Article Politics &Society 41(3)323-350 Capitalism as a System of 2013 SAGE Publications Reprints and permissions: Expectations:Toward a sagepub.com/journalsPermissions.nav DO10.1177/0032329213493750 Sociological Microfoundation pas.sagepub.com of Political Economy SAGE Jens Beckert Max Planck Institute for the Study of Societies,Germany Abstract Political economy and economic sociology have developed in relative isolation from each other.While political economy focuses largely on macro phenomena,economic sociology focuses on the embeddedness of economic action.The article argues that economic sociology can provide a microfoundation for political economy beyond rational actor theory and behavioral economics.At the same time political economy offers a unifying research framework for economic sociology with its focus on the explanation of capitalist dynamics.The sociological microfoundation for understanding of capitalist dynamics should focus on the expectations actors have regarding future states of the world.Based on a discussion of what I call the four Cs of capitalism (credit,commodification,creativity,and competition),I argue that under conditions of uncertainty,expectations are contingent and should be understood as"fictional expectations."The capability of humans to imagine future states of the world that can be different from the present is the central basis for a sociological microfoundation of the dynamics of economic macro phenomena.Macroeconomic dynamics are anchored in these "fictional expectations,"which create motifs for engaging in potentially profitable but ultimately incalculable outcomes.This shifts attention to the 'management of expectations"as a crucial element of economic activity and to the institutional,political,and cultural foundations of expectations.The reproduction of capitalism is precarious also because of the contingency of expectations conducive to its growth. Keywords capitalism,political economy,economic sociology,imaginaries,innovation,competition, consumption,economic dynamics,expectations,microfoundation Corresponding Author: Jens Beckert,Max Planck Institute for the Study of Societies,Paulstr.3.50676 Koln,Germany. Email:beckert@mpifg.de Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4.2015
Politics & Society 41(3) 323–350 © 2013 SAGE Publications Reprints and permissions: sagepub.com/journalsPermissions.nav DOI: 10.1177/0032329213493750 pas.sagepub.com Article Capitalism as a System of Expectations: Toward a Sociological Microfoundation of Political Economy Jens Beckert Max Planck Institute for the Study of Societies, Germany Abstract Political economy and economic sociology have developed in relative isolation from each other. While political economy focuses largely on macro phenomena, economic sociology focuses on the embeddedness of economic action. The article argues that economic sociology can provide a microfoundation for political economy beyond rational actor theory and behavioral economics. At the same time political economy offers a unifying research framework for economic sociology with its focus on the explanation of capitalist dynamics. The sociological microfoundation for understanding of capitalist dynamics should focus on the expectations actors have regarding future states of the world. Based on a discussion of what I call the four Cs of capitalism (credit, commodification, creativity, and competition), I argue that under conditions of uncertainty, expectations are contingent and should be understood as “fictional expectations.” The capability of humans to imagine future states of the world that can be different from the present is the central basis for a sociological microfoundation of the dynamics of economic macro phenomena. Macroeconomic dynamics are anchored in these “fictional expectations,” which create motifs for engaging in potentially profitable but ultimately incalculable outcomes. This shifts attention to the “management of expectations” as a crucial element of economic activity and to the institutional, political, and cultural foundations of expectations. The reproduction of capitalism is precarious also because of the contingency of expectations conducive to its growth. Keywords capitalism, political economy, economic sociology, imaginaries, innovation, competition, consumption, economic dynamics, expectations, microfoundation Corresponding Author: Jens Beckert, Max Planck Institute for the Study of Societies, Paulstr. 3, 50676 Köln, Germany. Email: beckert@mpifg.de 493750 PAS41310.1177/0032329213493750Politics & SocietyBeckert research-article2013 Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4, 2015
324 Politics&Society 41(3) The economy has long ceased to be the exclusive domain of economists.Political economy and economic sociology have both become important subfields in their respective academic disciplines over the past two decades,bringing the economy into the focus of political science and sociology. Although both subfields share important premises,they have developed in relative isolation from each other.Research in political economy focuses on the varieties of capitalism and on the transformation of the institutional configurations of contempo- rary capitalism in the process of economic liberalization.Researchers are interested primarily in the explanation of macroeconomic outcomes,such as economic growth rates,inflation rates,aggregated demand,changes in the sector-composition of the economy,or accumulation crises.!Economic sociology,by contrast,focuses on the embeddedness"of economic action,showing in often-meticulous case studies how economic outcomes depend on the structure of social networks,institutional configu- rations,and cultural frames.2 At first glance,this disconnection of the two subfields seems to become even more pronounced with the recent move in political economy to shift interest from the varieties of capitalism to the "commonalities of capitalism."3 With this shift, political economy starts to abstract from historically specific institutional contexts and their complementarities and focuses interest on the general logics of capitalist reproduction.4 Contrary to the initial assumption of a further divide between political economy and economic sociology,I argue that the shift toward the investigation of the common- alities of capitalism opens up avenues for a closer alignment of the two subfields.This holds true because economic sociology,with its focus on the micro and meso levels of analysis,offers a complementary perspective to political economy by providing a sociological foundation for understanding economic phenomena from the actor per- spective.At the same time,political economy offers a unifying research framework to economic sociology with its focus on the explanation of capitalist dynamics. While the strength of political economy has been the focus of the institutionalist explanation of macroeconomic outcomes,including social structures such as inequality and skill distribution,its underdeveloped part has been the microfoundations explain- ing the concrete processes underlying the phenomena observed on the macro level.>For the most part,political economists have either rejected the need for a microfoundation or have made use of rational actor theory.7 Although some accounts by political econo- mists show interest in action theories beyond rational choice,8 these have not been systematically integrated into the analysis of the dynamics of capitalism. I follow the work done in the field of economic sociology and pursue a micro per- spective.By micro perspective I mean an analysis of the economy from the perspec- tive of actors and their cultural,social,and political embeddedness,with a particular eye to the action process.However,in contrast to most work being done in the new economic sociology,I will apply this perspective to an analysis of the dynamics of capitalism.How do the dynamics of capitalism unfold,when considered from the perspective of the social interactions of the actors who are enacting,reproducing,and changing the economic system through their actions?What are the connections Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4.2015
324 Politics & Society 41(3) The economy has long ceased to be the exclusive domain of economists. Political economy and economic sociology have both become important subfields in their respective academic disciplines over the past two decades, bringing the economy into the focus of political science and sociology. Although both subfields share important premises, they have developed in relative isolation from each other. Research in political economy focuses on the varieties of capitalism and on the transformation of the institutional configurations of contemporary capitalism in the process of economic liberalization. Researchers are interested primarily in the explanation of macroeconomic outcomes, such as economic growth rates, inflation rates, aggregated demand, changes in the sector-composition of the economy, or accumulation crises.1 Economic sociology, by contrast, focuses on the “embeddedness” of economic action, showing in often-meticulous case studies how economic outcomes depend on the structure of social networks, institutional configurations, and cultural frames.2 At first glance, this disconnection of the two subfields seems to become even more pronounced with the recent move in political economy to shift interest from the varieties of capitalism to the “commonalities of capitalism.”3 With this shift, political economy starts to abstract from historically specific institutional contexts and their complementarities and focuses interest on the general logics of capitalist reproduction.4 Contrary to the initial assumption of a further divide between political economy and economic sociology, I argue that the shift toward the investigation of the commonalities of capitalism opens up avenues for a closer alignment of the two subfields. This holds true because economic sociology, with its focus on the micro and meso levels of analysis, offers a complementary perspective to political economy by providing a sociological foundation for understanding economic phenomena from the actor perspective. At the same time, political economy offers a unifying research framework to economic sociology with its focus on the explanation of capitalist dynamics. While the strength of political economy has been the focus of the institutionalist explanation of macroeconomic outcomes, including social structures such as inequality and skill distribution, its underdeveloped part has been the microfoundations explaining the concrete processes underlying the phenomena observed on the macro level.5 For the most part, political economists have either rejected the need for a microfoundation6 or have made use of rational actor theory.7 Although some accounts by political economists show interest in action theories beyond rational choice,8 these have not been systematically integrated into the analysis of the dynamics of capitalism. I follow the work done in the field of economic sociology and pursue a micro perspective. By micro perspective I mean an analysis of the economy from the perspective of actors and their cultural, social, and political embeddedness, with a particular eye to the action process. However, in contrast to most work being done in the new economic sociology, I will apply this perspective to an analysis of the dynamics of capitalism. How do the dynamics of capitalism unfold, when considered from the perspective of the social interactions of the actors who are enacting, reproducing, and changing the economic system through their actions? What are the connections Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4, 2015
Beckert 325 between these social interactions and the macro phenomena that are the focus of politi- cal economy? To comprehend the"expansive dynamism of capitalism"9 one needs an understand- ing of the micro processes underlying macro outcomes.0 Although social interaction is partly based on routines,the"reflexive"part of human agency can be described as decisions.It is this part of social interaction that I am focusing on.Decisions are based on expectations regarding outcomes.Thus it is expectations that establish which eco- nomic activities are pursued or abstained from.However,under conditions of funda- mental uncertainty,expectations cannot be understood as being determined through calculation of optimal choices taking into account all available information,but rather are based on contingent interpretations of the situation in the context of prevailing institutional structures,cultural templates,and social networks. The suggestion brought forward is that the dynamics of capitalism looked at from the perspective of social interaction can be analyzed proceeding from the notion of fictional expectations.By the term"fictional expectations"I refer to present imaginar- ies of future situations that provide orientation in decision making despite the incalcu- lability of outcomes.12"Fictionality"in economic action does not mean the "falsity"or "fantasy"that is also conveyed in the word fiction.Instead,it refers to the future being unforeseeable so that expectations,rather than being forecasts,must inhabit the mind as imagined future states of the world.Expectations under conditions of uncertainty should be understood as pretending future states of the world,allowing actors to act as ifthis imaginary would indeed become the"future present."13 Actors are motivated in their actions by the imagined future state and organize their activities based on these mental representations.Fictional expectations in the economy take narrative form as stories,theories,and discourses.Because these representations are not confined to empirical reality,fictionality is also a base of creativity in the economy and thereby a source of the dynamics of capitalism.Including the notion of fictionality opens up a way to understanding the microfoundations of the economy's dynamics and growth. The notion of fictional expectations is directed against the concept of "rational expectations"constituting the microfoundation of much of modern macroeconomics. Assuming market pressures and the systematic use of all available information,ratio- nal expectations theory14 states that the predictions actors make with regard to eco- nomically relevant variables in the future are correct,in the aggregate,because all individual errors are random.Hence,the predicted outcomes do not differ systemati- cally from the resulting market equilibrium.As a consequence,the uncertainty entailed in the future is transformed into a state predictable by forecast,allowing for the ratio- nal calculation of optimal choices. Many have criticized the assumption that decisions in economic contexts can be understood as utility maximization based on rational expectations.The critiques doubt the assumptions that actors can gain a full understanding of their environ- ment,I5 and that they have the cognitive capabilities to process the available informa- tion.16 Behavioral economists emphasize the role of cognitive biases,17 Austrian economists point to the unknowability of the future due to novelty.18 The complexity of decision situations,unforeseeable interaction effects,and genuine novelty through Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4.2015
Beckert 325 between these social interactions and the macro phenomena that are the focus of political economy? To comprehend the “expansive dynamism of capitalism”9 one needs an understanding of the micro processes underlying macro outcomes.10 Although social interaction is partly based on routines, the “reflexive” part of human agency can be described as decisions. It is this part of social interaction that I am focusing on. Decisions are based on expectations regarding outcomes. Thus it is expectations that establish which economic activities are pursued or abstained from. However, under conditions of fundamental uncertainty,11 expectations cannot be understood as being determined through calculation of optimal choices taking into account all available information, but rather are based on contingent interpretations of the situation in the context of prevailing institutional structures, cultural templates, and social networks. The suggestion brought forward is that the dynamics of capitalism looked at from the perspective of social interaction can be analyzed proceeding from the notion of fictional expectations. By the term “fictional expectations” I refer to present imaginaries of future situations that provide orientation in decision making despite the incalculability of outcomes.12 “Fictionality” in economic action does not mean the “falsity” or “fantasy” that is also conveyed in the word fiction. Instead, it refers to the future being unforeseeable so that expectations, rather than being forecasts, must inhabit the mind as imagined future states of the world. Expectations under conditions of uncertainty should be understood as pretending future states of the world, allowing actors to act as if this imaginary would indeed become the “future present.”13 Actors are motivated in their actions by the imagined future state and organize their activities based on these mental representations. Fictional expectations in the economy take narrative form as stories, theories, and discourses. Because these representations are not confined to empirical reality, fictionality is also a base of creativity in the economy and thereby a source of the dynamics of capitalism. Including the notion of fictionality opens up a way to understanding the microfoundations of the economy’s dynamics and growth. The notion of fictional expectations is directed against the concept of “rational expectations” constituting the microfoundation of much of modern macroeconomics. Assuming market pressures and the systematic use of all available information, rational expectations theory14 states that the predictions actors make with regard to economically relevant variables in the future are correct, in the aggregate, because all individual errors are random. Hence, the predicted outcomes do not differ systematically from the resulting market equilibrium. As a consequence, the uncertainty entailed in the future is transformed into a state predictable by forecast, allowing for the rational calculation of optimal choices. Many have criticized the assumption that decisions in economic contexts can be understood as utility maximization based on rational expectations. The critiques doubt the assumptions that actors can gain a full understanding of their environment,15 and that they have the cognitive capabilities to process the available information.16 Behavioral economists emphasize the role of cognitive biases,17 Austrian economists point to the unknowability of the future due to novelty.18 The complexity of decision situations, unforeseeable interaction effects, and genuine novelty through Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4, 2015
326 Politics&Society 41(3) unpredictable innovations and the choices of other actors make it impossible to fore- know the future and to understand decisions as based on foreknowledge of future states.It is the "fundamental uncertainty"characterizing decisions in economic con- texts that renders the model of rational expectations ineffective. I follow economics in the importance it assigns to expectations regarding future states for current decision making,but depart from the idea that expectations are ratio- nal in the sense rational expectations theory claims them to be.This,however,opens the question on what basis expectations are formed if not on a full understanding of all available information.What are expectations under conditions of uncertainty?I pursue the idea that the notion of fictional expectations should be seen as the answer to this question.It entails that the"future is an ambiguous canvas capable of multiple inter- pretations."9 Which interpretations prevail is seen as partly structurally and partly politically determined. Structurally,expectations depend on cultural frames,dominant theories,the strati- fication structures of a society,social networks,and institutions.But the concept of fictional expectations gives the notion of expectations at the same time a political twist because expectations are seen as being open to the manipulation by powerful actors. Actors have different interests regarding prevailing expectations and will therefore try to influence them.Motivating the decisions of actors by shaping their expectations, including the shaping of the social and political structures underlying these expecta- tions,becomes one of the main tasks of political regulators and a major goal of speech acts uttered in the field of the economy.I call this deliberate attempt to influence expectations the"management of expectations."20 Use of the concept of fictional expectations is based on a pragmatic understanding of action.Action is not seen teleologically as the realization of an end that itself stands outside the action process,but instead as a progression in which ends and strategies are formed and revised based on contingent and changing interpretations of the situation. Expectations and goals are the outcomes of a process unfolding in time,in which actors develop and enact projects,plans,and strategies.Fictional expectations stand close to Dewey's notion of ends-in-view,in other words,"foreseen consequences which influence present deliberation."21 This also means that structures only become relevant to the action process through the expectations formed by actors.This,however,does not imply a misleading volun- tarism because expectations themselves emerge in social contexts.Although I refrain from a general discussion on the relationship of structure and agency,I do indicate how social structures influence the expectations of actors in the realms of activity investigated.A general discussion on how structures and expectations interact is one of the crucial tasks required to further develop an approach that attempts to understand the social impact of projections of the future.22 Such a task,however,is beyond the confines of this article. I will start by briefly defining capitalism and identify four different elements that make up the main activities underlying the dynamics of capitalism:creativity (inno- vation),credit,commodification,and competition.I call these four elements the four Cs of capitalism.Following this,I will discuss each of the four elements separately, Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4.2015
326 Politics & Society 41(3) unpredictable innovations and the choices of other actors make it impossible to foreknow the future and to understand decisions as based on foreknowledge of future states. It is the “fundamental uncertainty” characterizing decisions in economic contexts that renders the model of rational expectations ineffective. I follow economics in the importance it assigns to expectations regarding future states for current decision making, but depart from the idea that expectations are rational in the sense rational expectations theory claims them to be. This, however, opens the question on what basis expectations are formed if not on a full understanding of all available information. What are expectations under conditions of uncertainty? I pursue the idea that the notion of fictional expectations should be seen as the answer to this question. It entails that the “future is an ambiguous canvas capable of multiple interpretations.”19 Which interpretations prevail is seen as partly structurally and partly politically determined. Structurally, expectations depend on cultural frames, dominant theories, the stratification structures of a society, social networks, and institutions. But the concept of fictional expectations gives the notion of expectations at the same time a political twist because expectations are seen as being open to the manipulation by powerful actors. Actors have different interests regarding prevailing expectations and will therefore try to influence them. Motivating the decisions of actors by shaping their expectations, including the shaping of the social and political structures underlying these expectations, becomes one of the main tasks of political regulators and a major goal of speech acts uttered in the field of the economy. I call this deliberate attempt to influence expectations the “management of expectations.”20 Use of the concept of fictional expectations is based on a pragmatic understanding of action. Action is not seen teleologically as the realization of an end that itself stands outside the action process, but instead as a progression in which ends and strategies are formed and revised based on contingent and changing interpretations of the situation. Expectations and goals are the outcomes of a process unfolding in time, in which actors develop and enact projects, plans, and strategies. Fictional expectations stand close to Dewey’s notion of ends-in-view, in other words, “foreseen consequences which influence present deliberation.”21 This also means that structures only become relevant to the action process through the expectations formed by actors. This, however, does not imply a misleading voluntarism because expectations themselves emerge in social contexts. Although I refrain from a general discussion on the relationship of structure and agency, I do indicate how social structures influence the expectations of actors in the realms of activity investigated. A general discussion on how structures and expectations interact is one of the crucial tasks required to further develop an approach that attempts to understand the social impact of projections of the future.22 Such a task, however, is beyond the confines of this article. I will start by briefly defining capitalism and identify four different elements that make up the main activities underlying the dynamics of capitalism: creativity (innovation), credit, commodification, and competition. I call these four elements the four Cs of capitalism. Following this, I will discuss each of the four elements separately, Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4, 2015
Beckert 327 showing the role of expectations in their operations.In their historical development, capitalist societies succeeded increasingly in the development of institutional and cultural capacities that allowed for the unfolding of expectational structures condu- cive to the expansion of the four Cs of capitalism.At the same time,the economy also became more fragile because of enlarged interdependencies in an increasingly global economic system and the associated expansion of cognitive demands.Crises can be understood as the sudden shift of prevailing expectations.23 In the conclusion,I will argue that the perspective developed provides the basis for a microfoundation for understanding the dynamics of capitalist economies,which offers an alternative to rational actor theory and behavioral economics. The Four Cs of Capitalism What is capitalism?Capitalism can be defined as an endemically dynamic economic system in which the production of goods and services is motivated by expected profits, materializing in market exchange.What distinguishes capitalism from all other eco- nomic systems is its need to grow-it can stabilize itself only by continuously under- mining its own historical forms in the relentless search for new profit opportunities. By growth,I refer to the increase of the value of goods exchanged in the market sphere.The need to grow emerges on the actor level from the goal of profit maximiza- tion,on the firm level from economies of scale,on the level of the economic system from the credit-based financing of investments,and on the societal level from order producing effects of wealth increases.Because of its inherent need to grow,the capi- talist economy can never be in equilibrium,but remains always in a"dynamic disequi- librium."24 Explaining this restlessness is the key to understanding capitalism. Historically,the dynamics of capitalist growth first became visible in the accelerated economic growth rates starting in the late eighteenth century.Karl Polanyi25 has named this period the "great transformation."While the dynamics of capitalism can be addressed in highly abstract form by analyzing the processes of capital accumulation, the sociologically more telling matters for examination are found on a less abstract level:Through what practical processes does capitalism produce its continuous dynam- ics,which led to unprecedented growth over the past 200 years but also recurrently to sharp economic crises?To address this question I take up-and amend-a categoriza- tion recently introduced by Wolfgang Streeck,26 which distinguishes between four core activities underlying the expansiveness of capitalism:creativity (innovation),credit, commodification,and competition.27 I call these elements the four Cs of capitalism. The four Cs of capitalism are institutionally anchored practical processes constitut- ing the dynamics of the capitalist system.28 Bringing the four Cs to the forefront of an analysis of capitalism does not imply that they would appear only in capitalism or even only in contemporary capitalism.Rather we can understand capitalism as a system that unfolds through the expansion of the four elements.29 Making the four Cs of capitalism the cornerstone of analysis mirrors approaches in political economy analyzing innovation systems,the financial system,processes of "land grabbing,"and competition regimes.However,unlike the macro-oriented Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4.2015
Beckert 327 showing the role of expectations in their operations. In their historical development, capitalist societies succeeded increasingly in the development of institutional and cultural capacities that allowed for the unfolding of expectational structures conducive to the expansion of the four Cs of capitalism. At the same time, the economy also became more fragile because of enlarged interdependencies in an increasingly global economic system and the associated expansion of cognitive demands. Crises can be understood as the sudden shift of prevailing expectations.23 In the conclusion, I will argue that the perspective developed provides the basis for a microfoundation for understanding the dynamics of capitalist economies, which offers an alternative to rational actor theory and behavioral economics. The Four Cs of Capitalism What is capitalism? Capitalism can be defined as an endemically dynamic economic system in which the production of goods and services is motivated by expected profits, materializing in market exchange. What distinguishes capitalism from all other economic systems is its need to grow—it can stabilize itself only by continuously undermining its own historical forms in the relentless search for new profit opportunities. By growth, I refer to the increase of the value of goods exchanged in the market sphere. The need to grow emerges on the actor level from the goal of profit maximization, on the firm level from economies of scale, on the level of the economic system from the credit-based financing of investments, and on the societal level from order producing effects of wealth increases. Because of its inherent need to grow, the capitalist economy can never be in equilibrium, but remains always in a “dynamic disequilibrium.”24 Explaining this restlessness is the key to understanding capitalism. Historically, the dynamics of capitalist growth first became visible in the accelerated economic growth rates starting in the late eighteenth century. Karl Polanyi25 has named this period the “great transformation.” While the dynamics of capitalism can be addressed in highly abstract form by analyzing the processes of capital accumulation, the sociologically more telling matters for examination are found on a less abstract level: Through what practical processes does capitalism produce its continuous dynamics, which led to unprecedented growth over the past 200 years but also recurrently to sharp economic crises? To address this question I take up—and amend—a categorization recently introduced by Wolfgang Streeck,26 which distinguishes between four core activities underlying the expansiveness of capitalism: creativity (innovation), credit, commodification, and competition.27 I call these elements the four Cs of capitalism. The four Cs of capitalism are institutionally anchored practical processes constituting the dynamics of the capitalist system.28 Bringing the four Cs to the forefront of an analysis of capitalism does not imply that they would appear only in capitalism or even only in contemporary capitalism. Rather we can understand capitalism as a system that unfolds through the expansion of the four elements.29 Making the four Cs of capitalism the cornerstone of analysis mirrors approaches in political economy analyzing innovation systems, the financial system, processes of “land grabbing,” and competition regimes. However, unlike the macro-oriented Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4, 2015