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
328 Politics Society 41(3) approaches ofpolitical economy,I focus on the level ofsocialinteraction.Understanding this process from the perspective of social interaction demands close attention to the expectations actors form with regard to the future.It is from expectations of the"future present"30 that decisions are made.Hence,attention shifts to the creation(and destruc- tion)of actors'expectations,expectations that are necessary for the four Cs of capital- ism to operate in a manner conducive to economic growth but occasionally also lead to profound crises.To understand actors'expectations also requires attention to insti- tutional,cultural,and social conditions and to the agency processes that I refer to as the“management of expectations..” In the following sections,I will discuss each of the four Cs of capitalism,showing the role of fictional expectations and their precariousness. Creativity (Innovation) Innovations are the cornerstone of the uniqueness of capitalist dynamics.31 Growth in capitalist economies is based on the application of the creative poten- tial of actors in the production of goods and services.32 Through innovation new factor combinations are introduced into the market,which-if successful-sat- isfy previously unattended needs,create new needs,or enhance efficiency in the production process.They provide profit opportunities through the competitive advantages they lead to.The dynamics of capitalist economies cannot be explained through the slow enlargement of productive capacities but only based on the introduction of genuine novelty.33 The""high road'to development passes through innovation."34 Looked at from the perspective of social interaction,innovations are based on a utopian vision at the outset,which shows a pretended future reality.I refer to such technological visions as imaginaries of the future.The imaginaries allow actors to move beyond inherited thought patterns and categories by bringing them into an as-if world in which given reality is surpassed and a different one consid- ered.35 In this sense,imaginaries are fictional.They take the form of predictions, forecasts,and projections.36 "Technological predictions and forecasts are in essence little narratives about the future.They are not full-scale narratives of uto- pia,but they are usually presented as stories about a better world to come.The most successful of these little narratives are those that present an innovation as not just desirable,but inevitable."37 As in the case of the other elements,the manage- ment of these expectations plays an important part in innovation processes and the market success of new products.It takes the form of a"management of imaginar- ies"(see table 1). Joseph Schumpeter highlighted the central role of imaginaries in innovation.38 Schumpeter's analysis sets out from the observation that new combinations initially exist only in the consciousness of the actor.While most actors are caught up in rou- tines,some actors"with more acute intelligence and a more active imagination envis- age countless new combinations."39 Hence,innovations begin with imaginaries that lead the entrepreneur to "adapt his economic activities accordingly."40 The Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4.2015
328 Politics & Society 41(3) approaches of political economy, I focus on the level of social interaction. Understanding this process from the perspective of social interaction demands close attention to the expectations actors form with regard to the future. It is from expectations of the “future present”30 that decisions are made. Hence, attention shifts to the creation (and destruction) of actors’ expectations, expectations that are necessary for the four Cs of capitalism to operate in a manner conducive to economic growth but occasionally also lead to profound crises. To understand actors’ expectations also requires attention to institutional, cultural, and social conditions and to the agency processes that I refer to as the “management of expectations.” In the following sections, I will discuss each of the four Cs of capitalism, showing the role of fictional expectations and their precariousness. Creativity (Innovation) Innovations are the cornerstone of the uniqueness of capitalist dynamics.31 Growth in capitalist economies is based on the application of the creative potential of actors in the production of goods and services.32 Through innovation new factor combinations are introduced into the market, which—if successful—satisfy previously unattended needs, create new needs, or enhance efficiency in the production process. They provide profit opportunities through the competitive advantages they lead to. The dynamics of capitalist economies cannot be explained through the slow enlargement of productive capacities but only based on the introduction of genuine novelty.33 The “‘high road’ to development passes through innovation.”34 Looked at from the perspective of social interaction, innovations are based on a utopian vision at the outset, which shows a pretended future reality. I refer to such technological visions as imaginaries of the future. The imaginaries allow actors to move beyond inherited thought patterns and categories by bringing them into an as-if world in which given reality is surpassed and a different one considered.35 In this sense, imaginaries are fictional. They take the form of predictions, forecasts, and projections.36 “Technological predictions and forecasts are in essence little narratives about the future. They are not full-scale narratives of utopia, but they are usually presented as stories about a better world to come. The most successful of these little narratives are those that present an innovation as not just desirable, but inevitable.”37 As in the case of the other elements, the management of these expectations plays an important part in innovation processes and the market success of new products. It takes the form of a “management of imaginaries” (see table 1). Joseph Schumpeter highlighted the central role of imaginaries in innovation.38 Schumpeter’s analysis sets out from the observation that new combinations initially exist only in the consciousness of the actor. While most actors are caught up in routines, some actors “with more acute intelligence and a more active imagination envisage countless new combinations.”39 Hence, innovations begin with imaginaries that lead the entrepreneur to “adapt his economic activities accordingly.”40 The Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4, 2015
Beckert 329 Table I.The four Cs of capitalism. Management of Expectations Motivating Belief Underlying Structures(Examples) Creativity Management of imaginaries Belief in imaginary Social myths (Innovation) Social inequality Legitimation of success seeking through risk taking Social networks Credit Management of confidence Belief in promise 。Economic ethics Calculation technologies (e.g. credit rating.scoring models) Legal system Social networks Power Commodification Management of value Belief in performance Private property rights of good Legitimation of profit-oriented exchanges Classification of goods Competition Management of strategic Belief in strategy 8 Position in market expectations outcome Economic theories Power Entrance barriers entrepreneur will,based on the imaginary of a new factor combination,change the value assessment of the goods offered in the market and change product demand.The late Steve Jobs is the exemplification par excellence of the creation of successful inno- vations through the communication of imaginaries,captivating the computer industry and large consumer groups. Schumpeter insists that innovation is incompatible with the calculative behavior assumed by economic theory because innovations cannot be rationally deduced from existing knowledge.Instead,the expectations regarding the outcome of the innovation motivate and guide an inherently incalculable process41 based on the belief in the imagined new combination as a"future present."42 The openness of the future implies that the expectations regarding innovations must necessarily be contingent and helps to explain why it is possible to predict the expansion of capitalism without being able "to predict the actual direction of future logics."43 Schumpeter has rightly been criticized for providing an overly individualistic account of the motivation to engage in innovative activity.Entrepreneurs'expectations must be understood also as socially constituted.Studies of innovation processes have repeatedly shown that the "voicing of promises,"which show the way to the future,are in fact collective projections,44 and are thus bound to cultural patterns and social structures. Expectations regarding innovative activities have further social preconditions. "Capitalist entrepreneurs do not fall from heaven but can grow only in a particular structural,institutional,and cultural environment."45 Robert Merton46 showed that innovative activities are anchored in the normative structure of modern societies that value inner-worldly transcendence through success seeking by risk taking.Another Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4.2015
Beckert 329 entrepreneur will, based on the imaginary of a new factor combination, change the value assessment of the goods offered in the market and change product demand. The late Steve Jobs is the exemplification par excellence of the creation of successful innovations through the communication of imaginaries, captivating the computer industry and large consumer groups. Schumpeter insists that innovation is incompatible with the calculative behavior assumed by economic theory because innovations cannot be rationally deduced from existing knowledge. Instead, the expectations regarding the outcome of the innovation motivate and guide an inherently incalculable process41 based on the belief in the imagined new combination as a “future present.”42 The openness of the future implies that the expectations regarding innovations must necessarily be contingent and helps to explain why it is possible to predict the expansion of capitalism without being able “to predict the actual direction of future logics.”43 Schumpeter has rightly been criticized for providing an overly individualistic account of the motivation to engage in innovative activity. Entrepreneurs’ expectations must be understood also as socially constituted. Studies of innovation processes have repeatedly shown that the “voicing of promises,” which show the way to the future, are in fact collective projections,44 and are thus bound to cultural patterns and social structures. Expectations regarding innovative activities have further social preconditions. “Capitalist entrepreneurs do not fall from heaven but can grow only in a particular structural, institutional, and cultural environment.”45 Robert Merton46 showed that innovative activities are anchored in the normative structure of modern societies that value inner-worldly transcendence through success seeking by risk taking. Another Table 1. The four Cs of capitalism. Management of Expectations Motivating Belief Underlying Structures (Examples) Creativity (Innovation) Management of imaginaries Belief in imaginary •• Social myths •• Social inequality •• Legitimation of success seeking through risk taking •• Social networks Credit Management of confidence Belief in promise •• Economic ethics •• Calculation technologies (e.g., credit rating, scoring models) •• Legal system •• Social networks •• Power Commodification Management of value Belief in performance of good •• Private property rights •• Legitimation of profit-oriented exchanges •• Classification of goods Competition Management of strategic expectations Belief in strategy outcome •• Position in market •• Economic theories •• Power •• Entrance barriers Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4, 2015
330 Politics Society 41(3) element of this environment is social inequality,without which there cannot be a motive to engage in activities that lead to social rise.Moreover,social mobility through entrepreneurial effort must be possible.A motivation to engage in innovative activity can emerge only if the structural polarization of classes does not create expectations (at least not in a critical number of actors)that assume that the barriers to upward mobility are individually insurmountable.47 Capitalism is historically unique also in being an economic formation that determines social status not by social origin but based on market success ascribed to effort.This holds true even if there are strong real barriers to social mobility and large social groups have historically been factually excluded from entrepreneurial activities and upward mobility. Expectations regarding the opportunities emerging from entrepreneurial activities must not be held by all actors but by a critical number.Here institutional,network,and cultural factors are important:the education system must be open to meritocratic prin- ciples,networks in the family or the (ethnic)community must be conducive to indi- vidual success-seeking,48 and cultural or religious traditions must support entrepreneurial orientations.49 To create beliefs in the possibility of status enhance- ment at least in some parts of the population is a necessary condition of capitalist dynamics.Failure in that respect deprives capitalism of one of its central preconditions of growth on the level of actors. The Management of Imaginaries Expectations in innovative processes are subject to management of expectations, which takes the form of"management of imaginaries."By this,I mean the deliberate influencing of expectations of third parties regarding the prospects of innovations.An example of this was provided by Sophie Mutzelso in a study investigating the innova- tion process in biotechnology firms aiming to develop genetically engineered medica- tion for treating breast cancer.In this highly uncertain environment,the success of firms'research strategies cannot be foreseen and hopes of successful product develop- ment are often disappointed.Actors try to influence the expectations of others-and the decisions following from them-through the communication of stories providing accounts of which development strategy they expect to succeed.The stories are imagi- naries that send signals to competitors and the financial community.Because decisions hinge on expectations,the manipulation of expectations becomes a means in the com- petitive struggle for resources for research and the strategies pursued.This is a power struggle to determine how the "present future,"i.e.,the present image of the future, looks.Along with the different economic power of firms the regulative power of the state also plays a crucial role in explaining expectations and their shifts. Credit Credit is the second indispensable element of capitalist economic growth.The accu- mulation of capital and the growth of the economy depend on a higher level of demand than that which the owners of capital create through their own payments.5 The source Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4.2015
330 Politics & Society 41(3) element of this environment is social inequality, without which there cannot be a motive to engage in activities that lead to social rise. Moreover, social mobility through entrepreneurial effort must be possible. A motivation to engage in innovative activity can emerge only if the structural polarization of classes does not create expectations (at least not in a critical number of actors) that assume that the barriers to upward mobility are individually insurmountable.47 Capitalism is historically unique also in being an economic formation that determines social status not by social origin but based on market success ascribed to effort. This holds true even if there are strong real barriers to social mobility and large social groups have historically been factually excluded from entrepreneurial activities and upward mobility. Expectations regarding the opportunities emerging from entrepreneurial activities must not be held by all actors but by a critical number. Here institutional, network, and cultural factors are important: the education system must be open to meritocratic principles, networks in the family or the (ethnic) community must be conducive to individual success-seeking,48 and cultural or religious traditions must support entrepreneurial orientations.49 To create beliefs in the possibility of status enhancement at least in some parts of the population is a necessary condition of capitalist dynamics. Failure in that respect deprives capitalism of one of its central preconditions of growth on the level of actors. The Management of Imaginaries Expectations in innovative processes are subject to management of expectations, which takes the form of “management of imaginaries.” By this, I mean the deliberate influencing of expectations of third parties regarding the prospects of innovations. An example of this was provided by Sophie Mützel50 in a study investigating the innovation process in biotechnology firms aiming to develop genetically engineered medication for treating breast cancer. In this highly uncertain environment, the success of firms’ research strategies cannot be foreseen and hopes of successful product development are often disappointed. Actors try to influence the expectations of others—and the decisions following from them—through the communication of stories providing accounts of which development strategy they expect to succeed. The stories are imaginaries that send signals to competitors and the financial community. Because decisions hinge on expectations, the manipulation of expectations becomes a means in the competitive struggle for resources for research and the strategies pursued. This is a power struggle to determine how the “present future,” i.e., the present image of the future, looks. Along with the different economic power of firms the regulative power of the state also plays a crucial role in explaining expectations and their shifts. Credit Credit is the second indispensable element of capitalist economic growth. The accumulation of capital and the growth of the economy depend on a higher level of demand than that which the owners of capital create through their own payments.51 The source Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4, 2015
Beckert 331 for this higher level of demand is credit."Without the foundation of borrowing and lending,the economic history of our world would scarcely have got off the ground."52 Credit needs to be explained based on the (speculative)expectations of future profits (investment credit)and the desire for a higher living standard in the present(consumer credit).Through credit,an investor obtains purchasing power in the present against a promise-the promise to repay the loan at a specified point in time,together with an additional sum called interest.While in the case of consumer credit,interest can be covered through the reduction of future consumption levels,credit for investment pur- poses must be utilized to produce a surplus.The value of the goods produced in t must be larger than the value of factor inputs in to to cover the costs of interest.Hence credit puts pressure on the economic system to expand.Profit maximizing actors will use credit to the extent they expect that their investments render higher profits than the costs for interest.Seen from the perspective of the creditors,the investment of wealth through credit provides the opportunity to gain additional wealth and is necessary to avoid the depreciation of money over time through inflation. Credit as a form of social relationship can be traced back 5,000 years in history,53 but in no other system did it have the scope it has in modern capitalism.Schumpeters4 even defined capitalism as a system of indebtedness.55 Credit relations,however depend on expectations.For credit relations to come into existence,creditors must hold the expectation that they will be repaid the loan and the agreed-upon interest at the point in time stipulated in the contract.Hence credit relations are anchored in the credibility of the borrower's promise to repay the loan,which has its basis in an assess- ment of the debtor's trustworthiness.56 The term"credit"stems from the Latin credere, meaning "to believe."The "belief'is the expectation that the debtor will repay the loan.Credit is essentially a relationship of trust and confidence.57 The central role of trust extends to the monetary system as such."[T]he value of a unit of currency is not the measure of the value of an object,but the measure of one's trust in other human beings."58 It is not incidental that banknotes were originally called "promissory notes."The acceptance of money,which as such is worthless,is based on the contingent expectation that everybody else will accept the pieces of paper as pay- ment.59 Trust is conferred in the promise of the issuer of the money-today the state or its central bank-that the issuer will not increase monetary supply at a rate that leads to the devaluation of the money through inflation.60 What makes credit and money so interesting from a sociological perspective is that the expectation that a debtor-whether a private person,an organization,or the state- will indeed live up to the promise to repay the loan can never be rationally calculated because the future cannot be foreseen.Since the ability and willingness of the debtor to repay the loan are ultimately uncertain,the expectations of creditors are fictional in the sense that they are based on beliefs (credere!)of the risks associated with the credit.61 Creditors must act as ifthey could anticipate the future outcome.Viewed from the macro perspective,the trust entailed in credit is justified only if the economy grows and repayment of the credit can be enforced.Viewed from the actor level,the promise to repay a loan depends on the debtor being able to utilize the production factors pur- chased with the loan in a way that enough revenue is generated from selling the Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4.2015
Beckert 331 for this higher level of demand is credit. “Without the foundation of borrowing and lending, the economic history of our world would scarcely have got off the ground.”52 Credit needs to be explained based on the (speculative) expectations of future profits (investment credit) and the desire for a higher living standard in the present (consumer credit). Through credit, an investor obtains purchasing power in the present against a promise—the promise to repay the loan at a specified point in time, together with an additional sum called interest. While in the case of consumer credit, interest can be covered through the reduction of future consumption levels, credit for investment purposes must be utilized to produce a surplus. The value of the goods produced in t1 must be larger than the value of factor inputs in t0 to cover the costs of interest. Hence credit puts pressure on the economic system to expand. Profit maximizing actors will use credit to the extent they expect that their investments render higher profits than the costs for interest. Seen from the perspective of the creditors, the investment of wealth through credit provides the opportunity to gain additional wealth and is necessary to avoid the depreciation of money over time through inflation. Credit as a form of social relationship can be traced back 5,000 years in history,53 but in no other system did it have the scope it has in modern capitalism. Schumpeter54 even defined capitalism as a system of indebtedness.55 Credit relations, however, depend on expectations. For credit relations to come into existence, creditors must hold the expectation that they will be repaid the loan and the agreed-upon interest at the point in time stipulated in the contract. Hence credit relations are anchored in the credibility of the borrower’s promise to repay the loan, which has its basis in an assessment of the debtor’s trustworthiness.56 The term “credit” stems from the Latin credere, meaning “to believe.” The “belief” is the expectation that the debtor will repay the loan. Credit is essentially a relationship of trust and confidence.57 The central role of trust extends to the monetary system as such. “[T]he value of a unit of currency is not the measure of the value of an object, but the measure of one’s trust in other human beings.”58 It is not incidental that banknotes were originally called “promissory notes.” The acceptance of money, which as such is worthless, is based on the contingent expectation that everybody else will accept the pieces of paper as payment.59 Trust is conferred in the promise of the issuer of the money—today the state or its central bank—that the issuer will not increase monetary supply at a rate that leads to the devaluation of the money through inflation.60 What makes credit and money so interesting from a sociological perspective is that the expectation that a debtor—whether a private person, an organization, or the state— will indeed live up to the promise to repay the loan can never be rationally calculated because the future cannot be foreseen. Since the ability and willingness of the debtor to repay the loan are ultimately uncertain, the expectations of creditors are fictional in the sense that they are based on beliefs (credere!) of the risks associated with the credit.61 Creditors must act as if they could anticipate the future outcome. Viewed from the macro perspective, the trust entailed in credit is justified only if the economy grows and repayment of the credit can be enforced. Viewed from the actor level, the promise to repay a loan depends on the debtor being able to utilize the production factors purchased with the loan in a way that enough revenue is generated from selling the Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4, 2015
332 Politics&Society 41(3) products at a later point in time to allow the repayment of the principal and interests. "If the expectations are not sufficiently fulfilled the whole system becomes destabi- lized."62 Whether the expectations associated with a credit are justified can only be known with hindsight. The fictional character of the expectations regarding the risks involved in credit holds also for the operation of the monetary system.Philip Mirowski has called the assumption that the value of money will not have deteriorated at the point in time when the holder wants to use it for the purchase of goods a"working fiction of a mon- etary invariant."63 It is a fiction because monetary stability depends on the actual com- mitment of central banks to low inflation,64 on banking regulation,and on future macroeconomic development,65 all of which are uncertain.As the history of monetary crises shows,the devaluation of money is a recurrent phenomenon.Nevertheless,in a money economy actors must act as if the value of money were invariant in order to accept money as means of payment and abstain from wage and price increases in anticipation of inflation.Because the future is open,the expectation of the stability of money requires,as Georg Simmel argued,an element of"supra-theoretical belief'or "social-psychological quasi-religious faith.66 Therefore,if capitalist expansion depends on credit,societies must succeed in cre- ating the expectation in capital owners that the promise entailed in the credit relation will indeed be honored.On the side of debtors,the expansion of credit relations pre- supposes the willingness to become indebted in order to increase monetary wealth in the future.This can also not be taken for granted:borrowing money for investment has a social precondition in a life plan of individuals that is directed toward upward social mobility and entails the willingness to engage in risks and speculation to increase one's wealth.67 Once a person is indebted-be it for investment or for consumption purposes-credit has a disciplinary effect by pressuring the debtor to act in ways con- ducive to his ability to repay the loan together with interest.68 Through this pressure, credit itself has a motivational effect relevant for capitalist growth.If,however, incomes stagnate,consumer credit creates reduced purchasing power in the future, leading to austerity and lack of demand. Viewed from a historical perspective,the ability to expand credit relations by expanding expectations of trustworthiness has been one of the most important-but often unnoticed-preconditions for the unfolding of capitalism.How was this unprec- edented expansion of trust achieved?The foundations of trust in credit are social in character.They can be cultural as in,for instance,the prevalence of a shared univer- salistic ethic,a commitment to rules of conduct on the part of the "respectable mer- chant,"or classification technologies that seek to guide expectations.39 They can be based on social networks,as they are,for instance,in ethnic communities.For the most part,however,they are institutional:they are based on the existence of a legal system able to effectively enforce property rights,on accounting and bankruptcy laws, the risk regulation of banks,and on laws on the independence of the central bank These are all institutional devices supporting the trust and trustworthiness of actors in the credit system.Without them,the expansion of credit relations over the past 200 years would have been impossible. Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4.2015
332 Politics & Society 41(3) products at a later point in time to allow the repayment of the principal and interests. “If the expectations are not sufficiently fulfilled the whole system becomes destabilized.”62 Whether the expectations associated with a credit are justified can only be known with hindsight. The fictional character of the expectations regarding the risks involved in credit holds also for the operation of the monetary system. Philip Mirowski has called the assumption that the value of money will not have deteriorated at the point in time when the holder wants to use it for the purchase of goods a “working fiction of a monetary invariant.”63 It is a fiction because monetary stability depends on the actual commitment of central banks to low inflation,64 on banking regulation, and on future macroeconomic development,65 all of which are uncertain. As the history of monetary crises shows, the devaluation of money is a recurrent phenomenon. Nevertheless, in a money economy actors must act as if the value of money were invariant in order to accept money as means of payment and abstain from wage and price increases in anticipation of inflation. Because the future is open, the expectation of the stability of money requires, as Georg Simmel argued, an element of “supra-theoretical belief” or “social-psychological quasi-religious faith.”66 Therefore, if capitalist expansion depends on credit, societies must succeed in creating the expectation in capital owners that the promise entailed in the credit relation will indeed be honored. On the side of debtors, the expansion of credit relations presupposes the willingness to become indebted in order to increase monetary wealth in the future. This can also not be taken for granted: borrowing money for investment has a social precondition in a life plan of individuals that is directed toward upward social mobility and entails the willingness to engage in risks and speculation to increase one’s wealth.67 Once a person is indebted—be it for investment or for consumption purposes—credit has a disciplinary effect by pressuring the debtor to act in ways conducive to his ability to repay the loan together with interest.68 Through this pressure, credit itself has a motivational effect relevant for capitalist growth. If, however, incomes stagnate, consumer credit creates reduced purchasing power in the future, leading to austerity and lack of demand. Viewed from a historical perspective, the ability to expand credit relations by expanding expectations of trustworthiness has been one of the most important—but often unnoticed—preconditions for the unfolding of capitalism. How was this unprecedented expansion of trust achieved? The foundations of trust in credit are social in character. They can be cultural as in, for instance, the prevalence of a shared universalistic ethic, a commitment to rules of conduct on the part of the “respectable merchant,” or classification technologies that seek to guide expectations.69 They can be based on social networks, as they are, for instance, in ethnic communities. For the most part, however, they are institutional: they are based on the existence of a legal system able to effectively enforce property rights, on accounting and bankruptcy laws, the risk regulation of banks, and on laws on the independence of the central bank. These are all institutional devices supporting the trust and trustworthiness of actors in the credit system. Without them, the expansion of credit relations over the past 200 years would have been impossible. Downloaded from pas.sagepub.com at Shanghai Jiaotong University on February 4, 2015