exchange theory

exchange theory Exchange theories view social order as the unplanned outcome of acts of exchange between members of society. There are two major variants. Rational-choice (or, as it is sometimes known, rational-action) theory locates the source of order in the personal advantage individuals gain through co-operative exchange. Anthropological-exchange theory claims that both order and the pursuit of individual advantage are effects of the underlying ritual and symbolic nature of the thing exchanged. In both versions social conflict (or disorder) is simply the consequence of the breakdown of the exchange process.

Rational-choice theory can be traced as far back as classical political economy of the eighteenth century, the most familiar example being Adam Smith's theory of the division of labour, expounded at the start of The Wealth of Nations (1776). According to Smith, the hidden hand of the free market leads prudent self-interested individuals to promote the public welfare, even though that was never their intention. The modern discipline of economics, which grew out of political economy, has developed a highly abstract and increasingly mathematically formulated version of rational-exchange theory, according to which prices and the allocation of scarce resources can be explained by rational maximization of utility by economic actors in relation to money outlay. The apparent success of this sophisticated and relatively unified body of theory inevitably led to the suggestion that the same method might be applied to the wider subject-matter of sociology. In the United States especially the term ‘exchange theory’ almost exclusively denotes these attempts to explain social life by rational-choice methods. Examples include the controversial writings of George Homans and Peter Blau, and those of the economist Gary Becker, all of whom in various ways have tried to apply the idea of calculative individual action to those very theatres of social life where, on first sight, it would seem most inappropriate. These include the family, loving relationships, and sentiments of collective altruism and obligation.

One of the most sophisticated treatments is that by Peter Blau (see especially Exchange and Power in Social Life, 1964
). Blau offers a ‘structural’ version of exchange theory, which goes beyond the psychological reductionism of writers such as George Homans by arguing that ‘reciprocal exchange of extrinsic benefits’ between actors may be absent or incomplete—as, for example, where power relations are wielded. This renders exchange theory—at least for those who accept that much of social behaviour is guided by exchange—sociologically more plausible (see P. P. Ekeh , Social Exchange Theory—The Two Traditions, 1974

More recent contributions have moved away from exchange theories and attempted to link rational choice to other more obviously sociological theoretical traditions, for example to the action frame of reference in order to yield specified propositional models for empirical testing (see J. S. Coleman , Foundations of Social Theory, 1990
), and to network analysis and organization theory in the work of Karen Cook (many of whose publications are cited in her edited collection on Social Exchange Theory, 1987). Rational-choice concepts have also been pursued enthusiastically in political science, where writers such as Anthony Downs and Mancur Olson have explored the calculative considerations behind political commitment, voting behaviour, protest movements, and both voluntary and coerced collective organization. Jon Elster, John Roemer, and others have attempted to reformulate Marxist class theory along rational-choice lines (see especially the former's Making Sense of Marx, 1985
). Elster himself defines rational action theory as ‘first and foremost normative. It tells us what we ought to do in order to achieve our aims as well as possible. It does not, in the standard version, tell us what our aims ought to be… From the normative account, we can derive an explanatory theory by assuming that people are rational in the normatively appropriate sense’. Its central explananda are actions. These actions should be the best way of optimizing an individual's desires, given his or her beliefs, and these desires and beliefs must themselves be rational (or at least internally consistent). In forming their beliefs, people must collect the right amount of evidence, a decision that itself must be subject to the canons of rationality. In other words, ‘rational action involves three optimizing operations: finding the best action, for given beliefs and desires; forming the best-grounded belief, for given evidence; and collecting the right amount of evidence, for given desires and prior beliefs’ (see Solomonic Judgements: Studies in the Limitations of Rationality, 1989

Stated in these rather limited terms, and especially since Elster is careful to specify the limits and failures of rationality in the explanation of action (for example, where action is non-instrumental, grounded instead perhaps in social norms or the preference for social justice), it is hard to see how sociologists might object to the rational-choice programme of research. However, many have remained generally sceptical of attempts to apply rational-choice theory in sociology (notably its exchange-based form), for at least three reasons. First, the success of economic theory depends on there being a definite currency in the market exchange, available to both the individual and the theorist, which can be used as an independent measure of the relation between action and advantage. Happiness, social acceptance, prestige, and influence have been offered as functionally equivalent non-economic currencies in sociology. But these individual goals are also frequently in competition with each other and the explanation of social order calls for an understanding of how such fundamental values are prioritized. Further, this understanding must avoid circularity. Different orderings of values cannot be explained by the advantage (or value) they might have to the actor. Secondly, the theory is invulnerable to refutation, since particular actions of individuals are treated by rational-choice theorists as both the object of explanation and as proof of the theory: whatever action occurs, even if it has unpleasant consequences for the individual, by definition yields a greater advantage than if the action did not occur. (In other words the theory veers towards tautology.) Finally, a venerable tradition in sociology regards the occurrence of exchange between individuals as an effect rather than a cause of social order, because stable relationships of exchange depend on a pre-existing minimum of trust and law enforcement. (For an excellent overview of the relevant issues here see H. C. Bredemeier , ‘Exchange Theory’, in T. Bottomore and and R. Nisbet ( eds.) , A History of Sociological Analysis, 1979)

Anthropological exchange theory has grown out of the fact that market institutions in non-industrialized societies are typically more rudimentary than those found in modern economies. Exchange does exist, but it contains an important element of obligation, whereas market transactions are by definition based on choice. The comparison of the two has led to the thesis that orderly collective life is a pre-condition, not a consequence, of self-interested choice. This draws on Durkheim's claim that not everything in the contract is contractual, that is, rational (business) exchange cannot itself be the source of settled, morally regulated social order, but instead presupposes it. Social sentiments must be embodied in symbols (or collective representations) of society's obligatory rules and commands which define the scope remaining for the pursuit of individual interest.

Numerous field studies of non-industrial communities have identified two principal forms of obligatory exchange: reciprocal gift exchange and redistributive political exchange. Emile Durkheim's nephew, Marcel Mauss (The Gift, 1925), was one of the first to examine gift-giving ceremonies, among tribal and archaic societies, which embody what has since come to be known as the norm of reciprocity. The ceremonies included the celebrated kula of the Trobriand Islanders and the potlatch among American Indians. In these and many other cases, purely utilitarian exchange was secondary to the prestations (or obligatory gift-giving) incumbent on whole clans, tribes, or families, and which could include courtesies, entertainments, ritual, military assistance, women, children, dances, and feasts. The gifts and payments were never separated from those making and receiving them: the communion and alliance they establish are indissoluble and thereby the exchanges contain an important instrumental element. They symbolize the compulsion to make an equivalent or value-added return for gifts and assistance received and to give them when demanded. Out of and alongside this grows a social economy of bartering and economic exchange. Mauss's work gave rise to extensive field research and theorizing in anthropology which has revealed the complexities behind ceremonial exchange. This includes Bronislaw Malinowski's famous ethnography of the kula and also more recent fieldwork by Helen Codere on the potlatch. In France a whole school of so-called structural anthropology has been built around the relation between symbols, ritual, and social structure. A familiar example is Claude Lévi-Strauss's binary analysis of how the exchange of brides in Aboriginal society expresses and symbolizes pre-existing rules of classification and kinship organization. (The anthropological literature is reviewed and usefully set in context by M. Harris , The Rise of Anthropological Theory, 1968

Redistributive exchange requires a political administrative centre exacting taxes and duties which are then reallocated. This is also the principle behind the modern welfare state, but it was widely prevalent in pre-industrial societies, albeit rarely with such ameliorating aims. Political redistribution was often a precursor or alternative to the allocation of goods and resources by the market, but has, since the time of Adam Smith, been the object of scorn by liberal advocates of enlightened self-interest, unregulated market exchange, and a free society.

In a recent review of the extensive and rapidly expanding literature surrounding rational action theories, not only in sociology and anthropology but also in philosophy and other social sciences, John Goldthorpe has provided a useful typology of the many available varieties (see his ‘Rational Action Theory for Sociology’, British Journal of Sociology, 1997
). These are distinguished according to three criteria: namely, whether they have strong or weak rationality requirements; focus on procedural rather than situational rationality; and claim to provide a general rather than a special theory of action.

Strong rationality theories extend to actors' goals, as well as to their beliefs and the action they take towards their goals on the basis of these beliefs, and are exemplified in the version of rational action theory imposed by the requirements of consistency and transitivity in preferences found in mainstream economics: if a person prefers option 1 to option 2, and option 2 to option 3, then he or she must also prefer option 1 to option 3. The requirement of only weak rationality is well-illustrated in Herbert Simon's theory of bounded rationality, which proposes that actors will satisfice (opt for a course of action that is ‘good enough’), either because they lack complete information or because of the sheer complexity of the situations that they face (which makes the persistent maximization of utility empirically impossible).

Goldthorpe's second distinction concerns the extent to which emphasis is given to rationality in action as being procedurally rather than situationally determined. The logic of the market can be seen as constraining actors to an extreme degree—leading to the (largely reactive) ideal-typical economic man. By contrast, some social psychologists have attempted to provide psychological foundations for the idea of a subjectively rational action which follows from the actor's definition of the situation, emphasizing for example the way in which action is framed.

Finally, Goldthorpe argues that there is a wide variation among rational action theories, in the extent to which they aim to provide a general rather than a special theory of action. Economics treats itself largely as a separate science, which studies action directed towards the pursuit of wealth, or satisfaction of material wants, normally within systems of exchange based on money and markets. In turn, therefore, rational action theory becomes a special theory applicable only to this domain of life. However, other social scientists (and even some economists) have argued that versions of rational action theory can serve as the basis for a general theory of action, and are as applicable to (say) the explanation of the domestic division of labour or suicide rates as they are to economic transactions narrowly defined. Becker's work (see especially The Economic Approach to Human Behavior, 1976
) illustrates this tendency towards what some have called ‘economic imperialism’, the attempt to apply rational action theory to all social action, which is viewed simply from the standpoint of individuals maximizing their utility from a stable set of preferences and accumulating maximum gains from the ‘markets’ (monetary or otherwise) in which they are involved.

Goldthorpe himself argues that sociology is best served by a version of the theory which refers to action that can be treated as subjectively rational and so has rationality requirements of an intermediate kind; recognizes that there is a need to delimit what can count as such action and so focuses attention primarily on situational understanding; and is therefore a special rather than a general theory. However, although he accepts that certain modes of action fall outside the scope of such theory, he is convinced that the rational action approach offers greater promise than do any other available alternatives (for example those which emphasize the importance of cultural traditions, values and norms), both from the point of view of explaining how individual action generates social regularities through the micro-to-macro link, and (where its explanatory power fails) promoting further research of a progressive kind—rather than merely defensive ad hoc explanations. See also STRUCTURALISM.

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