Tag: marxism

After an Abstract comes the Introduction

This is an excerpt from my 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.

A. Research Problem and Contextual Landscape

Contemporary economic theory has constructed an artificial divide between private and social valuations that fundamentally mischaracterizes the nature of price mechanisms. The prevailing paradigm treats externalities and social costs as phenomena that exist outside market pricing structures—anomalies that require correction through policy interventions. This perspective has led to theoretical frameworks that fail to recognize how price already incorporates social dimensions of value.

This paper challenges this dominant position by advancing the thesis that price inherently accounts for social costs and benefits, functioning as Price = Value Private + Social. The conventional framing treats social costs as separate from private market transactions, focusing exclusively on externalities and spillovers as market failures requiring intervention. However, this approach overlooks crucial evidence that market participants routinely anticipate and internalize social dimensions in their valuation processes.

Several critical shortcomings emerge from the current theoretical framework. First, mainstream economics acknowledges that stock prices anticipate political actions and regulatory changes, yet fails to systematically incorporate this anticipatory social pricing into its core models. Second, empirical evidence demonstrates consumers’ willingness to pay emotional surcharges for products with perceived social benefits, yet this phenomenon remains marginalized in standard economic analysis. Third, economists typically wait for social costs to manifest as measurable externalities before acknowledging their existence, rather than recognizing their presence within the price mechanism itself.

This theoretical blind spot can be traced to a pivotal shift in economic philosophy that occurred following Glenn Loury’s groundbreaking 1976 paper, “A Dynamic Theory of Racial Income Differences,” which introduced the concept of social capital as a group-contained phenomenon. The subsequent evolution of social capital theory—through James Coleman, Robert Putnam, Nan Lin, and Mark Granovetter—gradually reframed social elements as external to market mechanisms rather than intrinsic to them. This conceptual migration has created artificial boundaries between private and social valuations that distort our understanding of how markets function.

By examining this historical trajectory and proposing a reconceptualization of price theory that acknowledges the inherent social dimensions of value, this research aims to resolve theoretical inconsistencies in contemporary economic philosophy and develop a more coherent understanding of market dynamics. The implications extend beyond theoretical discourse, offering potential pathways to address pressing socioeconomic challenges through a more sophisticated understanding of how social costs and benefits are already embedded within price mechanisms.

B. Theoretical Positioning

The philosophical underpinnings of twentieth-century economic analysis were largely constructed upon a reductive conception of human behavior—the rational actor paradigm, which posited economic agents as autonomous individuals pursuing narrowly defined self-interest. This framework, most prominently championed by neoclassical economists, created theoretical models that excluded the complex social dimensions inherent in economic exchange. By privileging methodological individualism, mainstream economics systematically marginalized the communal aspects of human decision-making and the social embeddedness of market interactions.

The 1970s marked a critical turning point with scholars like Kenneth Arrow, Gary Becker, and others beginning to interrogate this limited conception by examining economic trades within previously neglected domains such as family structures and racial dynamics. This represented an important, though incomplete, expansion of economic thought. While these analyses acknowledged that social factors could influence economic decisions, they still fundamentally positioned these factors as external constraints or modifications to an essentially self-interested calculus.

This paper advances a more radical philosophical proposition: economic actors do not merely respond to social factors as external influences but fundamentally incorporate communal objectives alongside personal gain when allocating their labor and resources. This perspective challenges the artificial separation between individual and collective interests that has dominated economic philosophy. Rather than viewing social considerations as secondary modifications to self-interested behavior, this research argues that economic actors integrate multiple value dimensions—personal, familial, communal, and societal—into their decision-making processes simultaneously and intrinsically.

This theoretical reframing has profound implications for how we understand price mechanisms. When economic actors integrate communal objectives into their decision calculus, the resulting prices already embed both private and social valuations. Market exchanges thus represent complex negotiations of value that transcend the narrow confines of individualistic utility maximization. By recognizing this inherent integration, we can begin to develop more sophisticated theoretical tools that accurately capture the multidimensional nature of economic exchange.

The proposed philosophical framework does not reject the insights gained from examining self-interested behavior, but rather situates such behavior within a more comprehensive understanding of human action that acknowledges our fundamental social embeddedness. This perspective builds upon but substantially extends the work begun by Arrow and others, offering a philosophical foundation for reconceptualizing how social dimensions operate not merely around but within economic decision-making and price formation.

Origins of Social Capital

In Glenn Loury’s memoir, Late Admissions, the author states that he was the first to coin the term social capital as a retained value obtained through contact with social groups and activities. It appears in the following paper.

An individual’s social origin has an obvious and important effect on the amount of resources which are ultimately invested in his development. It may thus be useful to employ a concept of “social capital” to represent the consequences of social position in facilitating individual acquisition of (say) the standard human capital characteristics. While measurement problems abound, this idea does have the advantage of forcing the analyst to consider the extent to which individual earnings are accounted for by social forces outside the individual’s control. However, for precisely this reason such analysis is unlikely to develop within the confines of traditional neoclassical theory. A Dynamic Theory of Racial Income Differences (1976)

In the following decade, James S Coleman, a sociologist at the University of Chicago, writes the paper Social Capital in the Creation of Human Capital (1988). Here, the sense of the term is similar as there is a measurement of the efforts of a father put forth in the education of his son.

But in the 1990s, something changed. Putnam makes social capital a coffee table word in Bowling Alone (1995 article, 2000 book). Now, the term is morphing into a sense of access to networks. The thought is that business, or economic activity, is embedded in social life but clearly separate. Social life is a thing on the side. Benefits from social interactions arrive like electric pulses moving sporadically across a net of human connections.

Thanks to the book’s popularity, everyone grabbed hold of the term social capital from 2000 to 2010. It lost depth as it had become a marketing cliche. At about the same time, Nan Lin published Social Capital: A Theory of Social Structure in Action (1997), advancing the network theory of capital amongst relations.

Social Capital explains the importance of using social connections and social relations in achieving goals. Social capital, or resources accessed through such connections and relations, is critical (along with human capital, or what a person or organization actually possesses) in achieving goals for individuals, social groups, organizations, and communities. The book introduces a theory that forcefully argues and shows why “it is who you know,” as well as “what you know” that makes a difference in life and society.

Attempts are made to measure strong ties and weak ties, and distances between connections, but nothing really comes of it as a measurable model.

Was Glenn Loury thirty years too early with his concept of social capital? Did he bail on the theoretical world of economics too soon?

What about Marx Matters?

For anyone younger than 50, it might be hard to imagine the zeal and inflammatory context wrapped in the calling out of Marxism or Communism. There was a time when it triggered fear, fear of ostracism, loss of employment, or any many other adverse physical or social outcomes. Now that history has sorted itself out, the source of terror stemmed from the madmen who adopted Marx’s writings as their intellectual endorsement. Most agree that Marx would oppose the outcomes done under his philosophical banner. Most don’t bother to read the text to find out for themselves.

Last week, an English professor, Alex Moscowitz, suggested that Marx’s work is foundational for economics. The economists objected, debunking the validity of his work. Business people are particularly offended by his Labor Theory of Value, which the nineteenth-century thinker penned in Das Capital.

“The value of a commodity, therefore, is determined by the quantity of labor expended to produce it, but only of labor that is socially necessary. Socially necessary labor time is the labor time required to produce any use-value under the conditions of production normal for a given society and with the average degree of skill and intensity of labor prevalent in that society.”
(Das Kapital, Volume I, Chapter 1)

Everyone knows that in the commercial world, one gets paid the market rate for labor.

Noah Smith types up an interesting overview of the topic in Should Economists Read Marx. He chews through a lot of the interesting aspects of the topic, including listing out the foundational economic material he was required to tackle while a PhD student. Each work tussles with market failures or public goods. The greats like Paul Samuelson and Kenneth Arrow devoted intellectual energy to issues on the cusp of private and public sectors, two sectors each with their own structure.

It’s just that people who came after Marx took his text to initiate disruption and then exert social control. Noah closes with a reminder to his contemporaries that accuracy is not everything. An impassioned sweep and forceful embellishment of an errant study can end in tragedy.

This should serve as a warning to economists — a reminder of why although narrow theories about auctions or randomized controlled trials of anti-poverty policies might seem like small potatoes, they’re not going to end with the skulls of thousands of children smashed against trees. Modern economics, with all of its mathematical formulae and statistical regressions, represents academia appropriately tamed — intelligence yoked to the quotidian search for truth, hemmed in by guardrails of methodological humility. The kind of academia that Alex Moskowitz represents, where the study of Great Books flowers almost instantly into sweeping historical theories and calls for revolution and war, embodies the true legacy of Marx — something still fanged and wild.

But what about the labor theory of value? Is there anywhere in life where there is a pooling value to the work at hand? Consider intellectual property. Is there some pool of work hours necessary to accomplish a new way of thinking about a technology? Scientists in twos and threes or on their own throw their time into advancing an idea. Isn’t the idea behind a patent that the inventor doesn’t get his labor time paid for in the idea development process, so he has a claim to future benefits from the product as a reimbursement mechanism?

What about founders and startup folks. Don’t they calculate the labor hours they think they’ll need to put into a new venture and then figure out whether they’ll be able to recoup their labor time?