions of economic theory (as
standard theory understands them) do not hold. Beyond developed capitalism, economic theory -- understood as modern price
theory -- doesn't hold. One cannot look to economic theory to solve the problems of poverty and deprivation in non-western
cultures (see, e.g., Heilbroner 1996). Solutions there must be found in the historical and cultural practices of the time
and place under consideration. Culture and historicity are the core concepts of social analysis, and work not based on this
foundation will be faulty and misleading.
major problem with this reliance on culture and historicity as the core concepts is that it slights the simple fact that in
order to understand a people and their culture and history we must presuppose the validity of some universal propositions
about human behavior. Theory is logically prior to historical interpretation, and thus the question is never one of theory
versus no theory, but articulated theory versus unarticulated theory. The gulf between historicism and economism simply reflects
the classic social science dichotomy between "thick" and "thin" description. Economists possess a penchant for "thin" description
(and the scientific value of parsimony), while area studies scholars and historians value "thick" description (and the scholarly
value of thoroughness). The social scientific methodological question for over a century has been whether meaningful "thick"
description is possible without the guidance of "thin" description. On the one hand, "thin" description unconcerned with the
underlying reality conveyed in "thick" descriptions describes little of relevance to our daily lives.(3) On the other hand, "thick" description unaided by an articulated theory
cannot help but bring on-board theoretical baggage that defies critical scrutiny. The social world is far too complex to access
directly, our understanding must of necessity be theory impregnated.
need, in other words, both "thin" and "thick" description for our social theory to possess both meaning and relevance--coherence
and correspondence so to speak. To put it bluntly, if there was nothing universal in the human experience (the basis for "thin"
description) then even our "thick" description of different people would remain beyond our ability to understand. Alien cultural
practices would forever remain alien and inaccessible to others. At the same time, if all there were to the human condition
was the universal, then culture and history and area studies in general would disappear. We could learn as much about a people
by sitting at our computer as we would by studying their history. Both extremes of exclusivity in social explanation are to
be avoided. We need universal theory to understand, but we need uniqueness to whet our desire to understand the other. We
are enough alike to learn from one another, but we are also different enough so as to have something to learn.
Thus, contrary to the traditional dichotomization, economic theory must not be contrasted against the diversity
of humanity and the particularities of time and place (see Rutherford 1994). Instead, economic theory is a necessary (though not sufficient) component of
a social analysis which hopes to make sense of that human diversity and the particularities of the human experience. Institutions
are constraints as well as shapers of human behavior and social analysis must be prepared to deal with this complex interaction.
All human behavior is mediated through specific institutional filters. The justification of the "thin description" of economic
theory is that it affords us more compelling "thick descriptions" of the social experience of particular times and places.
is precisely at this juncture--between "thick" and "thin"-- that institutional individualism offers an alternative to either
atomistic individualism or naive holism (see Prychitko, ed., 1995, pp. 9-56). "Rationality" in this formulation of individual
action is nothing more than a basic notion of instrumental rationality and must be understood as entirely individually subjective
and forward-looking. Following Mises (1933, pp. 68-129), an open-ended notion of human agency in economics and sociology can
subsume the Weberian categories of action -- valuational, emotional and traditional -- under the rubric of the purposive-rational,
which in turn is simply "meaningful action". The essence of the sciences of human action lies in "grasping the meaning of
action" (ibid., p. 132). The universalistic project of purpose-rational action is achieved by the introduction of degrees
of typification, including the most abstract anonymous typification to the more concrete typification of historical agents.
(This is actually a methodological innovation to Mises's system by Alfred Schutz, Mises actually relied not on the degrees
of typification, but on Kantian categories). Since within the program of interpretative sociology (i.e., praxeology) the scientific
goal is verstehen, not prediction and falsifiability, the broadening of the concept of rationality to near tautological status
does not present the problem it would in alternative conceptions of science. The point to emphasize for our purposes is that
it is the institutional context of choice that gives meaning to individual choices within the social system, and provides
the basis for the scientific ability to both grasp the meaning of human action through discursive reasoning (conception) and
through empathetic intuition (understanding).
or social systems theories are not necessarily in conflict with rational choice theories. In fact, one of the most ambitious
enterprises in contemporary sociology was that associated with James Coleman's attempt to bridge the gap between rational
choice and functionalism (see Coleman 1990). As in Gary Becker's system, rational choice is synonymous with maximizing behavior,
and a functionalist explanation is equivalent to an equilibrium one. Neither maximizing nor equilibrium are concepts intended
to get at meaning in human affairs.(4) The goal of social science is not intelligibility, but predictability--and
parsimony and theoretical elegance are valued, not detailed and thorough historical understanding.
Etzioni, the Becker-Coleman project possesses serious problems. First, it does not eliminate the problem of under- and over
socialization, but rather constructs an over-socialized view of the social system from an under-socialized view of the individual.
Second, as a result, the approach cannot adequately deal with either social embeddedness or human agency.(5) The buffoonery, as well as the wonder, of social life as individuals steer
a course between alluring hopes and haunting fears is lost to the scientist, and with that our ability to understand the human
condition. A precise set of propositions about maximizing entities and social forces outside of human will are produced, but
in a fundamental sense the analyst is blind to humanity.
strict assumption of maximizing eliminates the conscious component from the choice problem faced by individuals in a world
of uncertainty. Choice is instead reduced to a simple exercise within a given ends-means framework. The individual's project
of discovering not only appropriate means, but also which ends to pursue is left out of the equation.
maximizing exercise eliminates not only the social construction of individual preferences, but also the individual's own construction
of themselves through time (see Buchanan 1979).(6) The rationality postulate can only generate formal proofs of equilibrium
if the future (with its novelty, uncertainty, and ignorance) is excluded. A static conception of rationality is inconsistent
with the passage of real time (see O'Driscoll and Rizzo 1985, pp. 52-70). If an understanding of economic and social life
requires both an examination of the passage of both real time and rational behavior, then modelling human interaction in a
fashion which excludes either drains the explanation of essential details to the detriment of social scientific thought.
contention is that certain traditions within classic political economy and the neoclassical revolution, and classic sociology
did, in fact, attempt to explore human interaction in a manner which did not exclude the details of novelty, uncertainty,
and ignorance. The conjectural history of the Scottish moral philosophers and the interpretative sociology of Max Weber should
be, and was among some economists, the general theoretical framework for a social theory that attempts steer between under-
and over-socialized views of the individual (see Boettke 1990). This framework promises a unified social science, within which
economics represents a subset of the broader discipline of sociology. Sociology, as Weber put it, "is a science concerning
itself with the interpretive understanding of social action and thereby with a causal explanation of its course and consequences"
(1922, p. 4).
was deeply influenced in this regard by the Austrian school of economics. Weber had read and appreciated Carl Menger's and
Eugene Bohm-Bawerk's contributions to economic theory and methodology. He invited both Friedreich von Wieser and Joseph Schumpeter
to contribute volumes to his encyclopedic project in social theory. And, in Weber's magnum opus, Economy and Society, he favorably
references Ludwig von Mises's Theory of Money and Credit (1912) and Mises's 1920 essay on the problem of economic calculation
under socialism at key junctures in the development of his own arguments concerning monetary circulation and economic calculation
(Weber 1922, p. 78; 93; 107). Mises, in turn, devoted considerable attention to a systemic critical study of Weber, which
is reflected in his Epistemological Problems of Economics (1933) and Human Action (1949). As Ludwig Lachmann stated in his
review of Mises's Human Action, "In reading this book we must never forget that it is the work of Max Weber that is being
carried on here" (1951, p. 94).
connection to the Austrians was quite deep, though not really appreciated by traditional sociologists.(7) This should be a natural starting point for a discussion of the interface
between economics and sociology. Yet, it is an avenue not explored at all in contemporary scholarship. In Richard Swedberg's
interviews with the leading scholars on the edge of both disciplines Max Weber's name is referenced 34 times, but Hayek is
referenced only once and Mises not at all. Schumpeter is mentioned 16 times, but Menger is only referred to twice, both of
which are not substantive references, and Lachmann (who wrote a book on the Weberian legacy in economics) is not referenced.
Etzioni's The Moral Dimension cites neither Mises nor Hayek, though Machlup is cited a few times on methodological points.
Hayek's Law, Legislation and Liberty, on the other hand, makes the bibliography and warrants a few references on the concept
of spontaneous order in James Coleman's Foundations of Social Theory But, Hayek's work does not play a prominent role in Coleman's
theory construction, nor does Coleman deal with the intellectual history issue of Weber's connection to the Austrians. In
The Handbook of Economic Sociology, the index has Hayek referenced 6 times, and Mises 2 times as compared to 36 references
to Weber and 17 for Schumpeter. Even George Stigler is referenced more than Mises and Hayek combined with 11 cites in the
in the modern discourse the Austrian economists are not considered as important potential contributors.
relationship between the Austrians and Weber, however, was a mutually beneficial one in which both learned from the other
and influenced the development of their respective work. Weber's connection to the Austrian was obscured by Talcott Parsons.
While Parsons is largely responsible for introducing Weber to the English speaking community, his "prejudices" were imported
along with his translation of Weber's ideas.(8) Alfred Schutz (the Austrian economist and Weberian sociologist), for example,
charged Parsons with only nodding to the theory of subjectivism.(9) Parsons did not, according to Schutz, "safeguard the subjectivist point
of view" from the unwarranted intrusion of objectivism (1940, p. 50). But, Schutz added that it was only by safeguarding the
subjectivist point of view that we will have a guarantee "that the social sciences do in fact deal with the real social world,
the one and unitary life world of us all, and not with a strange world of fancy that is independent of and has no connection
with our world of everyday life" (1940, p. 60).
postulate of subjective interpretation demands that the social theorist include in his construct of the social world "first-level"
reference to the meaning actions possess for actors, i.e., purpose. Verstehen as a "second-level" reference, that is from
the point of view of the scientist, refers to our attempt to understand the implications of purposive behavior among individuals.
In understanding human understanding, the task is first and foremost one of rendering intelligible the purposes and plans
of the social actors involved, and second, to trace out the unintended consequences of those actions. As Schutz argued in
The Phenomenology of the Social World (1932), we must first achieve a genuine understanding of the actions of the individual.
Second, we must understand the "communicative intent" and significance of the meaningful act to others, and how this interpretive
engagement leads to the complex coordination of human activity.
Theory Construction and Application
Austrian-Weberian project entailed a commitment to three principles: (1) methodological individualism, (2) methodological
subjectivism, and (3) unintended consequences and spontaneous order. In this theoretical schema, the sociologist raises general
questions such as Georg Simmel (1908) raised concerning "How is Society Possible?" The economist, on the other hand, concentrates
on the subset question of how market coordination is possible without central design. This project does not commit the social
theorist to either an under- or over-socialized view of the individual. Instead, as Holton and Turner have pointed out:
and the Austrian School are not obliged to deny the reality of institutions or the idea that actors may act under institutional
constraints, or that this constraint may be experienced as an external compulsive force or imperative. Nor need they hold
to a social contract or design theory of institutions. Only two propositions are excluded. The first is that social life can
be explained without reference to the causal consequences of the meaning individuals give to their actions. The second is
that institutions act as organic, causally effective entities through the structural imposition of rules or constraints on
unwilling actors, and irrespective of the actions of such actors (1989, pp. 42-43).
emerges in the Weber-Austrian approach is what could be termed "action-systems theory." Individuals are not assumed to maximize
within an institutionless vacuum, nor are they assumed to be merely puppets of structural forces beyond their control. Reasonableness
substitutes for hyper-rationality, and spontaneous ordering processes substitute for equilibrium end-states.
phenomenological sociology, for example, developed a continuum of ideal type constructions which enabled pure universal theory
as well as concrete historical case studies. Typification of the most anonymous are employed to develop pure theory. Pure
theory enables theorists to reflect on universal characteristics of human agency. Economic principles, such as marginal utility
and opportunity cost, are examples of such anonymous typification. Man's purposive activity as evidenced in the forming of
plans is the most general principle. We are, in this respect, teleological creatures. The fact that we have imagined ends
and we seek to arrange means to satisfy those ends does not imply strict instrumental rationality in a close-ended sense.
Maximizing behavior is only a subset of human goal oriented behavior. Our understanding of human action derive, Schutz argues,
from our intuitive understanding of the actions of "others" within the life-world. Though anonymous, therefore, the individual
in this theoretical construction can only be understood as acting man due to his social embeddedness.(10)
contingent theory construction is the next level of analysis. Moving ideal typification from anonymous action to more concrete
action within specific institutional constraints generates certain positive propositions concerning individual incentives
and the social use of information. Individual goal oriented behavior is not independent of the social context of action. Again,
social embeddedness is at the forefront of theory construction, not an afterthought.
intercourse is also radically altered by the social and institutional context. Patterns of exchange and production that would
emerge within one institutional setting may not be expected to emerge in another. Social patterns are not invariant to institutional
contexts. Goal oriented behavior in one setting (say private property order) may lead to the rational allocation of scarce
resources, whereas goal oriented behavior in another setting (say collective ownership) may produce the tragedy of the commons.
Individual behavior is not only dependent on the social context of decision, but so are the consequences of the interaction
of participants on the social scene (both intended and unintended). The Weber-Austrian argument concerning socialist calculation,
for example, was an institutional theory. The institutions of socialism radically changed the social context within which
decisions concern resource use would be made.(11)
purpose of the first two levels of theory construction are to develop an analytical and interpretive framework from which
a qualitative and quantitative narrative of a concrete historical or contemporary episode could be constructed. The justification
of theoretical work, in other words, was to enable scholars to produce better historical accounts.
Where Sociologists and the Austrian's Went Wrong
1922, when Mises published his Socialism he chose as a subtitle, An Economic and Sociological Analysis. By the time Mises
would write Human Action, he substituted the word praxeology for sociology. Sociology had been corrupted, according to Mises,
by Durkheim's influence, and, thus, had become both methodologically and politically collectivistic. Praxeology, on the other
hand, represented the general science of human action. The sciences of human action could be divided into praxeology and history.
Historical sciences include the history of political and military action, of ideas and philosophy, of economic episodes, of
technological developments, of literature, art, and science, of religion, of morals and customs. Ethnography and anthropology
as well as psychology are historical sciences to the extent they are not part of biology or physiology.
contrast, praxeology is a theoretical discipline which concerns itself with human action in the abstract as opposed to the
concrete of historical conditions. It aims at universally valid principles of human behavior. These theoretical concepts,
Mises contended, were "a necessary requirement of any intellectual grasp of historical events. Without them we should not
be able to see in the course of events anything else than kaleidoscopic change and chaotic muddle" (1949, p. 32).
general intellectual climate of the day was not receptive to Mises's epistemology or politics. Positivistic notions of science
increasingly dominated the social scientific community. And, non-positivistic social science tended to reject classical liberalism.
Mises was caught in between a rock and a hard place. Positivistic economics rejected Mises methodology, but sometimes generated
similar conclusions concerning the importance of economic principles for public policy. Humanistic social science accepted
aspects of Mises's methodology, but rejected the public policy conclusions he held dear. Mises's reconstruction of Weber simply
possessed a very limited to non-existent professional audience.
Mises's strong opposition to socialism was grounded in an economic and sociological understanding of the basic problem of
production and exchange.(12) The exchange ratios established on the market represent the social mosaic
upon which rational economic calculation is based. Individual action is embedded in a web of social meaning. Far from being
a problem, the social nature of human action is the major source of our knowledge about one another. It is only within the
specific context of market activity that individuals will have access to the knowledge required to appraise alternative courses
of productive activity. Outside of that social context, and the requisite knowledge does not exist. Without these shared meanings,
economic life would be forever chaotic.(13)
(and Weber's) argument against socialism was in this sense an embeddedness argument. The social context of choice under capitalism
cannot be replicated by socialism. Liberalism was the only viable social and political theory that could be a progressive
force. Intellectuals and academics thought, however, that liberalism lacked a critical edge. A stale conservativism permeated
the liberalism of early 20th century thought.
possessed no natural alliance within the intellectual community. Economics had gone in a different philosophical direction,
sociology had gone in a different political direction. Mises was not without fault. He could have put aside the political,
and instead focused on the purely academic bridge building to phenomenological sociology. Despite his natural affinity with
Alfred Schutz, many sociologist simply could not get past Mises's classical liberal polemics. On the other hand, Mises did
not try to tone down those polemics. The political was tied up with his science -- and, in a very important respect it was
legitimate, for his argument against socialism was a scientific argument grounded in socio-economics, and the consequences
for humanity were huge.
addition, Schutz died at an unfortunately early age. Machlup concerned himself with influencing mainstream economics, and
appeared to have developed ideal type methodological arguments to defend neoclassical assumptions of maximizing and profit
increasingly turned his attention to political and legal theory as opposed to either economic or sociological theory. Mises's
American students, Israel Kirzner and Murray Rothbard each pursued scholarly careers which did not emphasize the sociological
heritage of Austrian economics. The Austrian economists simply did not attempt to maintain their close contact with sociology
during the post WWII period.
the Austrians and sociologists turned their backs on one another, other trends developed with regard to the interface between
sociology and economics. Both Weberian sociology and Austrian economics moved to the far reaches of their respective disciplines.
However, a modern reconstruction of economic sociology can be done precisely along these lines.
reconstruction is important because it is generally recognized that modern neoclassical economics suffers an institutional
deficiency. Economics without institutions is reduced to a sterile set of propositions and irrelevant mental gymnastics. The
rise of new institutionalism within economics, including such intellectual movements as public choice theory, law and economics,
the new economic history, and the new economics of organization, all derive from this perceived shortcoming in the formal
body of neoclassical theory as it developed in the Post-WWII era. The question is whether the institutional deficiency in
economics can be repaired without first repairing the behavioral model.(15) If that is indeed the case, then the current efforts to incorporate institutions
fully into economic analysis will be doomed unless the basic conception of the individual is modified. The Becker-Coleman
model is a prime example of neo-institutionalism, where the basic neoclassical conception of man is retained and institutions
are introduced as another set of constraints against which to maximize and functionalist equilibrium outcomes result. But
there is an alternative formulation, which retains the methodological individualist (rational choice) structure of argument,
but complexifies the social environment within which human actors must develop mechanisms for coping with uncertainty and
imperfections in their judgement and knowledge, and yet find meaning in projects they pursue and the lives they lead (see
Boettke 1996c). The Weber-Austrian program of research in political economy offers a wider set of behavioral postulates for
economic theory, and has already suggested a way to incorporate institutions into economic analysis.
(1996), for example, attempts to deal with problems of how modernity emerged and the issue of meaning within modernity in
relation to Weberian theory. Weber's project was a comparative and developmental one, which dealt not only with economic issues,
but ethics, values, religion, etc. Modern market process theory is also attempting to integrate incentives, information, institutitions
and ideology into a coherent account of the developmental process (see, e.g., Boettke 1996b).
issues can usefully be divided into two realms. First, there are questions of a technical nature on how inputs are channelled
into outputs and how individuals within the system discover better ways of mixing inputs to expand output. These type of questions
have to be answered independent of whatever given set of institutions individuals find themselves operating within, and are
addressed by the theory of enterpreneurship and technological innovation. Second, there are questions of how alternative political
and social environments impact upon enterpreneurial decision making. Different institutions produce different results in terms
of how entrepreneurial behavior is pursued. Which environments are most conducive to entrepreneurship and which ones are not?
In the Weber-Austrian connection, the usefully division of labor is that Austrians have significantly contributed to the first
set of questions, while Weberian analysis (combined with recent work on social capital) can be said to contribute to the second
set of questions. A comparative theory of social development must address both sets of questions, and it is precisely at this
juncture that the Weber-Austrian connection has the most to offer in the contemporary dialogue concerning economics and sociology.
Sociology and Liberalism
can be little dispute over the fact that Mises was overly polemical. But so was Marx. And like Marx, Mises thought that his
argument concerning the limits of socialism was not just an academic question, it was a question of the life and death of
civilization. Passion should not disqualify a scholar from serious examination. Mises was passionate and a sophisticated scholar.
arguments that Mises put forth concerning the negative aspects of socialism and the positive features of liberalism were,
as he termed them, the product of an economic and sociological analysis. His theories did not rely on an under-socialized
view of the individual as does neo-classical theory for which methodological individualism is often criticized. Liberalism
in the hands of Mises (and Hayek) was a complex social theory highlighting not only rational action and incentives, but also
cultural traditions and institutional infrastructure, and how alternative institutional arrangements impact on the use and
transmission of knowledge in society.
major questions of today demonstrate the socio-economic component of liberalism. Questions of economic development, for example,
occupy a priority in the intellectual community. The third world is seeking answers to get on a road to economic prosperity.
The second world is trying to find their way in the transition from authoritarian political economies to market economies
with political democracy. Even the first world of industrialized nations are seeking answers to questions ranging from technological
innovation to sustainable development to environmental trade offs.
economic sociology has formed a meta-discourse concerning the preconditions for economic development with regard to Western
civilization. Historical success did not emerged from the brow of any genius, but rather through the accidental process of
trial and error. Civilization is not the product of man's intelligence. In fact, it is precisely the opposite relationship
-- man's intelligence grew because of his existence within civilization, as Hayek emphasized.
does not mean that we must acquiesce to the accidental forces of history. Rather, through an examination of historical discussions
of the emergence of capitalism we can glean a certain social wisdom about economic "take-off" and the emergence of political
freedom. We do possess some meta-historical hypotheses concerning the emergence of capitalism. Max Weber (1904-1905) conjectured
that certain cultural and religious values were the necessary components in economic development. This thesis has recently
been reasserted by Gianfrancco Poggi (1983) and Peter Berger (1986). Harold Berman (1983) has argued that Western civilization
developed out of legal and political polycentricism, a thesis that has also been stressed by Jean Baechler (1975), and Nathan
Rosenberg and L.E. Birdzell (1985). And, Fernand Braudel (1982) has emphasized the peculiar conflation of religious, political
and economic practices that laid the ground for the development of capitalism and Western civilization.
developed in some regions and not in others precisely because certain institutionalized practices which were conducive to
economic experimentation were adopted and reinforced. Market exchange, for example, existed throughout the world. Monetary
circulation and even certain elementary banking operations existed for centuries. But, the development of capitalism went
beyond the mere existence of market activity.
we find in common to all historical examples of "take-off" is the adoption of practices and rules which protect against predation,
namely the establishment, clarification, and enforcement of property rights. It seems sensible to put forth the hypothesis
that economic take-off is associated with the extension of property ownership to capital goods. As property ownership is respected
in goods further remote from consumption, then practices emerge which lead to development. The banking system, for example,
is transformed so as to provide an additional role as a financial intermediary -- private savings are channeled into investment
funds. The transformed banking system facilitates the growth of the capital market. Longer term investments in productive
activity (which promise greater returns in consumer goods) are undertaken and prove to be the vehicle through which sustainable
growth is achieved.
extension of property ownership to capital resources has proven fundamental for several reasons. First, recognized property
ownership establishes the legal certainty necessary for individuals to commit resources.(16) The threat of confiscation, by either other market participants or political
actors, undermines confidence in market activity and limits investment possibilities (see Olson 1996). Individuals tend to
get around the lack of de jure property rights through either (1) the tacit acceptance of de facto rights which is self-enforced
because of the discipline of repeated dealings, (2) use of extensive family networks, and (3) the employment of extra-legal
contract enforcement. This activity allows "markets" to develop without clear property ownership, and these markets may even
provide the base for the new order emerging. Nevertheless, markets without clearly defined rules tend to be limited and constrained
as vehicles for economic development.
recognized property generates incentives for the use of scarce resources that markets without recognized property do not possess.
Absent property rights, for example, the time discount on resource use will tend to be higher, and resource conservation will
be disparaged. With clear property ownership, however, economic actors possess an incentive to pay close attention to resource
use and the discounted value of the future employment of scarce resources.
recognized property is a pre-condition for the emergence of stable capital markets. The market for capital goods establishes
the exchange ratios for scarce resources (reflected in the relative money price of capital goods) which guide investment activity.
In other words, recognized property rights in the means of production, combined with a sound monetary system, allow the process
of economic calculation to work. Economic calculation provides economic actors with vital knowledge which enables the social
system of production to separate out from among the numerous array of technologically feasible projects those projects which
are economically feasible. Without this process of economic calculation, as Mises often stated, industrial production would
be reduced to so many steps in the dark.
is a political philosophy based in a sociological understanding of human agency, an appreciation for economic forces, and
a close reading of social, political and economic history. It is far from the atomistic and armchair doctrine for which it
is often accused.
theory is also fundamental to the debates over communitarianism. In fact, the contrast between liberalism and communitarianism
is a false one. Communitarianism presupposes certain liberal values which govern the discourse over values. Not only does
communitarian discourse rely on liberal values to govern the discourse over values, communitarianism does not preclude liberal
experimentation. Neither Charles Taylor nor Etzioni have effectively demonstrated that communitarianism necessarily conflicts
with liberalism. They are correct that liberalism does undermine some traditional values, but the framework for permissive
social and individual experimentation is grounded (just like the value discourse over experimentation) in the respect for
personhood. If communitarianism is possible, then so is liberalism for both presuppose the sustainability of the same basic
values -- respect for personhood and the community of discourse.
does liberalism conflict with communitarianism. Within a liberal society, communitarian values of family, virtue, duty, social
consciousness, etc., can be adopted by various communities. The key point is that civil society requires a value infrastructure
consistent with liberalism within which the virtuous and unvirtuous can nevertheless live together in peace. This is, of course,
the great irony that the Soviet experience taught us. Without securing and protecting the private domain, a meaningful public
domain cannot be obtained. Instead, by making public what had previously been private, the communist experiment lead to a
truncated public life and a retreat into an isolated private life (see Gellner 1994, pp. 30-43; 87-96).
both cases, economic development and the communitarian-liberal debate, a liberal argument can be formulated which is steeped
in an historical and theoretical sociology based on the rational activity of individuals. Liberal theory in the Weber-Austrian
rendition is not based on a faulty conception of human nature (Benthamite utilitarianism), but rather emerges from an understanding
of human intercourse in its rich complexity.
cross fertilization of Weberian sociology and Austrian economics promises a way back from scientistic models of irrelevance
in the social sciences, and a return to the "life-world" of human existence. Methodological individualism in this tradition
does not postulate man as disembodied from his social environment. Atomism is not an appropriate charge, and thus the critical
stance that socio-economist take against the contributions of Mises and Hayek have to be re-examined. Criticisms of neoclassical
conceptions of man to dismiss the Mises and Hayek understanding of the progressive influence of markets in social development
simply do not engage the issue. Similarly, criticisms of liberalism for failing to deal with community also fail to engage
the liberal argument. Communitarians have yet to show how they can avoid moral authoritarianism unless they constrain their
project by reference to the autonomy of the individual--in which case the communitarian position is nothing more than an advocacy
of a particular way of life within a framework of liberal pluralism.
obstacles that prevent the engagement within the current dialogue over economics and sociology of the Weber-Austrian project
have to be overcome. The interaction between Weberian sociology and Austrian economics was quite fruitful in the past, and
the gains from exchange have not been exhausted--especially in developing a comparative political economy of developmental
processes. The resulting hybrid may represent what has appeared so elusive in the 20th century, a social theory which is at
the same time logically coherent, empirically useful, humanistic in its method, and humanitarian in its concerns. If so, then
the Weber-Austrian connection would provide exactly what is needed as we head toward the 21st century.