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Human Well-Being and Economic Goals

Economics and the Good, II: Community
Overview Essay Page 1

David Kiron

Economic textbooks typically describe individuals as rational, self-interested agents who spend their lives satisfying their own preferences. Yet, as many critics have pointed out, this conception of the economic actor neglects the influence of social relations and institutions, assuming individuals to be undersocialized agents who shape but are not shaped by social arrangements and cultural values. Of course, economists have long recognized that a trusting citizenry, the existence of strong social nor ms, and a sympathy for human values can mediate efficient outcomes, but the relationship between economic activity and social structure remains, by and large, a mystery that is little understood within modern economic theory.

Since the early 1970s, economists have made numerous attempts to locate the production and maintenance of trust, norms, and moral values within the paradigm of neoclassical economic theory. The articles in this section provide an overview of the issues that economists confront when trying to understand the impact of social organization and social relations on the economy, and the impact of economic activity on social arrangements. Three questions emerge from this collection of articles. First, what ev idence indicates that social structure is relevant to economic success? Second, what are the advantages or disadvantages associated with applying economic models of human behavior to social problems, such as crime, or to efforts to promote a community's willingness to accept certain necessary, but locally undesirable projects, such as prisons or hazardous waste facilities? Finally, is the economist's "undersocialized" conception of human motivation sufficiently flexible to accommodate social influences, or must it be abandoned and replaced?

In the economics literature, one optimistic approach to all of these questions is to argue that social organizations, out of which values and norms emerge, follow the same principles of rationality that regulate human economic behavior. Proponents of this new institutional economics school attempt to explain the development of social institutions and arrangements as efficient solutions to certain types of social problems. They advocate policies to solve social problems using standard economic assumptions about human behavior.[1 ] On the one hand, this approach recognizes the economic importance of social relationships, but on the other hand, it simply transfers an undersocialized conception of economic agents to a social setting: abstracting away fro m the culture and history of concrete interactions, and characterizing individuals in a stylized way.[2]


[1] An approach sometimes referred to as "economic imperialism." For instructive discussions of this movement, see G. Radnitzky and P. Bernhoz, Economic Imperialism: The Economic Method Applied Outside the Field of Economics (New York: Para gon House, 1987); also Jack Hershleifer, "The Expanding Domain of Economics," American Economic Review Directory (December 1985): 53-68.

[2] This argument is developed in Mark Granovetter, "Economic Action and Social Structure: The Problem of Embeddedness," American Journal of Sociology 91(1985): 481-510.

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