This is an excerpt from my working paper, which examines how contemporary economic realities challenge conventional price formation models. Traditional price theory, rooted in neoclassical equilibrium models, struggles to explain modern markets characterized by digital platforms, behavioral anomalies, and network effects. Rather than viewing prices solely as equilibrium outcomes, this section explores price as an information system and coordination mechanism shaped by institutional contexts and evolutionary market processes, proposing alternative approaches that better capture the dynamic nature of pricing in today’s economy.
IV. Theoretical Innovation
A. Proposed Philosophical Framework: Embeddedness and the Integrated Price Mechanism
This research proposes a fundamental reconceptualization of price theory through the lens of embeddedness—a philosophical framework that recognizes economic transactions as inherently situated within social contexts rather than artificially separated from them. Building on Polanyi’s (1944/2001) foundational insight that economic activities are embedded in social relations, this framework advances a more integrated understanding of price mechanisms, where Price = Private Value + Social Cost represents not an external correction but an inherent reality of market functioning.
From Agency to Embeddedness: Reconceptualizing Economic Decision-Making
The traditional economic paradigm has privileged what might be termed an “agency perspective,” positioning economic actors as autonomous decision-makers pursuing clearly defined goals within a social environment that remains largely unexamined. As Williamson (1975) argued, economic institutions are primarily understood as mechanisms for facilitating the efficient pursuit of individual interests. This philosophical stance has produced valuable insights regarding allocative efficiency but has simultaneously constrained our understanding of how social dimensions operate within economic systems.
The proposed philosophical framework shifts toward what Granovetter (1985) terms “embeddedness”—recognizing that economic actions are fundamentally situated within, shaped by, and constitutive of social relationships. This shift allows us to transcend the artificial analytical separation between “economic” and “social” factors that has characterized mainstream economic theory since Marshall (1890/1920). Rather than viewing social dimensions as external influences or constraints on otherwise autonomous economic decisions, this framework recognizes them as intrinsic elements of economic valuation itself.
This perspective transforms our understanding of price mechanisms in several crucial ways. First, it reconceptualizes economic actors not as isolated utility-maximizers but as socially embedded individuals whose preferences and valuations inherently incorporate social dimensions. Second, it reframes markets not as abstract coordination mechanisms but as socially constructed institutions that reflect and reinforce collective values. Third, it reconsiders price formation not as the aggregation of purely private valuations but as complex negotiations of value that intrinsically include social dimensions.
The Philosophical Roots of Integrated Price Theory
The proposed framework draws upon several philosophical traditions that have remained underutilized in economic theory. First, it builds upon Heidegger’s (1927/1962) concept of “being-in-the-world” (Dasein), which emphasizes that human existence is inherently contextual rather than abstracted. Economic actors do not stand apart from their social worlds, making calculations from an objective distance; rather, they are always already embedded within networks of meaning and relationship that constitute their understanding of value itself.
Second, it incorporates insights from feminist economic philosophy, particularly Nelson’s (2006) critique of the separative self that has dominated economic theory. As Nelson argues, the conception of autonomous economic agents making decisions in isolation represents a philosophical fiction that obscures the relational nature of economic life. The proposed framework recognizes that economic valuations emerge from interconnected patterns of relationship rather than isolated individual calculations.
Third, the framework engages with Dewey’s (1922) pragmatist understanding of valuation as an active process embedded in concrete situations rather than an abstract mental operation. Dewey’s insight that values are not pre-given but emerge through contextual engagement allows us to understand how social dimensions are naturally incorporated into price mechanisms through the situated practical reasoning of market participants.
Price as Social Institution: Beyond the Private-Social Dichotomy
Central to this philosophical framework is a reconceptualization of price itself. Rather than viewing price as an essentially private valuation that occasionally requires correction for social factors, this framework understands price as what Searle (1995) terms a “social institution”—a collectively constituted reality that inherently incorporates both individual and social dimensions of value.
This understanding transcends the conventional dichotomy between private and social costs by recognizing that economic actors themselves do not experience this distinction in practice. When a business owner decides to provide flu vaccinations for employees, they are not separately calculating private benefits and then adding social considerations; rather, their valuation process inherently incorporates both dimensions simultaneously. Similarly, when consumers pay premium prices for organic products, they are not engaging in two separate transactions—one for the product and one for social benefits—but rather expressing a unified valuation that intrinsically includes both dimensions.
This philosophical reframing has profound implications for economic theory. It suggests that what conventional economics has termed “externalities” are not phenomena that exist outside price mechanisms but rather aspects of value that have been artificially excluded from economic analysis through reductive theoretical frameworks. The problem lies not in market failures but in conceptual failures that have prevented us from recognizing how social dimensions are already incorporated into price through the embedded decision-making of market participants.
Reconceptualizing Social Capital: From Linear Networks to Embedded Fields
This philosophical framework also offers a path to recover and extend Loury’s (1976) original insights regarding social capital. Loury’s conceptualization of social capital as a group-contained phenomenon recognized the embedded nature of economic opportunities, particularly in his analysis of racial income differences. However, as this concept evolved through Coleman (1988), Putnam (1993), and Lin (2001), it increasingly adopted a more individualistic framework that treated social capital as a resource that individuals could access and deploy rather than a field of relationships in which they were embedded.
The proposed framework returns to Loury’s original insight but extends it further by drawing on Bourdieu’s (1986) understanding of social capital as operating within fields of practice rather than through linear networks. This perspective allows us to recognize how price mechanisms operate not through the aggregation of isolated individual preferences but through complexly embedded fields of valuation that inherently incorporate social dimensions.
By reconceptualizing social capital as an embedded field rather than a networkable resource, we can better understand how social costs and benefits become intrinsically incorporated into price mechanisms. The business owner considering flu vaccinations operates within a field of practice that includes employee health, customer relations, and institutional norms—all of which inform their valuation process not as external considerations but as constitutive elements of their economic reasoning.
From Calculation to Negotiation: Price as Social Process
A final philosophical dimension of this framework involves shifting from understanding price as the result of individual calculations to recognizing it as emerging from processes of social negotiation. Drawing on Zelizer’s (2012) concept of “relational work,” this perspective recognizes that prices do not simply reflect pre-existing valuations but actively constitute social relationships and meanings.
This shift helps us understand why organic food commands premium prices—not simply because consumers have calculated private benefits and added social considerations, but because the price itself represents a negotiation of meaning that constitutes both economic value and social relationships. The organic certification standard functions as what Star and Griesemer (1989) term a “boundary object”—a shared reference point that enables coordination across different social worlds without requiring consensus about precise meanings.
This understanding of price as social negotiation rather than mere calculation provides a philosophical foundation for reconceptualizing how social dimensions operate within market mechanisms. It allows us to recognize that what conventional economics treats as externalities are often aspects of value that have been excluded from analysis through theoretical frameworks that reduce price to calculation rather than recognizing it as negotiation.
In summary, the proposed philosophical framework shifts from agency to embeddedness, from calculation to negotiation, and from understanding price as an aggregation of private values to recognizing it as a social institution that inherently incorporates both private and social dimensions. This framework provides the philosophical foundation for reconceptualizing price theory in a way that transcends artificial separations between economic and social valuations.
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