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which is the unappealing underside of the

moral individualism of which Durkheim approved.

Georg Luka´cs saw modernity in Kafkaesque terms

as subject to reification, that is, the sense that we

live a social world with hard realities that seem

too vast and powerful to change. Habermas’s

notion of the colonization of the life-world

speaks to estrangement in the sense that the instrumental

policies of capitalism and the modern

state invade areas of public culture and private

life, suppressing meaningful ties of social integration

in favor of calculations of organizational

advantages and efficiencies. (A good example is

the bureaucratization of universities and schools.)

Though each of these notions of estrangement

makes a specific point, all of them underscore

one of modernity’s enduring problems, the inability

of modern civilization to generate groups to

replace the local communities that provided cultural

meaning, moral solidarity, and spiritual assurance

in premodern forms of social life. There is

no single great impediment to the maintenance

of communal ways of life in modernity. Capitalism,

the bureaucratized social policies of the state,

the impersonality of scientific technology, and

modern individualistic culture – each adds its

own share of obstacles in this regard. However,

estrangement is not an all-or-nothing matter.

Community groups, stable intimate relationships

and personal friendships, and close extended families

remain a part of the modern social scene. But,

then, there is no denying that feelings of powerlessness,

meaninglessness, loneliness, and insecurity

are common experiences in modern social

life. And to the extent that these feelings are found,

the critics of estrangement in modernity are right.

Ironically, all of these complaints hinge on

modern values. Other epochs had different complaints.



As the United States emerged as the world’s hegemonic

power after World War II, the structural–

functionalist modernization paradigm became

the dominant perspective in United States sociology

and world social science. Elaborated by

Harvard’s Talcott Parsons, the lead figure in

American sociology, the modernization paradigm

saw societies as a relatively stable set of interrelated

parts changing along similar lines, from

traditional agricultural to modern industrial societies,

part of a global pattern. The models for this

transition from developing to developed societies

were the industrialized states of western Europe

and their settler offshoots in Australia, Canada,

New Zealand, and the United States, along with

countries such as Japan. Poor underdeveloped

traditional societies were believed to be in the

earlier phases of this transition, having yet to go

through the modernization process. Here, the

weight of traditional cultural beliefs and practices

supposedly inhibited the industrialization, differentiation,

and specialization of occupational roles

necessary for success. Parsons aimed to provide a

holistic analysis of this process, discussing the

host of structural requirements necessary for

modernity modernization


the orderly functioning of the social system, so as

to promote their diffusion worldwide.

Nils Gilman’s important book, Mandarins of the

Future: Modernization Theory in Cold War America

(2003), analyzes how United States social scientists

and policymakers converged on this model in the

context of American superpower competition

against the Soviet Union, including in the struggle

for the hearts and minds of those in the Third

World. Third World states were seen as being

held back by traditional beliefs and cultural practices,

thought to be barriers inhibiting the steps

required for successful growth.

Perhaps the classic work of modernization or

development theory and its vision of elite-guided

democracy was economist Walt W. Rostow’s The

Stages of Economic Growth: A Non-Communist Manifesto

(1961). Rostow argued that all countries could

pass through these stages to achieve high mass

consumption as had the United States. Rostow, a

former Rhodes Scholar, became an important

member of a host of United States presidential

administrations, playing a significant role in planning

the Vietnam War as part of the group

of men David Halberstram called The Best and the

Brightest (1993), eventually becoming President

Johnson’s National Security Council adviser. As

critics pointed out, many social scientists working

within the modernization framework, from

Rostow to Parsons to Samuel Huntington, saw

their task not just to analyze reality but to try

and shape it to the benefit of the capitalist

nation-states of which they were a part. In the

context of the Vietnam War, such dual roles raised

many questions about the objectivity of social

scientists, and became an important part of the

critique of modernization theory.

While the modernization perspective dominated

United States and world social science up

until the 1960s, the tumult of this period, from

civil rights through the anti-war movement, to the

related worldwide revolts of 1968, ushered in a

sharp critique of this view and the forwarding of

radically different perspectives. Forming an influential

critique here were the various brands of

international political economy, including worldsystems

analysis formulated by Immanuel Wallerstein

and followers, which borrowed from Third

World radicalism and a host of critical perspectives

in world social science. Wallerstein and

others traced the rise of the modernization paradigm

to the shift from biological to cultural

racism, not surprisingly given the horrors of the

Holocaust, the political context of the civil rights

movement, and the progress of decolonization.

Rather than simply arguing for the racial inferiority

of the colonized as during the heyday of colonialism,

now Third World backwardness was

seen instead as the result of cultural differences

and traditions, views critiqued most recently in

Jared Diamond’s landmark Guns, Germs and Steel

(1999). This culture of poverty argument also saw

cultural traditions as the cause of minority poverty

in the advanced core states. While modernization

was thus seen as an ideological formulation

designed to uphold power and inequality, Wallerstein

nonetheless recognized that there were

many liberal scholars honestly concerned with

the plight of world poverty and seeking to add

knowledge that could aid in its overcoming. That

being said, it was argued, the modernization view

seriously distorted the actual history of the capitalist

world-system, within which development

and underdevelopment were part of a single historical

process, whereby the minority in powerful

core states benefited from the exploitation of

the great majority in the periphery, the semiperiphery

and the internal peripheries of the core.

There were many critical blows to the paradigm

which represented the dominant consensus in

sociology and the social sciences. In particular,

profound criticisms of the underside of modernization

came from the Frankfurt School of critical

theory – Walter Benjamin, Theodor Wiesengrund

Adorno, Max Horkheimer, and Ju¨rgen Habermas –

and from Zygmunt Bauman’s Modernity and the

Holocaust (1989). There were also periods of revival,

expressed in the 1980s and 1990s, as in Francis

Fukuyama’s The End of History and the Last Man

(1992). Today, modernization theory appears to

be making something of a comeback, this time

not so much by analyzing national backwardness,

but in the clash-of-civilizations discourse.

Increasingly, in the aftermath of the September

11, 2001, terrorist attacks, United States scholars

such as Bernard Lewis have sought to explain the

failure to modernize of Islamic civilizations in

ways that provided ideological support to the

Anglo-American argument that it is necessary to

bring democracy to the Islamic world, if necessary

through force, as with the United States’ and

United Kingdom’s retrospective justification of

the 2003 invasion of Iraq and subsequent military

occupation. Yet in spite of the nominal transfer

of sovereignty and elections, the revelations of

United States torture in Iraq and elsewhere have

undermined American claims of promoting freedom

and modernization. Sociologists such as Paul

Lubeck criticized this new modernization approach,

relating the decline of Islamic civilization

modernization modernization


and its contemporary resurgence as a form of

ethno-national political mobilization to culture

and issues of global wealth and power. The rise

and demise of modernization theory formed a

critical part of the changing structures of knowledge

in what observers have called “the American

Century,” and thus in the twenty-first century the

modernization project will likely be subject to an

increasingly fierce debate. THOMAS REI FER


As a medium of exchange, money has been a pivotal

social technology in the development of

human societies. With numbers and writing,

money was a basis for the world’s first large-scale

complex societies in the ancient Near East during

the third millennium BC. (Note that these societies

did not possess coinage, but used an abstract

money notation – money of account – for making

budgetary calculations and expressing prices and

debts in monetary value.) Today, globalization is

driven by the electronic transfer of money across

national boundaries and by the rapid changes in

the value of money wrought in the foreign exchange


According to the familiar economic textbook

list, money performs the following crucially important

functions: medium of exchange, means of

unilateral payment (settlement), store of value,

and money of account (measure of value). (Note

that these functions describe, but do not explain,

the origins and existence of money.) A medium of

exchange makes possible the operation of the division

of labor and the subsequent exchange of

products in markets of large-scale impersonal

multilateral exchange. Second, money is a store

of value – that is, of abstract purchasing power.

It enables decisions to be postponed, revised, reactivated,

or canceled. In his An lnquiry into the

Meaning of Money, John Buchan (1997) defined it

as “frozen desire.” Third, as Max Weber and John

Maynard Keynes emphasized, money’s most important

attribute, upon which the others are

based, is as a measure of value. The abstract notation

of money of account (pounds and pence,

dollars and cents) enables the calculation of

prices, costs, benefits, debts and credits, profits

and losses – that is to say, the rationalization of

economic life. However, money has a dual nature.

This useful social technology expands society’s

capability, or infrastructural power; but it can be

appropriated by particular interests and used as

their despotic power. The power of money is not

simply found in the form of amassed wealth; but

also in the power to control the actual production

of money in mints and banks. Today, for example,

the interplay between central banks’ interest-rate

decisions and the money markets’ reactions to

them in their pricing of currencies and every kind

of financial asset is one of the most important

institutional axes of modern capitalism.

Two problems have beset the sociological analysis

of money, which has remained relatively

underdeveloped. First, there is considerable disagreement

about the nature of money between

and within the different social sciences. Second,

sociology has taken money’s existence for granted

and, rather, has focused on its social and cultural

consequences, especially as an expression of the

“disembedded” economic relations of “modernity,”

as in Anthony Giddens, The Consequences of

Modernity (1990). With some exceptions – for

example, Geoffrey Ingham, The Nature of Money

(2004) – modern sociology mistakenly assumed

that economics offered an adequate explanation

of money’s existence. Two developments account

for this situation: the division of intellectual

labor in the social sciences after the Methodenstreit

during the late nineteenth and early twentieth

centuries, in which money was deemed to be

within economics’ province; and the general

influence of Karl Marx’s political economy.

During the Methodenstreit, Joseph Schumpeter observed

that there were two theories of money – the

commodity theory and the claim(or credit) theory –

and that they were incompatible. Orthodox economic

theories of money are based on the commodity

theory in which money is seen as a thing

that functions as a medium of exchange in order

to overcome the inconveniences of barter that

arise in the absence of a double coincidence of

wants. According to this theory, barter transforms

myriad bilateral exchange ratios between goods

into a single market price for a uniform good.

Money originates as one of the commodities

in barter transactions that eventually function as

media of exchange – for example, cigarettes in

prison. As a commodity, the medium of exchange

can have an exchange ratio with other commodities.

As a medium of exchange, money is a neutral

veil that has no efficacy other than to overcome the

inconveniences of barter.

In Karl Menger’s classical formulation in “On

the Origins of Money” (Economic Journal, 1892),

money is the spontaneous result of market exchange

and the unintended consequence of individual

economic rationality. In order to maximize

their barter options, traders hold stocks of the

most tradable commodities which, consequently,

become media of exchange – beans, iron tools,

money money


cigarettes. Precious metal has additional advantageous

properties – durability, divisibility, portability.

By being weighed, struck into uniform pieces,

and counted, precious metal becomes money.

The progressive dematerialization of money and

eventual disappearance of precious metal coinage

broke this explanatory link between individual

rationality and system benefits. Why should the

individual, Menger asked, be ready to exchange

his goods for useless base metal disks or notes?

Modern neoclassical economics tries to resolve

the problem by showing that using (noncommodity)

money reduces transaction costs for the


There are three major problems with this analysis.

First, this methodology cannot distinguish

money from any other commodity – that is to

say, it does not specify the moneyness of money.

In this regard, economics misunderstands the significance

of the abstract, or nominal, money of

account – that is, pounds and pence, or dollars

and cents. Medium of exchange is the key function

of money and it is assumed that the others

(money of account, means of payment, store of

value) follow from it. The market spontaneously

produces a transactions-cost-efficient medium of

exchange that becomes the standard of value and

subsequently the nominal “money of account” –

as in the above example of precious metal coins.

However, there are both a-priori and empirical

grounds for reversing the sequence. In A Treatise

on Money (1930), John Maynard Keynes argued that

money of account, or the abstract measure of

value, was the “primary concept of a theory of

money.” Money of account provides the description

of money, and specific forms – coins, notes,

cigarettes – “answer the description.” Similarly,

according to John Searle in The Construction of Social

Reality (1995), we know that various material

objects – coins, notes, plastic, electronic impulses,

and so forth – are forms of money because of the

monetary functions that we have “collectively

assigned” to them. In this view, money of account

is logically anterior and historically prior to

the market, but cannot be produced by it. It is

improbable that a measure of value (money of

account) could emerge from myriad bilateral

barter exchange ratios based upon discrete subjective

preferences. One hundred goods could

yield 4,950 exchange rates. What transforms discrete

barter exchange ratios of, say, 3 chickens ¼ 1

duck, or 6 ducks ¼ 1 chicken, and so on, into a

single unit of account? A “duck standard” cannot

emerge spontaneously, as the equilibrium price

of ducks established by supply and demand,

because, in the absence of a money of account,

ducks would continue to have multiple and variable

exchange values. Moneys of account are authoritatively

fixed abstract measures of value. In

order for a duck to be a measure of monetary

value, it is necessary that a sovereign power declares

that one duck is equal to two chickens and

promises to exchange ducks and chickens at this

rate. (The gold standard was not based directly on

the market price of gold, but on the central bank’s

promise to buy gold at a fixed monetary price

per ounce.) But how did agreed measures of

value originate? Can an intersubjective scale

of value (money of account) emerge from myriad

subjective preferences? The question is at the

heart of a problem that distinguishes economics

from sociology. Is social order the result of the

individual calculations of advantaged interdependence

or of supra-individual social norms?

(See Talcott Parsons, The Structure of Social Action,

1937. For an account of the social origins of money

of account, see Ingham, 2004.)

Second, the explanation of money’s existence in

terms of transaction-costs reduction exposes the

problem with methodological individualism. It is

only advantageous for an individual to use intrinsically

worthless money tokens if all other agents

do likewise. The advantages of money for the individual

presuppose the existence of money as a

social institution.

Third, the model of the barter economy with its

neutral veil of money is inappropriate for the

understanding of capitalism. Financing of production

with bank loans of credit-money does not take

place in the model of the barter exchange economy,

where money exists only as a medium for

gaining utility through the exchange of commodities.

Capitalist banks are not merely intermediaries

between savers and borrowers; they create new

money by extending loans that are not directly

matched by incoming deposits. As the bank’s

debtors spend their credit, it is transformed into

money, which may then be deposited as money in

other banks. Thus, the banking system as a whole

creates a money multiplier (Ingham, 2004).

Neoclassical economics’ explanation of money’s

existence was tacitly accepted in Parsons’s early

work, which confirmed the division of intellectual

labor between economics and sociology. Later, in

Economy and Society (1956) with Neil Smelser,

he saw money as a generalized medium of communication

that facilitates the integration of the

functionally differentiated parts of the social

system – in an analogous way to prices in the

economy. They followed neoclassical economics’

money money


axiom that value is only realizable in the actual

process of exchange and that money is no more

than a symbol of “real” value. This does not acknowledge

the obvious fact that money is socially

constructed as abstract value; it is, according to

Georg Simmel, “the value of things without the

things themselves” (The Philosophy of Money, 1907

[trans. 2004]: 121).

The production of money as a social institution

was also neglected by Marx, who was more concerned

with money as an expression of alienation

in capitalism. He starts with the classical economic

labor theory of value in which precious

metal can be a measure of value because the labor

of mining and minting can be expressed in “the

quantity of any other commodity in which the

same amount of labour-time is congealed” (Capital,

vol. I, 1976: 186). However, in a critical departure

from classical economic theory, Marx argued

that money is a double “veil.” As orthodox

economics maintains, it veils the real relations

between commodities; but for Marx this also

masks the underlying unequal social relations of

production that appear as monetary relations. For

example, the level of money wages appears to be

the result of an equal economic exchange between

capital and labor, but is in fact an expression of

exploitative power relations. Tearing away these

monetary veils will demystify the alienation and

capitalism will become “visible and dazzling to

our eyes” (187). This points to money’s role in the

ideological naturalization of capitalist social relations

– as, for example, in modern economic theory’s

concepts of the “natural” rates of interest

and unemployment. But Marx follows classical economics

in not granting a relative autonomy to the

value of money; it is fundamentally a commodity

whose value cannot be separated from the material

base of either its costs of production or the

embodiment of labor time.

The other side in the Methodenstreit – the German

Historical School – advanced the credit, or claim,

theory of money. Here money’s role as a final

“means of payment” for the unilateral settlement

of a debt is emphasized. A “means of payment”

denominated in money of account stores abstract

value in the form of purchasing power, which enables

it to be removed temporarily from the circulation

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