Chapter 3: Economy and Inequality

Sociology, Economy and Economics Sociology

Since attitude and behaviours that are the subjects of economy contain human relations, it is impossible to talk about an economic form that appears without social relations. Besides, economic form and relations are the direct subjects of study and analysis for economics. Thus, economy and sociology are partners to figure out the social reality, which is the focus of economy.

Sociology analyses the past and present human relations and the forms and structures occurred that are created by these human relations. For example, institutions like family, economy, government, and education are the subjects of sociology. Therefore, the study field of sociology has a broad scope that includes other sub-disciplines of the social sciences. One of these sub-disciplines is obviously economics.

The field of study of economy as a sub-discipline of social sciences is based on some suppositions. The first hypothesis is that the sources are limited. The second is based on an assumption that human needs are infinite. The third presumes that people act rationally while they fulfil their needs on choice and preference. Scarcity and choice are the two main concepts of the economics discipline. The analysis unit of economy is market. It only analyses the relations of economical providence, actions and production, circulation, distribution and consumption for two actors.

Economy creates a model with some assumptions based on theoretical theses. The relations that are used in the model between the limited numerical variables are presented systematically. The discussed variables are intellectual thematic and based on some suppositions. Economic models are limited in representing reality because the social, cultural, and political factors are seen as externals to the economy. Economic models are inadequate to solve the problems of real social life because of taking them as simple, reduced, intangible, working in ideal circumstances, and being mathematically oriented. The dependent variable tries to understand price of goods, production quantity, and wage level in the economics discipline. The facts that determine the variable that we are trying to explain are the independent variables. Independent variables are the reasons that define the dependent variable. The independent variables of the theoretical economy include relations that are located in the market structures.

Economics discipline explains the determining factors for the price of goods, wage level and production amount, based on the supply and demand relations in the market. However, economic models are insufficient to describe and explain the behaviours and attitude as the subjects of economy due to their exclusion of the social, cultural, and political variations out of their analyses. Besides, explaining the reasons of economic inequalities regarding the wage level is unsatisfactory, if it is based only on supply and demand relations. Scientific evidence of the economic theory is limited in solving the economic problems. For example, often times it is impossible to solve the problem of unemployment with the abstract and simple models of economy. Economic theory fails in sufficiently accounting for all the reality because it handles its subjects of inquiry in a fragmented fashion. At that point economic sociology comes to the fore.

Economics sociology tries to understand attitude and behaviours that are the subjects of the economy, economical structure, and relations by considering the social, cultural, political facts that are left out of analyses by the economy. Economics sociology also analyses the social principles of production, circulation, sharing, and consumption relations. Besides, economics sociology evaluates the financial events and phenomena based on their time and social structure. It collects holistic information about the complete picture of the economic reality explained in an abstract, mathematical, quantitative, and simple way by economic models.

We should bear the hypothesis in mind that the producer actors act rationally to maximize their benefits on the economic attitude and behaviours in which economic analyses are conducted by the discipline of economics on a micro level. We can say that many irrational, unselfish sociological factors on profits affect an individual’s attitude and behaviour when we look at the situation from the sociological perspective. This illustrates the necessity of combining economics with various sociological perspectives.

The Development of Economics Sociology

Economics sociology emerged from a struggle of understanding and explaining the radical social transformations of passing from the traditional society to the modern society. Some philosophers like Adam Smith, Karl Marx and Max Weber can be pointed out as an important philosophers of the field of economic sociology. Adam Smith, one of the founders of the discipline of economics, is an economics sociologist as well as an economist because he explained the economical structures by incorporating social relations. Karl Marx, who played a major role in economics history and history of sociology, analyses society with an economy-politics perspective. Sociologist Max Weber explains the economic attitude and behaviours associated with cultural structures.

Adam Smith is the first critic of the mercantilist doctrine. One of the subjects he inquires is what a country’s prosperity depends on. According to the economics theory that he based on a criticism of Mercantilism, a nation’s prosperity depends on the nation’s production power, whereas Mercantilists think that a nation’s prosperity depends on the mines the nation has. That is, a nation’s prosperity depends on the power of producing the wealth needed for a comfortable and untroubled life. Production power is connected with the development of division of labour at both the social level and production process. The division of labour at the social level is connected with the level of society’s vocational specialization. Smith predicates the development of the division of labour on the exchange relations between people. He thinks that division of labour would develop, otherwise preventing human abilities. But, for the emergence of exchanging ability, which is special in human nature, the obstacles on the market must leave. Opposing the Mercantilist view, Smith advocated removing the custom taxes and regulations that prevent international trade from expanding the market and increasing the production. He believed that the government should politically incentivise economy, and protested monopolisation on economy by the government, constant custom taxes and the tendentiousness of economy in some sectors. The government should grant economic power and authority to entrepreneur actors.

On the other hand, Karl Marx discussed that all societies in history depend on an economic substructure. Marx argued that the mode of production of a society should be looked at in order to understand the society. A mode of production is made up of two elements: productive forces and relations of production. Productive forces include physical tools like technology, which are needed to organise economic activities in the production process. According to Marx, the mode of production that builds the infrastructure of the society comprises productive forces and production relations. Political, legal, ideological, religious, and cultural structures constitute the superstructure of the society. Political, legal, ideological, religious, and cultural structures that create society’s superstructure are shaped by the mode of production that is infrastructure of the society. Institutions of superstructure are organized to serve capitalists’ interest. Economic production only occurs depending on human labour and necessary unity of labour in the production process. But, in traditional economic analysis, labour is demoted to a technical factor of production process. What separates singularity of the capitalist mode of production from the previous modes of productions is its uniqueness in acceleration of productivity in produced goods and services as a result of the socialisation of the production process. Although labour creates the value in the production process, labour does not achieve what it deserves in consideration of its work.

Lastly, Max Weber analyses the economic structure of society by establishing relationships with cultural structures. According to him, it is necessary to look at individuals’ attitude and behaviours to understand social relations. In other words, looking at meanings of a person’s actions is needed. Weber only analyses the actions that are based on cultural motives and tries to understand societies by looking at these action types. He categorises social actions in four classes as purpose-motivated rational action, value-motivated rational action, traditional actions, and emotional actions. According to Weber, industrial societies are the models in which rational action templates are common. Producing, ruling and social life of a capitalist society are built on rationality.

Weber pointed out that the development of the industrial capitalism’s cultural motives depends on Lutherian morality and its mentality in Europe. The nature of this motivation includes working, saving, and avoiding secular delight and pleasure. e cultural behaviour of saving the profit that is achieved by working caused a capital accumulation, which is one of the necessary elements of capitalist society. We can see that the factors and motives behind individual’s economic attitude and behaviour are religious, moral and cultural values. In this sense, while Weber was explaining the economic attitude and behaviours by social and cultural relations, he also provided an important contribution to the development of economics sociology. According to Weber, industrial capitalism is equal but the Lutherian moral and mental is not. In Weber’s opinion, the most fundamental specification that describes the capitalism as an ideal type is the social life’s rationalisation process. A human needs to become rational to be itself. In this sense, rationalisation is an important area of freedom.

The Basic Concepts About Inequality

There are various concepts that are drawn upon to evaluate social structures of society in relation to the issue of inequality. These are, briefly saying, social stratification, social inequality, economical inequality, asset, income, status and status groups, ascribed and achieved statuses as well as social mobility.

• Social stratificationmeans people’s difference and hierarchical positioning based on some inequalities like income, prosperity, power, prestige, status, age, gender, race, ethnicity etc. According to another definition, social stratum is “a human group who share similar advantages and disadvantages’’

• Social inequalitymeans that individuals do not have equal status in the society. It includes the inequalities on property rights, freedom of expression and collecting, health and education, and access to goods and services.

• Economical inequalityrefers to the status of individuals and families differ depending on material resources like their assets, income, wage and salary in the society. Economic inequalities are measured by these owned material resources.

• Assetrefers to a property, which can be translated to a form of money in the consequence of sales and provides profit and utility to its owner.

• Incomedenotes to people’s working, investments and money flows ensured from the government.

• The life chanceexpresses that individuals and families having a good and a qualified houses, living a healthy life, having the possibilities like job security, avoiding unwelcome risks like disease and unemployment to survive in any society.

• Statusrefers to individuals’ and groups’ respectability, prestige, and reputation in a group and the society. Status groups, on the other hand, refers to groups of people who share similar status. Status can be ascribed or achieved. Ascribed Status expresses a social position of a person gained without personal e ort, achieved by birth, and generally does not change. Achieved Status, however, is a social position that a person achieves by his/her own effort, ability, skill and success.

• Social mobilityrefers to the downward or upward movements between the layers of the social stratification system. In other words, it refers to moving from one social position or status to another. Social mobility can be both downward or upward.

Pre-Industrial Societies and Inequality

Inequality systems which are seen in pre-industrial societies are classified in three types as slavery, caste and property ownership.

Slavery is an inequality system, which is commonly seen in agricultural societies even though it is occasionally seen in hunter and picker societies. Slavery is a system in which some people are owned by other people, humans are sold and bought like properties for the exchange of money. Debt, violating laws, wars and conquests are among the factors that create such a slavery system. Social positions of slaves differed from society to society. In some societies, slaves were used as servants, and in other societies, they had no legal rights. Some slaves assumed some positions that required high responsibility in Athenian ancient Greek city-state. Slaves who were excluded from the political area and military were accepted in other jobs.

Caste system is a stratification form, which is mostly seen in India and partially in South Africa. In the caste system, inequalities are created by some characteristics like religion, lineage, ethnic connection, and race that an individual gets by birth and they are believed not to change. Throughout their lives, individuals live in the caste systems in which they were born. In the stratification system of caste, castes are solid and movements between castes do not happen. For example, marriages between castes are forbidden. In the caste system, it is believed that if a person meets his/her own caste’s requirements well, the person will reincarnate in an upper caste. India prohibited this inequality-generating caste system in 1949. Still, castes continue to maintain their existence, especially in the countryside.

It is also named as the layer system. In the middle ages, clan system was seen in Europe and in many other traditional civilisations. Social stratification depends on the social status of the family that a person is a member of. Feudal system of Europe was created with the union of aristocrats as the upper class and the nobles. is upper class was named as nobles. They had the power of using and ruling the lands and they were also the practitioners of the law. After the 12th century, distribution of nobility for more people caused the creation of the new bourgeois class through the end of the middle age. is new bourgeois class caused a change in the social structure of the Medieval Europe. With the development of the modern society, the inequalities based on property ownership or feudal system (clan) have become a set of new class inequalities.

Modern Society and Inequality

When modern societies are compared with the traditional societies, we see that they are built on equality and freedom, they are more developed with the increase of productivity of the economy, and human life is easy thanks to the technological advances. But, the modern society includes inequalities between classes like rich and poor, or women and men, despite all these positive developments.

Social classes are inequality types which are seen in the industrial societies. We may describe social classes as large human groups that share similar economic conditions like job, income, and ownership. Economic criteria that determine the position of social class are also related with other features like a person’s education level, status in the society, life style and power ownership. For example, a person who received a good education would have a better job, and the income that a better job brings would affect the person’s life style, power and status in the society.

Social class positions and status of individuals and groups in the society mostly overlap. Income, ownership and economical wealth of a person from an upper class provide a high status in the society because it brings prestige and reputation.

Some scholars pointed out that class system and class inequalities are at the centre of the modern capitalist system. For example, according to Marx, capitalist society is a system which is built on economical inequalities. Class positions of people are determined according to whether they own means of production. Two main classes as capitalists (bourgeois) and working class (proletariat) create the capitalist society. Capitalists own the means of production and exploit the product of workers’ labour. e working class forms the section of society that is devoid of the means of production and have to work in paid jobs for their livelihood needs. e capitalist class maintains its existence by exploiting the working class. It does not pay the real value (salary/fee) in consideration of workers’ labour to increase the profit rates.

However, another influential scholar, Max Weber approached this issue from a different perspective. Weber states that there are many dimensions of inequalities in the modern society. They are class, status and party. Like Marx, Weber explains the inequalities of class by economical factors as well. According to Weber, the main difference between classes is the ownership relations on financial sources. In Weber’s opinion, the fundamental factors that determine people’s class positions in the production process are individuals’ knowledge, skills and quality. A person’s position in the market has a power that directly changes his/her life. People who work in professional jobs that are qualified on knowledge, skill and prestige get paid more in the labour market. These jobs also bring people more prestige and reputation in the society. People who work in jobs that require low qualification, knowledge and skill earn lower salaries and their prestige is less than the others in the society. Governments, market researchers and social scientists generally use Weber’s class analyses, which are based on work and job to understand the economic inequality structures of the modern societies.

Another term that is closely associated with class inequalities is poverty. Poverty is an unwelcome and unaccepted inequality type of the modern society in which productivity increases, transformations of products and services on quantity and quality are provided, and financial prosperity and progress develop quickly. In recent years, impoverishment increases rapidly in the developed industrial societies and in developing countries. Three concepts are important to understand and evaluate the issue of poverty.

• Absolute poverty is an individual’s or a family’s lack of income and consumption by failing to meet the basic biological needs like food, shelter and clothing. Absolute poverty is also expressed as livelihood poverty because it is evaluated on the requirements for minimum living necessities.

• Relative poverty is an individual’s, a family’s, or a social group’s deprivation of the necessary resources to get nourishment adequately, participate in social and cultural activities (at least the common and usual ones), and live a standard life of the societies they live in.

• Social exclusion is defined as people’s exclusion from economical, social, political, and cultural segments of the societies they live in. There are many dimensions of the social exclusion. Exclusion from financial sources, tools providing access to these opportunities, social and spatial exclusion from groups enabling to reach these possibilities, and exclusion from government’s public support may be given as examples for this type of situation.

In addition to these, we can observe that there are usually two perspectives in the relevant literature concerning the emergence of poverty. The first view sees it as a problem associated with personal characteristics of people. Among the personal reasons are personal traits, attitude and behaviours like an individual’s ability, responsibility, sense of discipline, and degree of frustration. In this approach, the reasons of poverty are sought in the individuals and it is presumed that he/she does not make an effort and does not attempt to get rid of poverty. The second view considers it as a problem of societal configuration. This perspective can be named as structural approach to poverty. Structural approach explains poverty within the frame of society’s economic- political structure. According to this approach, among the factors that affect poverty are: lack of economical growth, conflict on income distribution, features of labour markets, informal employment, low wages, insufficient employment opportunities, unorganized labour, unemployment, economic crises, shrinkage of public expenditures, short-course shocks, population pressure, migration, features of settlements, family structure, education, race, ethnic origin, and discriminations based on gender.