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date: 26 February 2021


Abstract and Keywords

This introductory article discusses the new field of the sociology of finance. Finance is a major force in contemporary economies and societies. Yet few social scientists outside of economics have addressed the phenomenon before the financial crisis of 2007–09. The crisis prompted a hard look at the financial system that was created since the 1980s, an examination undertaken by various social science disciplines. Sociology tends to look at finance broadly as an action system within the framework of the institutions and organizations in which financial activities take place. Sociologists also ask questions about the internal operation of the financial system, and they often ask questions about its effects. Both types of questions tend to go beyond the typical questions of investors and analysts. The study of finance from a behavioural social science perspective is an emergent interdisciplinary field in its own right that has started to provide answers to such questions. This book brings together the emerging perspectives and micro- and macro-level concerns of this field, and it maps out directions in which the social science analyses of finance will need to go in the future.

Keywords: finance, financial system, financial crisis, sociology, social science

Important historical shifts sometimes have implications which are all but overlooked. One such shift is the rise of finance. Almost everyone realizes today that finance is a major force in contemporary economies and societies. Yet few social scientists outside of economics had addressed the phenomenon before the financial crisis of 2007–9, and until very recently, few of those on “Main Street” who have been directly affected by the rise of finance in the last decades have raised questions about this development or protested against its consequences.1 Financial investments and transactions are, of course, not new. The modern nation-state has sought the help of bankers and financiers for its debt and expenditure financing since it came into existence. It has routinely issued multiple financial instruments for the purpose (e.g., bonds, treasury notes) and has cultivated strong ties to the financial elites—ties that also existed in preceding monarchies and other forms of government. Individuals have also become involved with the financial system on a larger scale at least since the seventeenth century (e.g., Rutterford 2009, 2011); the rise of the “popular investor” dates from that time (see Preda 2009). The roots of finance are historically deep. Yet we now live on the crest of a long wave of seemingly unprecedented expansion of the financial system that appears to outrun these historical roots. In other words, we live in a financialized world; financialization, broadly defined, refers to the increasing role of financial motives, markets, actors, and institutions in the operation of economies and their environment (Epstein 2005: 3). In a financialized economy, financial logics and concerns may begin to dominate institutions that had operated on a different basis; think of the rise of shareholder value as a mode of governance of the firm and of financial controllers in the management of corporations. Or think of the growing importance of financial markets which the financial crisis of 2007–9 and the European debt crisis of 2010–11 have driven home to us. Finance can be obtained through two channels: bank lending and financial markets. Manufacturing-oriented economies, such as that of Germany, historically developed a financial organization in which bank lending dominated. In the United States, as in Anglo-Saxon (p. 2) countries generally, a different pattern emerged with less emphasis on bank lending, while money markets and securities markets each provided important credit channels. In the last decades, the market channel has developed into the centerpiece of the global financial architecture and the financial organization of Western economies. For example, in the US and the UK, less than 30 percent of corporate finance came from commercial banks before the turn of the century (Chernow 1997). Though bank credit is still important in some of today's more complex economies, it is itself deeply enmeshed in financial markets through banks’ own investment and financing strategies. Only a small fraction of the money lent to credit-seekers actually comes from clients’ deposits of money. The market for repackaged subprime mortgage debt and for credit derivatives, and default obligations more generally, is a case in point. A major factor in the crisis was the expansion of credit available to banks; they expanded their leverage through the use of such instruments to a volume several orders of magnitude larger than their deposits, and this injection of credit massively increased the trading of, and risks incurred by, these instruments (e.g., Taylor 2009: ch. 1).

The crisis prompted a hard look at the financial system that had been created since the 1980s, an examination undertaken by various social science disciplines. When were the seeds of this system planted and how did it come to make such tremendous inroads? Did governments facilitate this development? Which economic theories sustain, or perhaps even drive, financial expansion? What role do traditionally important social variables such as trust and confidence play in financial transactions? Do specific types of finance arise in specific types of culture? And what is a financial market, seen from an empirical, sociological, and cultural perspective? For those interested in such questions this handbook offers a wide-ranging resource and a starting point. We bring together authors who specifically address the financial components of the economy and have done so through their own empirical research over many years. While these works do not simply yield one unified empirically based account of finance, they do show the extent to which financial systems are social and cultural, down to the core elements of their operation. This does not mean that finance can somehow be reduced to symbols and social structure. But finance is not exempt from contextual and historical influences, and financial actions and institutions appear to be suffused with orientations and variables that sociologists traditionally study. In fact, finance may be a particularly interesting area to investigate from a broadly empirical social science perspective that goes beyond the fundamentals of the discipline of economics, because it often appears to be at the cusp of the transition from an industrial economy and modern society to a postindustrial and postmodern world. While we cannot really tell what the end result of the transition will be, and whether we are going to like it or not, it seems plain that finance is an area in which drivers and outcomes of this rearrangement can be watched in action. Think of the coevolution of and alignment between finance and specific types of technological media and information that appear to lead to new forms of action (e.g., trading by algorithms), communication, and organization. Or think of the global reach and impact of many financial operations. Finance may well be a driver of globalization. Since the 1970s, several areas of finance have quickly taken advantage of what electronic information (p. 3) technologies make possible and have promoted and paid for the further development of specific systems (e.g., electronic broker systems, trading platforms). These areas of finance are comfortable with a global world that they have learned to navigate in several decades. Finance harbors and spawns “local” and regional varieties in non-Western contexts—take microfinance and Islamic finance as examples. Yet even these “small” varieties (compared to Western finance volumes) appear to have transnational and global clienteles, supply chains, and linkages to global banks without which they might not survive. Globalization is a long-term historical development that encompasses many aspects such as the interdependence of national economies, the operation of global scripts, and the development of a global consciousness. Yet if we want to find a global action system with defined boundaries and an internal level of integration, then finance (operating through a market channel) offers itself for detailed consideration. Financial areas also describe themselves in terms of global concepts; one example is participants’ notion of a global financial architecture. Another example of the transnational orientation of finance is the role financial markets play in influencing the price of national currencies and in evaluating national economic policies and measures. Several chapters in this handbook study the global character of finance as a specific development pointing beyond the modern period.

Sociology tends to look at finance broadly as an action system within the framework of the institutions and organizations in which financial activities take place. This is different from a concern with what finance is made for and good for—its function, purpose, and design. As investors and speculators, as fund managers and traders, and to a degree as professional economists, we surely want to understand financial markets, for instance, but we want to understand them in relation to how they affect our investments, how to profit from them, how to maintain value. All advisory books and collections are of this nature—they tap and relate what they think are successful investors’ and fund managers’ strategies and know-how in getting returns from markets. As investors and credit-seekers, we are concerned with what finance can do for us, and we raise the respective questions on a more or less sophisticated level—that of day traders, for instance, of professional analysts, or of scientific portfolio management theory and the development of an option formula. What we are not concerned with, with such goals, is the internal operations of the financial system. Unlike perhaps a physicist, we want to see the processing results of the machine, but not the processors inside. Sociologists are more like physicists in this particular respect: they tend to ask questions about the internal operation of the financial system, and they often also ask questions about its effects—for example, about longer-term consequences of the system for the welfare of various segments of the population. Both types of questions tend to go beyond the typical questions of investors and analysts. Yet answers to both types of questions are urgently needed. Given the importance of finance as a pillar of the economy, we will need more, rather than less, knowledge in the future about the internal workings of the financial system, participants’ attitudes and orientation, and the system's various points of vulnerability and positive and negative consequences for the welfare of societies. The study of finance from a behavioral social science perspective is an emergent interdisciplinary (p. 4) field in its own right that has started to provide answers to such questions. This handbook brings together the emerging perspectives and micro- and macro-level concerns of this field, and it maps out directions in which the social science analyses of finance will need to go in the future.

Finance has also emerged as a field of analysis in its own right in economics—as exemplified in specialized conferences, associations, textbooks, fields of study, and the denomination of chairs and professorships. Perhaps the most fundamental reason for this is that finance has historically evolved as a distinctive system of activities. If production, consumption, and distribution or exchange—the market interface between production and consumption—are three different spheres of economic activity, then finance is a fourth sphere; it cannot simply be subsumed under the terms of production as described by industrial sociology or those of primary, producer markets. Nor can we describe finance simply as a category of consumption. While finance involves principles of distribution (e.g., the distribution of risk), and arguably a dimension of the consumption of information, it hardly appears understandable in the terms of leading theories of consumption that are concerned with the consumers’ lifestyle, identity, and self-expression. One reason for the dissimilarity between finance and other economic spheres is that finance fulfills a specialized function: that of supplying and controlling credit. In a capitalist economy, credit needs to be obtained before a production cycle can start; credit, as Keynes argued, is prior to production (e.g., Shapiro 1985: 77). Accordingly, finance and the primary economy may have distinctive histories, a phenomenon for which some historians provide evidence (see Chapter 6). Finance and other economic spheres are also differently regulated, and they exhibit different regimes of action. For example, over-the-counter markets for financial instruments not traded in exchanges have long been deregulated—they were successively “liberated” from the restrictions and oversight that apply to the industrial side of the economy, and from some that apply to exchange-traded markets, in the 1970s and early 1980s. This does not mean that these areas of finance have been effectively cut off from political connections or that they have shunned political influence—in fact, as some chapters in this volume suggest, they appear to have greatly benefitted from such influence. But until the financial crisis of 2008–9 hit and prompted a measure of reregulation, it did mean that these markets were left to their own devices of internal self-regulation. In regard to their regimes of action, financial markets require us to learn to understand the action structure of investment and speculation. Both types of financial action appear to involve promise-based engagements and relationships between a credit supplier (e.g., an investor, the promisee) and a credit-seeker (e.g., a firm or state, the promiser) as well as the market. Transactions of goods for money in the primary economy do not routinely involve promissory engagements that extend well beyond the actual transaction; in primary markets, participants are quits when they have finished the transaction (Slater 2002: 237). If we conflate primary producer markets with financial markets we cannot capture the different transactional orientations and logics of these spheres that have enormous consequences. The financial imagination, for instance, works quite differently from the economic imagination. While the former is based on a positive notion of risk-taking and turns around the (p. 5) future potential value of an object whose present value may be negative, economic thinking may have its roots in the running of a household and various historical societies’ experience with it. Economic thinking since the mid-twentieth century would seem to be perched between a household form of reasoning and the idea of individual interest optimization enshrined in the notion of economic man—notions that may not give us much purchase in understanding the financial imagination.2

The emergence of a new field of sociology of finance thus mirrors developments in economics and business, areas in which finance has branched off and become a major, distinctive, degree-validated area of study—in correspondence with its history and development as a specialized subsystem of society. Internal differentiation quickly follows when fields branch off, and it may also precede the emergence of new fields. The sociology of finance is the main focus of this handbook, as the title suggests. But sociology encompasses many different approaches and methodologies; for example, some authors use large quantitative data sets to substantiate a finding, while others employ observation and ethnography to serve as a basis for theoretical conceptualizations and to uncover the details of particular financial practices and operations; some focus on macro-developments while others focus on the microlevel accomplishments of financial institutions. Sociological concerns have always been broad; they include questions that anthropologists, psychologists, political scientists, historians, and scholars in business schools may also have on their agenda—neighboring fields have overlapping concerns, and scholars may want to keep an eye on the findings that different approaches yield. The handbook reflects our belief in the need to bring together different viewpoints—we include some historical, anthropological, political, and financial economics perspectives. The longstanding concerns of sociology are with questions of groups, culture, and conventions. These are well reflected in this volume, as are recent concerns with social and cultural transitions to a more technological, media-saturated lifeworld and an object- and knowledge-oriented lifestyle—think of financial markets as a platform for symbols and an object of emotional attachment.

Each of the six parts of the handbook presents the reader with a set of chapters analyzing a particularly relevant aspect of contemporary finance, including global institutions, technology and cognition, alternatives to Western finance and its history, and the microstructures of global financial markets. The first part, “Financial Institutions and Governance,” brings together five chapters examining the global institutions of contemporary finance, the links between finance and politics, and those between firms and financial institutions. Saskia Sassen explores the larger assemblage of institutional and geographic spaces that constitute the global financial system and examines its internal diversity. Gerald F. Davis shows how the structural organization of finance within a country reflects and shapes the organization of business and politics, and Jiwook Jung and Frank Dobbin demonstrate the role institutional investors played in promoting a new model of management based on agency theory under the banner of shareholder value, a change that resulted in several disadvantages for the American worker. Social networks and groups, which have been prominent in sociological research on markets, are examined in their relationship to finance in Bruce Kogut's chapter; Kogut argues that (p. 6) the interplay between law-like properties of firm-size distributions and the micro-motives of economic agents lead to the emergence of business groups. Mitchel Y. Abolafia, in his turn, devotes his attention to how central banks position themselves in relationship to financial markets. He locates an important, though not exclusive, source of central banks’ authority in their interpretive power.

This focus on the politics of interpretation anticipates the second part of the handbook, “Financial Markets in Action,” which examines microstructural and interactional aspects of financial markets. The introductory chapter to Part II, written by Karin Knorr Cetina, asks how we can conceptualize contemporary global financial markets; her answer is that these markets contrast with firms and networks not just in that they are distributed, interaction-level systems, but in that they are coordinated by a central media mechanism that is “scopic” and leads to a level of global, attentional integration—coordination is based on a projected, augmented, and coercively monitored electronic rendering and image of the market. In his contribution, Charles W. Smith analyzes the nature and variability of auctions and the shift from the preeminently local format of face-to-face auctions to auctions used in electronic commerce in order to establish the value of intangibles such as words. The chapter on interactions and decisions in trading, written by Alex Preda, shows how paying attention to interactions in relationship to decision-making processes can help explain phenomena of which behavioral economists have long been aware, such as the links between emotions and cognition. Caitlin Zaloom turns next to the role and positions of traders in finance, discussing among other things the transformation of their activities when computerized trading became dominant, as well as their public perception. The topic of trading and technology is examined from a different angle in Chapter 10 (Iain Hardie and Donald MacKenzie), which investigates the role played by financial models in relationship to the growing prominence of hedge funds. The final chapter of Part II, coauthored by Daniel Beunza and David Stark, starts from an organizational ecology viewpoint. It explores the crucial role of diversity in terms of evaluative principles in the context of financial organization—and shows how the dissonance of evaluative principles across an organizational interface may contribute to organizational learning and economic evolution.

Part III, “Information, Knowledge, and Financial Risks,” opens with the chapter authored by Ezra W. Zuckerman, who examines a key topic from the financial economics literature, namely market efficiency in relationship to cognition. Leon Wansleben, in his contribution, sheds a spotlight on the role played by financial analysts in the production of the cognitive formats within which financial markets operate. He tracks the history and development of this profession and argues that analysts do not merely produce passive forms of cognition, but play a significant part in enabling modes of coordination at collective levels. There is but a short distance from analysts to rating agencies, which are covered by Martha Poon in her contribution. Poon tracks the emergence and growing influence of rating agencies, examining the standardization techniques they produced and why markets adopted them. Michael Power's contribution shifts the spotlight from rating agencies to accounting, which is yet another significant cognitive presence (p. 7) in finance. Power looks at how accounting practices have changed in relationship to markets, and how these changes have impacted the understanding of financial risks.

Perhaps there is no other situation in which this understanding of risks comes better to the fore than in the recent, ongoing financial crisis that started in 2008. Part IV, “Crises in Finance,” is entirely dedicated to this topic. The opening chapter, written by Bai Gao, provides a detailed prehistory of the financial crises in all its global dimensions and ramifications. The following contribution, authored by Neil Fligstein and Adam Goldstein, shows that financial crises are never isolated from politics and that the latter play a major role in creating the conditions conducive to crisis. This examination of the politics of crises is followed by the chapter written by Shaun French and Andrew Leyshon, who discuss a major aspect of the recent crisis: housing finance. Using the analytical tools of human geography, French and Leyshon discuss the role of the credit industry in triggering this crisis, as well as the spread of the crisis across countries and continents. Since financial crises can never be reduced to a purely economic impact, entirely separated from a broader social one, critical aspects of crises acquire symbolic dimensions which resonate in the public sphere via political discourses, media representations, and public protests, among other things. It is such symbolic aspects which constitute the focus of the chapter authored by Mark D. Jacobs. Jacobs reviews the ways in which financial crises have resonated in the public sphere, the symbolisms associated with crises, and the ways in which the crisis has impacted the political discourse. Oftentimes, the symbolic character of financial crises is exacerbated by forms of manipulative behavior or deceit, which are uncovered precisely at such critical times. Examples abound here, and the final chapter of Part IV, written by Brooke Harrington, deals with the role and place of financial frauds in times of crisis and beyond.

Part V, “Varieties of Finance,” brings together four chapters that examine not only non-Western forms of finance, but also alternative practices that have emerged within the mainstream of Western finance. The introductory chapter written by Bill Maurer provides an overview of alternative forms of finance ranging from Islamic to microfinance and local currencies, among others, discussing the economic projects within which they emerge. Following this introductory overview, Aaron Z. Pitluck focuses in his contribution on the principles, forms, and applications of Islamic finance; based on available statistical data, Pitluck evaluates its impact and its position vis-à-vis mainstream finance, as well as its global spread. The third chapter in this section is authored by Lucia Leung-sea Siu and discusses the institutions and forms of Chinese finance. Siu provides readers with an overview of the main institutions involved in contemporary Chinese finance; she examines the forms and activities of the main Chinese markets and exchanges, the regulatory framework, and the main actors involved in Chinese financial markets. The final chapter of the section, written by Olav Velthuis and Erica Coslor, sheds a spotlight on forms of investment alternatives to mainstream financial securities. Their case study is provided by the financialization of the art market: Velthuis and Coslor examine the processes through which, since the 1970s, the art market has become more and more a niche market for financial investment, accepted as legitimate by mainstream finance and by economists.

(p. 8) The sixth and final section of the Handbook of the Sociology of Finance, titled “The Historical Sociology of Finance,” opens with Bruce G. Carruthers’ overview of the historical processes through which financial markets have achieved prominence in capitalist societies. Carruthers traces the evolution of the links between markets and states, ascribing prominence to the political processes which have made finance into a major economic force. The second chapter, written by Josephine Maltby and Janette Rutterford, turns to another aspect of the historical evolution of finance: the role played by gender and gender relationships. Rutterford and Maltby provide readers with evidence against the age-old prejudice that finance has passed women by. They show that, from early on, women were a recognized presence in finance, achieving a certain degree of prominence at particular historical moments. The third chapter in Part VI is authored by Richard Swedberg and focuses on the role and historical development of confidence as a driving force in finance. Swedberg makes a powerful argument in favor of distinguishing between trust and confidence, and shows how the latter was conceptualized in economic thought while becoming an explanatory principle in the functioning of markets. Swedberg's historical and theoretical overview of confidence is followed by Franck Jovanovic's examination of the evolution of financial economics from a side issue into a centerpiece of economic theory. Jovanovic argues that this evolution is recent and that it has been made possible in the first place by two kinds of developments: first, in stochastic theory, which provided financial economists with the means of formalizing their ideas; second, institutional evolutions that provided financial economists with prominent positions in business schools from which they could disseminate their points of view successfully. The section on the historical sociology of finance closes with Juan Pablo Pardo-Guerra's overview of the technological evolution of financial markets, and especially of market automation. Pardo-Guerra stresses that contemporary financial markets cannot be conceived outside technology, and that automation has become a major driving force. He traces the social roots of this process and highlights the groups and the professional shifts that made technology into the keystone of contemporary markets.

With that, and without aiming at being exhaustive, the Handbook of the Sociology of Finance examines major sets of issues of contemporary markets in a fashion that is concise yet as comprehensive as possible, aiming to help readers achieve a better understanding of how and why finance became what it is today, and what can be expected for the future. We hope to have succeeded in this enterprise.


Chernow, R. (1997). The Death of the Banker: The Decline and Fall of the Great Financial Dynasties and the Triumph of the Small Investor. New York: Vintage.Find this resource:

Epstein, G. (ed.) (2005). Financialization and the World Economy. Cheltenham: Elgar.Find this resource:

Knorr Cetina, K. (forthcoming). Maverick Markets: The Virtual Societies of Financial Markets.Find this resource:

Preda, A. (2009). Framing Finance: The Boundaries of Markets and Modern Capitalism. Chicago: University of Chicago Press.Find this resource:

Shapiro, M. M. (1985). Foundations of the Market-Price System. Lanham, MD: University Press of America.Find this resource:

Slater, D. (2002). “From Calculation to Alienation: Disentangling Economic Abstractions.” Economy and Society, 31: 234–49.Find this resource:

Swedberg, R. (2011). “The Household Economy: A Complement or Alternative to the Market Economy?” Cornell University Center for the Study of Economy and Society. <> (accessed November 12, 2011).Find this resource:

Taylor, J. (2009). Getting Off Track: How Government Action and Intervention Caused, Prolonged, and Worsened the Financial Crisis. Stanford, CA: Hoover Institution Press (p. 10) .Find this resource:


(1.) The “Occupy Wall Street” demonstrations in the US, for instance, began only in the second half of 2011.

(2.) See Swedberg (2011). for the notion of a household in three historical periods. See Knorr Cetina (forthcoming: ch. 1) for the notion of the financial imagination.