When the big banks stumbled in the United States and across Europe in 2008, the public was told that if the banks failed, the economy as a whole was in danger. Governments spent huge sums of public money to rescue the banks – supposedly in an effort to save the economy. By the middle of 2009 it had become clear that the relationship between the state of the banks and the state of the economy was not necessarily true in the reverse: as the US-American City Bank reported high profits in March 2009, “the economy” – as measured by GDP growth for example – was not necessarily doing better, nor were “businesses” doing better, or “the people” – as individuals or in social groups.

Dirk Baecker's “What do banks trade in?” – an early work of one of the leaders of the second generation of Luhmannian systems theory – has just been reissued with a new preface by its German publisher. The book was originally written well before the recent upsurge in the social studies of finance; its original and ambitious analysis of the role of banking and the economy should remain a reference point in analyzing the crisis and its implications as well as in sociology more generally.

The economic crisis has been a challenge for orthodox economics: economists are wont to blame reality for failing to adhere to its models but in this case, after decades of deregulation, it seemed implausible to explain the crisis with excessive government intervention. Sociologists thus had it right in many ways. Markets were shown to have been embedded in social relations and economists were shown to have had an effect on the world they purported to describe – and a highly problematic one. Sociologists are also well-positioned to analyze the consequences of the crisis for various social groups.

But the crisis reveals a challenge for the very categories of the social, the economic, and the political that sociologists should take seriously as well. As the boundaries between the state and the economy are redrawn we can ask: what is economic about the crisis? And what is social and political about it? What does it have to do with the banks? What about it concerns businesses in general? How precisely does the crisis relate to social groups, in its origins and in its social consequences?

Systems theory has some resources to offer but also some ambitions to be tested with regard to the big questions the economic crisis raises. It is a tradition that has a theory of, and asks questions about, the economy as a whole – as distinct from specific organizations or specific markets but also as distinct from capitalism as a whole way of life. It is a theory that has a historical account of the economy as a separate sphere of life, alongside others. Systems theory is a theory of functionally differentiated spheres, but the tradition also raises questions about how these spheres relate to each other, to organizations, to interaction systems and to psychic systems.

The development of economic sociology in Germany in the last two decades has in many ways mirrored that of other countries as a field of both theoretical and methodological innovation. While the conversation on Simmel, Weber and Marx, on network approaches and actor-network theory, are to some extent global conversations, the systems-theoretical contribution has not been much noted outside German-speaking sociology.

Systems theory is not a critical theory – indeed it habitually positions itself polemically in opposition to critical theory as associated with the Frankfurt School or to neo-Marxism more generally. Critical theorists, in turn, have felt bound to see systems theory as an opponent and some will also have objections against some of the language and, implications of “What do banks trade in?” Baecker offers no fundamental critique of banking and is not hopeful regarding radical alternatives under conditions of functional differentiation.

But it is worth noting how indebted systems theory in the German social sciences remains to German idealistic philosophy. In its very rebellion against the notion of a rational totality, it is mourning it and in this respect, it is actually quite close to analyses of processes of separation within Marxism, as developed by Sohn-Rethel and Negt and Kluge for example. In the process, systems theorists are asking questions that much professional sociology elsewhere has excised from its vocabulary. Baecker for example asks why it is not possible “to agree in a reasonable way who needs which goods, when and how to produce these goods most reasonably, i.e. with the least effort in production and financing?” (p. 180).

Baecker starts from the notion that the economy is an auto-poietic self-referential system. The basic claim of the book is that the self-referential logic of the organization of banks runs counter to the self-referential logic of the economic system. With this claim – and this is a significant advantage of his approach – Baecker opens up an area for empirical investigation that might otherwise remain invisible and unthinkable.

Consider how various other approaches obscure the possibility of such a logic of banking in tension with the economy. Some scholars do so by insisting on the radical specificity of each observed situation and each observed sets of practices. Others do so by various conflations. According to Baecker, it is too simple and analytically imprecise to suggest that banks and businesses are simply executing the reason of the economy as whole – let alone society as a whole. Similarly, it is too simple and imprecise to suggest that banks and businesses are executing the evil of the economy as a whole – or of the capitalist system as a whole. Nor are organizations such as banks or subsystems such as the economy simply tools of social groups. His approach, Baecker notes, recognizes partial logics, without opposing one partial logic as the real logic to another as the logic of appearances and without opposing one economy as the real economy to another as the symbolic economy (p. ii-iii).

Key to understanding the economy, according to Baecker, is understanding its temporal dimension – the economy engages the present and future provision of scarce goods in relation to present as well as future needs. The risks associated with future needs are reduced via the medium of money to the risk not to be able to pay. The medium of money thus uniquely allows a management of the time dimension of the problem of scarcity – while reproducing problems on the level of goods and on the social level (pp. 180-186).

Banks, Baecker proposes, trade in promises to pay. This idea can account for their dealing with deposits and their dealing with credits. It also covers historical developments in banking, such as, firstly, the transition towards seeing credits and deposits as investments – and that means comparing them to other investments – and, more recently, the move to package and sell these promises in new forms in new kind of markets. By dealing with promises to pay, banks trade in risk. With that, banks have a specific relationship to risk, unlike other businesses and unlike individuals or society as a whole. “Even the safest bank is an unsafe deal”, Baecker is quoted on the back cover of the book.

In its discussion of how banks create and engage risk, the book offers some very good observations, based on an appreciation of the absurdity of partial logics: what is commonly called “risk management”, Luhmann says in his foreword “is the art to be able to prove in case something goes wrong that one did not make mistakes but has somehow ‘managed’ the risk” (p. 10) – recalling the work of Michael Power and anthropological perspectives on rituals in organizationsFootnote ¹. Baecker comments on the curious ways in which banks distinguish among risks, based on the address rather than the project, on the past relationship rather than an assessment of future prospect, and on the mechanistic quality control of single decisions rather than a reflection on the larger program.

The current crisis is the result of acquiring creditors and investors in the business between banks without understanding or being able to master their risks (p. v). Baecker urges us to a shift in thinking about banks that has implications also for policy and regulation: currently, he suggests, reflection on banking works with a distinction between risk and safety, denying the intrinsic connection between banks and risk. This leads banks to insist that they are safe, a claim which regulators can either choose to back up in a blanket endorsement of the profit motive, or else confront leading to a disruption in communication between bank and regulator (pp. 166-175).

The observation, strategic reflection and supervision of banking, Baecker suggests, should instead focus on the distinction between risk and danger: “As soon as one switches to the distinction between risk and danger, one clarifies for oneself and others that on the one hand, there is no safety, on the other hand the risks one is willing to take are self-produced, and that precisely for that reason, it is essential to structure them and to monitor them. This is understood in the practice of banking but not in the strategic reflection, in the sales conversations with clients, in the design of instruments of risk management, and in the discussion with organs of supervision” (p. v).

In its implications this account resonates with conclusions from observers of financial institutions in other theoretical traditions. Matthew Gill's study of accounting firms (Accountants’ Truth, Oxford University Press, 2009), for example, suggests that the distinction between fact and interpretation in reflection on accounting should be replaced by distinctions among interpretations. The notion of accounting “facts” provides a false sense of security and limits efforts at regulation and control. We would be better off by admitting that we are dealing with interpretations, some of which might be better than others.

Systems theory enables conjectures that are non-trivial and that are highly reflexive; it allows us to think ahead of actual empirical observation and there are significant advantages to that. This also means that systems theory is at its best as a provocation. Baecker, like others in his tradition, pushes us to think further about empirical specifics but also about the ways different logics interact, such as the logics of organizations and of functional subsystems, but also the logics of different subsystems and the logics of functional subsystem and forms of social inequality.

Building on Baecker's analysis, more work could be done: how are different banks different? This is not just a point about empirical detail or the level of abstraction (all banks versus specific banks) but rather about the level on which the logic of banking is situated across a set of banks, or in the type “bank” – and what kind of logic it is. Baecker mentions White's analysis of producers being oriented towards each other but leaves open whether production is symbolically differentiated. In other words, is banking a field in Bourdieu's sense of the term as well as a system? If so, is it a national field or is it a transnational field? If it is a global field, how do borders matter? Money might be thought of as the purest commodity of all (all money is the same) but promises to pay do not seem to be all the same. Different banks cater to different customers. Differentiation among national locations (the Cayman Islands, Switzerland, Great Britain) also seems to matter in this field, also and precisely as far as the management of risk is concerned.

What exactly is the role of the state in banking and the economy? Baecker discusses the state's role in insuring credits in the book; in the new foreword he emphasizes the role of the state as the provider of forced payments by tax payers. But how does it really work? How are politics and the law appealed to in banking practice? How is banking appealed to in state organizations? Why does the state intervene? Why does it not intervene in some cases? Here we might do better to observe organizational sites and see how different sources of authority are used and appealed to, and how differently situated actors use them differently.

How exactly does the logic of banks interact with forms of social inequality? There have been some efforts to move from an opposition between theories of differentiation and a theory of inequality to an investigation of how the patterns emphasized by the two theories relate to each other. Baecker points out that the economy responds to the problem of scarcity in reducing it to a problem of payment, managing its time dimension, while reproducing it on a social level. To think further along these lines, we would want to know more. How does it happen, and what does “reproducing” really mean here? Does it not rather add something to inequality, when the banks allocate credit by address or when the banks move aggressively to expand the supply of debtors? On the other hand, do social groups ever trump the logic of banking within banks?