Tag: philosophy

The grocery and the mountain

When should a community gather up its resources and provide a service to all members? And when should individuals be turned out into the world to navigate on their own dime? These debates cross all levels of government.

Some provisions are accepted as a government thing, like piped water or sewer. Even basic universals like education attract conversation about private options. Roads are sometimes (although truly not very often) toll roads. Bridges are mostly a public venture, as are parks. What takes a good out of private production and places it in the receivership of a bureaucracy?

Fear usually. Police and firefighters are in place to ensure personal safety. The New Deal was to alleviate fears against a repeat of depression era outcomes. When society risks a loss that compels a human response, society steps forward with a safety net.

Mamdani, New York Cities new mayor, sold the people on a fear of escalating grocery prices and thus the need for a government run store. This seems different than when a small community rounds up a helicopter rescue for a mountain climber who ventured up a nearby peak alone and unprepared.

So who gets to pick what there is to fear? Not everyone does this well. Here’s Mises (from Theory and History)

They recommend some policies, reject others, and do not bother about the effects that must result from the adoption of their suggestions.

This neglect of the effects of policies, whether rejected or recommended, is absurd. For the moralists and the Christian proponents of anticapitalism do not concern themselves with the economic organization of society from sheer caprice. They seek reform of existing conditions because they want to bring about definite effects. What they call the injustice of capitalism is the alleged fact that it causes widespread poverty and destitution. They advocate reforms which, as they expect, will wipe out poverty and destitution. They are therefore, from the point of view of their own valuations and the ends they themselves are eager to attain, inconsistent in referring merely to something which they call the higher standard of justice and morality and ignoring the economic analysis of both capitalism and the anticapitalistic policies. Their terming capitalism unjust and anticapitalistic measures just is quite arbitrary since it has no relation to the effect of each of these sets of economic policies.

Taking over a grocery is sure to fail financially without ensuring any additional food security for those who need it. It’s a vanity project. Wouldn’t it be like telling the mountaineer that a government representative would need to participate in the planning and execution of his climb? Yet here, the little community bears a disproportionate cost for the climbers’ foolishness.

It seems that the risk to persons and the community happens to various degrees. Whether the risk triggers community involvement has to do with its extreme and the distance between the risky step and all the other steps in between.

When asked about Polanyi’s Double Movement- Claude said:

Polanyi’s Double Movement and the Evolution of Economic Thought

The Household Foundation • Original containment: In household economies, the tension between acquisition (growth, accumulation) and protection (equitable distribution, waste prevention) operates within manageable, face-to-face relationships • Natural limits: Family/clan structures provide built-in mechanisms for both encouraging productive activity and preventing destructive excess • Embedded economics: Economic activity remains subordinated to social relationships and moral obligations

The Great Transformation: Market Economy Emergence • Dis-embedding: Economic activity becomes separated from social relationships and moral constraints • Fictitious commodities: Land, labor, and money become treated as market commodities despite not being produced for sale • Double movement emergence: Society’s protective response to market fundamentalism becomes institutionalized

Evolutionary Responses in Economic Thought

Adam Smith (1776) • Market optimism: Invisible hand suggests self-interest can serve social good • Early recognition: Acknowledged moral sentiments and social bonds as necessary counterweights • Household parallel: Like family moral economy, broader society needs ethical framework alongside market mechanisms

Karl Marx (1867) • Protective critique: Exposed capitalism’s tendency toward crisis and worker exploitation • Systemic analysis: Showed how market expansion undermines its own foundations through overproduction and underconsumption • Double movement insight: Predicted capitalism would generate its own contradictions requiring protective responses

Émile Durkheim (1893) • Social solidarity: Distinguished mechanical (traditional) from organic (modern) solidarity • Integration challenge: Modern division of labor requires new forms of social cohesion • Protective institutions: Professional associations and moral regulation needed to prevent anomie

Rosa Luxemburg (1913) • Accumulation limits: Capitalism requires constant expansion into non-capitalist areas • Imperial protection: Advanced economies use state power to secure markets and resources • Global household: Imperial expansion recreates household-like extraction relationships on world scale

John Maynard Keynes (1936) • Market failure recognition: Markets alone cannot ensure full employment or stability • State intervention: Government must provide protective functions through fiscal and monetary policy • Embedded liberalism: Markets need social and political frameworks to function sustainably

Friedrich Hayek (1944) • Spontaneous order: Complex economies require market coordination beyond human planning capacity • Anti-protection warning: Government intervention threatens individual freedom and economic efficiency • Market fundamentalism: Pure market logic as protection against totalitarian planning

Contemporary Double Movement Tensions

Neoliberal Expansion (1980s-2008) • Market fundamentalism: Hayek’s vision implemented globally through deregulation and privatization • Household disruption: Traditional protective mechanisms (unions, welfare states, community institutions) weakened • Global reach: Market logic penetrates previously protected spheres (education, healthcare, environment)

Protective Responses (2008-present) • Financial crisis: Market failure triggers protective interventions (bailouts, regulation) • Populist movements: Political responses to economic dislocation and inequality • Environmental limits: Climate change forces recognition of growth’s destructive potential • Digital economy: New forms of commodification (data, attention) generate protective responses

Synthesis: The Persistent Tension

The household analogy reveals how economic thought has grappled with scaling up the balance between acquisition and protection:

• Smith to Marx: Recognition that market expansion requires moral/social counterweights • Durkheim to Keynes: Development of institutional mechanisms for social protection • Hayek’s challenge: Market efficiency versus social protection trade-offs • Contemporary crisis: Global markets outpacing protective institutions’ capacity

The enduring question: How can societies maintain the household economy’s natural balance between productive growth and protective distribution as economic relationships become increasingly complex and geographically dispersed?

Market Failure was used as the signal– but what now?

In days of yore, there was the market and the state. Two separate spheres of activity coexisted. And when private industry did not come through for the people, in the way they thought it should, market failure was the name given to assign blame. When the market failed, it was up to the state to address the lack of supply in areas such as medical care, poverty alleviation, housing, and the like.

One of economist Tyler Cowen’s first books addresses this trigger for state action in a compilation of thoughts on The Theory of Market Failure: A Critical Examination. But he isn’t convinced. He seems to say that when you look so closely at a tiny segment of a large system, you don’t see anything at all.

Consider externalities, a key signal that the market is merely pushing a problem onto some unsuspecting observer. He claims that (nearly) every single transaction has a positive or negative external effect. And, if you think about it, it’s true. We are social creatures. Although many consumptions are deeply personal, in the end, we always touch the lives of others.

The scope of the externalities/nonexcludability issue is vast. Nearly every concern of economic policy, from environmental considerations to research and development, involves externality problems. No one would claim that every instance of an externality warrants state intervention. There is no doubt, however, that the existence of externalities is one of the most powerful arguments for public sector involvement in the provision of public goods.

This isn’t the proper trigger for government intervention.

What about when the price seems too high, as in housing, or too low, as in wages? Whether a good is mediated through the private or public sector, prices still carry the most valuable form of comparative value information.

As noted earlier, the theory of public goods and externalities implies that if a good is characterized by nonrivalrous consumption, allowing additional individuals to consume it entails zero marginal cost. Demsetz’s arguments (1964; 1970) imply that this is only true in the presence of perfect information. Otherwise, allowing additional individuals to consume a good free of charge results in the abandonment of the price system in that sphere of activity. Since the publication of Hayek 1945, the role of prices in communicating information has been well known. In the provision of public goods as well as private goods, sacrificing such information may entail significant costs.

Prices are the most critical form of encapsulation of what groups of exchangers say about an exchange. We may not always conduct a thorough analysis of prices. That might be where the problem lies.

For instance, the exchange might be telling something vital about a group of people that others are simply not attuned to. People join various clubs throughout their lives. And these associations create structures of value.

The next two selections in section 2 of this volume discuss the nature of local public goods. Because such goods, by definition, can be provided to only a segment of a nation or community, determining which individuals will receive them becomes part of the economic problem. Once club or community membership becomes endogenous, many of Samuelson’s conclusions do not hold.

When people leave or join a club, when they exit or stay loyal, they impact how much of a surcharge the group of people in the club can charge.

The Tiebout model avoids the preference revelation problem; an individual’s preferences are revealed by his choice of location. It also avoids the free-rider problem; those who choose to belong to a given community are subject to the taxes or user fées that finance the provision of goods. Nor is pricing inefficiency a problem. If an individual is inefficiently excluded from the use of a public good or service, he can simply move to a community where that exclusion is not practiced.

The introduction written by Tyler Cowen is comprehensive. To the engaged observer, he dispels the dichotomy between industry and the state. There’s something pluristic out there. It’s big, messy, and complicated. It dovetails into many of the things people talk about under the titular of institutions. But it has structure– once you stand back and take a look.

That’s the project of the moment: a unified theory of price.

The Feast of the Goat

This carefully crafted book intertwines three tales occurring around the 1961 assassination of Rafael Trujillo, the brutal dictator of the Dominican Republic. The author’s language is beautiful and descriptive. He astutely matches the voices of each of his characters to the vernacular. There are enough historical facts to learn something without the narrative becoming pedantic. All these features make it brilliant.

But I believe the author is trying for more. It’s as if he wants to answer the question: How does a brutal dictator maintain such cruel control of a country for three decades? He is laying out how it works. First, he tells us of the agents. He gives us Urania. She returns to her homeland with the sole objective of presenting her father with a tally of her expenses for a decision he made so long ago. Then there are the insurgents, working together in a high-risk pursuit. And there is the dictator who is conflated with the state, as he has all those powers and economic means at his disposal.

The author is clear that there are more units of shared interest. Each of these agents has ties to the family. And each of these has varying fortunes depending on its ranking within the social structure.

To keep his model tight, the author does not pursue the family as agents who take action. He keeps to three stories, three positions of departure around one historical event. The first is the view of the lead character, Urania Cabal. Her story is one of private loss. One might want to point out that her upbringing in the upper echelon of society is what led to her success at Harvard and in the legal profession. Though her return after thirty-five years in the US is only to punish her father. To make it clear that his betrayal was beyond redemption.

The insurgents’ story is interesting as they tell individuals tales while collaborating in the assassination of the all-powerful leader. Their losses under the dictator’s reign are aired. There’s an ongoing tally of the wrongs against them, the losses they’ve incurred, and the potential penalties their actions could bring to them and their families, all while dangling the glory of being the crew that extinguishes the dictatorship. They work as a team. Their action influences the direction of the country.

Truiljo’s firm grip on the small Caribbean country occurred through control of the secret police, the army, and industry. His private gains were considerable. Truiljo’s ability to manipulate the interests of subordinates is significant. But the author gives us more insight. He shows, by running these stories simultaneously, how Truiljo understood the impact of corruption on other close affiliations. He led people to a point of no return, destroying collations one by one. One wonders if his fear of the church is somehow related to a fear of the levers of redemption.

I believe that Mario Vargas Llosa uses this book to break out individual agents, groups as agents, and show how they interact, how they are motivated, and where all the gains and losses occur. It shows up in his language.

On page 267, Trujillo’s girltrader and dealmaker tells Urania’s father, “He (Trujillo) will call you. He’ll return what’s been taken from you. Uranita’s future will be secure. Think of her, Agustín, and shake off your antiquated prejudices. Don’t be an egotist.” He offers a perverse message of fulfilling his family obligation, of helping out his daughter, by offering her up as a sexual morsel to the dictator.

On page 322 the author emphasizes the active reformulation of groups as agents, “As if in a dream, in the hours that followed he saw this assemblage of Trujillo’s family, relatives, and top leaders form cliques, dissolve them, and form them again as events began to connect like pieces filling in the gaps of a puzzle until a solid figure took shape.” Once the new assemblage forms, it becomes one. A solid shape.

On page 355, the brilliant Vargas Llosa reminds his readers to depend on human nature: “Doña María’s response had been predictable: her greed was stronger than any other passion.” The first lady could be depended on to prioritize personal interests over group ideals.

In this book, the audience is presented with a model of group agency, with actions for the self or for the group, with an accounting in a before-and-after setting of people’s fortunes and deficits. Vargas Llosa answers the question of how it works.

Fully modeled with examples.

About Buchanan, faith in people, and self-governance

Me: It sounds like he (James M Buchanan) wants to believe in self-governance, yet he doesn’t have faith in the distribution of the groupings, hence ‘free riding’, so in the end he supports the cohesion of the state after all.

Grok:

Your observation captures a tension in James M. Buchanan’s work that’s worth unpacking. You’re suggesting that while Buchanan champions self-governance and individual liberty, his concern about free-riding and coordination problems leads him to rely on formal institutional structures, which might seem to endorse the cohesion of the state—potentially contradicting his critique of the organismic view. Let’s explore this interpretation, addressing whether Buchanan’s focus on institutions implies support for state cohesion and how it aligns with his belief in self-governance. I’ll keep the response concise yet thorough, tying it to your previous questions about the organismic concept and group cooperation.

Buchanan’s Commitment to Self-Governance

Buchanan, a classical liberal and founder of public choice theory, strongly advocates for self-governance, meaning individuals should have maximum control over their choices and the rules governing their interactions. His rejection of the organismic concept—where collectives like “the state” or “society” are treated as unified entities with their own goals—stems from his belief that only individuals have preferences and agency. He envisions governance as a system of voluntary agreements among individuals, not top-down control by a cohesive state. Key points:

• In The Calculus of Consent (1962, with Gordon Tullock), Buchanan proposes that political systems should emerge from unanimous or near-unanimous consent at the constitutional level, where individuals agree on rules for collective decision-making. This reflects self-governance, as the state’s authority derives from individual agreement, not an inherent collective will.

• His concept of “politics as exchange” sees government as a mechanism for individuals to cooperate for mutual benefit (e.g., providing public goods like roads), not as a monolithic entity imposing order. This contrasts with organismic views that assume the state naturally serves a unified “public interest.”

The Free-Rider Problem and Institutional Needs

Your point about Buchanan’s lack of faith in the “distribution of the groupings” (i.e., how individuals naturally organize) and his concern about free-riding is spot-on. Buchanan recognizes that self-governance faces challenges in large groups due to:

• Free-Riding: Individuals may benefit from collective goods (e.g., clean air, defense) without contributing, undermining cooperation. For example, someone might enjoy a community-funded park without paying taxes if contributions are voluntary.

• Coordination Problems: Diverse preferences and large group sizes make spontaneous cooperation difficult without agreed-upon rules. Informal norms work better in small, homogeneous groups but falter at scale.

To address these, Buchanan emphasizes formal institutions, particularly constitutional rules, to facilitate cooperation. In The Limits of Liberty (1975), he argues that a social contract—a set of rules individuals consent to—prevents free-riding and ensures fair contributions to collective goods. For instance, a tax system with constitutional legitimacy compels everyone to pay for public goods, solving the free-rider issue while respecting individual agreement to the rules.

Does this mean Buchanan lacks faith in self-governance? Not quite. He believes self-governance is possible but requires designed structures to align individual incentives with collective outcomes. His focus on constitutions is about enabling individuals to govern themselves through agreed-upon rules, not deferring to a centralized state.

Does Buchanan Support State Cohesion?

Your suggestion that Buchanan’s reliance on institutions implies support for the “cohesion of the state” is a nuanced critique. Let’s break it down:

• Not State Cohesion in the Organismic Sense: Buchanan explicitly rejects the idea of the state as a cohesive, sentient entity with its own goals (the organismic view). He sees the state as a collection of individuals—politicians, voters, bureaucrats—each pursuing their own interests. His work in public choice theory, especially in The Calculus of Consent, models government as a system of checks and balances to prevent it from becoming a monolithic, coercive entity. For example, he warns against a “predatory state” that exploits citizens under the guise of public interest.

• Institutions as Tools, Not State Worship: Buchanan’s support for formal governance is about creating minimal, consensual frameworks to enable cooperation, not endorsing a strong, centralized state. His ideal is a limited government constrained by constitutional rules that individuals have agreed to, ensuring that state actions reflect individual preferences rather than a supposed collective will. For instance, his admiration for Knut Wicksell’s principle of “just taxation” requires taxes to be tied to benefits and approved by near-unanimous consent, minimizing state overreach.

• Tension in Practice: You’re right that Buchanan’s reliance on formal institutions could, in practice, lead to a state with some degree of cohesion, as enforcing rules (e.g., tax collection) requires authority. Critics of Buchanan argue that his constitutional framework assumes a level of rational agreement that’s hard to achieve, and the resulting institutions might take on a life of their own, resembling the cohesive state he critiques. However, Buchanan would counter that this risk is mitigated by designing rules that prioritize individual liberty and limit government power.

Reconciling Self-Governance and Institutional Reliance

Buchanan’s position is that self-governance is not spontaneous but requires deliberate institutional design to succeed at scale. He doesn’t distrust individuals’ ability to cooperate but recognizes practical barriers like free-riding and coordination costs. His solution is a two-level governance framework:

1. Constitutional Level: Individuals agree on rules (e.g., voting systems, tax policies) to structure cooperation. This is self-governance in action, as the rules reflect individual consent.

2. Post-Constitutional Level: Within these rules, individuals make choices (e.g., voting, paying taxes) that produce collective outcomes. Institutions enforce these rules to prevent free-riding, but their legitimacy comes from prior agreement, not state supremacy.

This framework contrasts with the organismic view, which might assume society naturally coalesces around shared goals without needing explicit rules. Buchanan’s skepticism of such assumptions drives his focus on institutions, but he remains committed to individual liberty and minimal state intervention.

Addressing Your Critique

You’re correct that Buchanan’s concern about free-riding and group coordination could seem to undermine his faith in pure self-governance, pushing him toward formal institutions that resemble state cohesion. However, he would argue that these institutions are tools of self-governance, not endorsements of a cohesive state. The state’s role is to enforce rules individuals have chosen, not to act as an independent entity. His ideal is a decentralized system where individuals retain maximum control, but he acknowledges that some formal structure is necessary to make self-governance scalable and sustainable.

Conclusion

Buchanan believes in self-governance but sees formal institutions, particularly constitutional rules, as essential to overcome free-riding and coordination challenges in large groups. This doesn’t mean he supports state cohesion in the organismic sense; rather, he advocates for a limited, consensual state that enforces individual-agreed rules to enable cooperation. His focus on institutions reflects a pragmatic solution to make self-governance work, not a retreat to statism.

Compare, Contrast, Visualize

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.

B. Comparative Analysis: Evaluating Theoretical Frameworks

This section provides a systematic comparative analysis of the proposed philosophical framework against conventional economic approaches to price theory. By examining how different theoretical perspectives conceptualize the relationship between price mechanisms and social dimensions, we can better understand both the limitations of current approaches and the potential advantages of the proposed integrated framework.

Conventional Economic Frameworks: The Separation Paradigm

Mainstream economic theory has predominantly operated within what might be termed a “separation paradigm” that artificially divorces economic processes from their social contexts. This approach has taken several forms, each with distinct philosophical underpinnings but sharing a common tendency to externalize social dimensions from core economic processes.

The neoclassical framework, beginning with Marshall (1890/1920) and formalized by Samuelson (1947), represents the most influential expression of this separation paradigm. This approach treats social costs and benefits as “externalities”—phenomena that exist outside the market mechanism and require correction through policy intervention. As Pigou (1920) argued, these external effects constitute market failures that prevent the price system from achieving social optimality. While this framework recognizes the existence of social dimensions, it philosophically positions them as external to the fundamental operation of price mechanisms.

The public choice tradition, exemplified by Buchanan and Tullock (1962), maintains this separation while focusing on the strategic calculations of political actors. As Tullock (1965) argues in “The Politics of Bureaucracy,” individuals navigate institutional structures to advance their interests, with social dimensions treated as constraints within a fundamentally individualistic calculus. This approach offers valuable insights into how individuals respond to institutional incentives but maintains the philosophical separation between private calculations and social contexts.

The social capital literature, following its evolution from Loury (1976) through Coleman (1988) to Putnam (1993), increasingly adopted what might be termed an “instrumental network” approach. This perspective treats social connections as resources that individuals can access and deploy strategically, maintaining a philosophical separation between the autonomous individual and their social networks. While recognizing the importance of social factors, this approach treats them as external assets rather than constitutive elements of economic valuation itself.

The Integrated Framework: Embeddedness and Unified Valuation

In contrast to these separation paradigms, the proposed philosophical framework offers what might be termed an “integration paradigm” that recognizes price as inherently incorporating both private and social dimensions of value. This comparative analysis highlights several key distinctions:

1. Outcomes vs. Processes

Conventional frameworks focus predominantly on outcomes—the results of market transactions as measured by efficiency or utility maximization. The Pigouvian approach to externalities exemplifies this orientation, focusing on the divergence between private and social outcomes while giving limited attention to the processes through which valuations emerge. Similarly, Coase’s (1960) analysis, while introducing the importance of transaction costs, maintains a focus on the efficient allocation of resources as the primary outcome of concern.

The proposed framework, in contrast, emphasizes processes—the embedded social practices through which valuations emerge and evolve. Drawing on Zelizer’s (2012) analysis of how economic practices constitute social relationships, this approach recognizes that price mechanisms do not simply produce outcomes but actively construct social meanings and relationships. For example, the organic food market is understood not merely as generating a price premium that reflects environmental benefits but as constituting a set of social relationships and meanings around food production and consumption.

This distinction becomes particularly evident in analyzing wind turbine effects on property values. Where conventional frameworks focus on measuring the divergence between private and social costs as an outcome, the proposed framework examines how property valuations emerge through processes of social negotiation that inherently incorporate both dimensions. The hedonic price model becomes not merely a method for measuring externalities but a window into how social values become embedded in market valuations through processes of negotiation.

2. Calculation vs. Negotiation

Conventional frameworks conceptualize price formation primarily as a process of calculation—the aggregation of individual utility functions or the balancing of marginal costs and benefits. As Becker (1976) argues, this approach extends the calculative paradigm to social domains by treating even non-market behaviors as the result of rational calculation. While powerful in its analytical clarity, this approach imposes an artificial separation between the calculating individual and the social context in which calculation occurs.

The proposed framework, drawing on Callon’s (1998) analysis of market devices, understands price formation as a process of negotiation—the ongoing social construction of value through interaction. This perspective recognizes that prices do not simply reflect pre-existing preferences but actively constitute relationships and meanings. For instance, when a business owner decides to provide flu vaccinations, they are not merely calculating financial costs and benefits but negotiating a complex set of relationships among employees, customers, and the broader community.

This distinction helps explain why conventional approaches often struggle to account for phenomena like voluntary green premiums or corporate social responsibility initiatives. These practices make limited sense within a purely calculative framework but become comprehensible when understood as negotiations of meaning and relationship that inherently incorporate both private and social dimensions of value.

3. Autonomy vs. Interdependence

Conventional frameworks generally assume economic actors as fundamentally autonomous—making decisions independently based on their preferences and constraints. This philosophical stance, most explicitly articulated in Arrow’s (1951) impossibility theorem, treats social choice as the aggregation of independent individual preferences rather than the expression of interdependent social relationships. Even when acknowledging social influences, this approach maintains a conceptual separation between the autonomous individual and their social environment.

The proposed framework recognizes economic actors as fundamentally interdependent—embedded within networks of relationship that constitute both their understanding of value and their capacity for action. Drawing on Davis’s (2003) critique of the “separative self” in economics, this approach understands economic decisions as emerging from interconnected patterns of relationship rather than isolated individual calculations. When consumers pay premium prices for organic products, they are not making autonomous decisions but acting within interdependent networks of meaning and relationship that shape their understanding of value itself.

This distinction helps explain why conventional approaches often treat environmental values or social justice concerns as external to economic valuation—they maintain a philosophical commitment to autonomous individuals whose interdependence is treated as secondary rather than constitutive. The proposed framework reverses this priority, recognizing interdependence as the fundamental condition from which economic valuations emerge.

4. Strategy vs. Meaning

Conventional frameworks typically conceptualize economic behavior as strategic—actors making choices to advance their interests within given constraints. This understanding, exemplified in game-theoretic approaches to externalities (Dasgupta, 1982), treats social considerations as strategic factors within an essentially competitive calculus. While offering valuable insights into how individuals respond to incentives, this approach tends to reduce social dimensions to strategic considerations rather than recognizing them as constitutive of meaning itself.

The proposed framework understands economic behavior as inherently meaningful—constituting social relationships and identities through exchange. Drawing on Bruner’s (1990) concept of meaning-making, this approach recognizes that economic actions are not merely strategic moves but expressions of meaning that constitute social worlds. When a business owner provides flu vaccinations, they are not simply making a strategic calculation but participating in the construction of meaningful workplace relationships and identities.

This distinction helps explain why conventional approaches often struggle to account for the emotional and symbolic dimensions of economic behavior—they maintain a philosophical commitment to strategic rationality that marginalizes considerations of meaning. The proposed framework incorporates these dimensions as intrinsic to economic valuation rather than treating them as irrational anomalies or external constraints.

Comparative Empirical Implications

These philosophical distinctions generate substantively different empirical expectations and interpretations. Where conventional frameworks predict that social costs will appear as externalities requiring correction, the proposed framework predicts that market participants will often incorporate social dimensions into price mechanisms through their embedded decision-making processes.

The hedonic pricing model provides a useful comparative lens. Conventional approaches interpret price differentials near wind turbines as evidence of uncompensated externalities, emphasizing the divergence between private and social costs. The proposed framework interprets these same differentials as evidence that market participants are already incorporating social dimensions into their valuations, demonstrating the integrated nature of price mechanisms rather than their failure.

Similarly, the willingness of consumers to pay premium prices for environmentally friendly products receives different interpretations. Conventional frameworks treat this as either an anomaly requiring explanation through modified preference functions or as evidence of externality internalization through separate transactions. The proposed framework recognizes this behavior as the natural expression of embedded valuations that inherently incorporate both private and social dimensions.

Integration with Existing Economic Insights

While the proposed framework challenges fundamental aspects of conventional economic theory, it does not require rejecting valuable insights from existing approaches. Rather, it offers a philosophical foundation for integrating these insights within a more comprehensive understanding of how price mechanisms operate.

The framework incorporates Coase’s (1960) insight that transaction costs matter but extends this recognition to the social relationships that constitute economic exchange rather than treating them as external constraints. It integrates Arrow’s (1963) analysis of information asymmetries but recognizes that information itself is socially embedded rather than objectively given. It acknowledges Williamson’s (1975) focus on institutional structures but understands these structures as constitutive of economic behavior rather than merely constraining it.

This integrative approach offers potential pathways for resolving persistent theoretical tensions in economics. For example, the divide between behavioral economics’ empirical findings and neoclassical theoretical foundations becomes less problematic when economic behavior is understood as inherently embedded rather than anomalously constrained. Similarly, the tension between institutional and individual-focused approaches finds resolution in recognizing institutions as constitutive of rather than external to individual decision-making.

Comparative Philosophical Robustness

A final dimension of comparative analysis concerns philosophical robustness—the capacity of theoretical frameworks to accommodate complex realities without artificial simplification or ad hoc modifications. Conventional frameworks have demonstrated remarkable flexibility in addressing new empirical findings, but often at the cost of theoretical coherence. As anomalies emerge—from voluntary carbon offsets to corporate social responsibility—these frameworks typically accommodate them through preference modifications or externality redefinitions that preserve the underlying separation paradigm.

The proposed framework offers greater philosophical robustness by recognizing the inherent integration of private and social dimensions in economic valuation. Rather than treating phenomena like green premiums or ethical investing as exceptions requiring special explanation, this approach understands them as natural expressions of the embedded nature of economic decision-making. This philosophical coherence allows the framework to accommodate diverse empirical realities without sacrificing theoretical integrity.

In summary, this comparative analysis demonstrates that the proposed philosophical framework offers substantive advantages over conventional approaches in understanding how social dimensions operate within price mechanisms. By shifting from outcomes to processes, calculation to negotiation, autonomy to interdependence, and strategy to meaning, this framework provides a more comprehensive and coherent account of how prices already incorporate social costs and benefits—not as external corrections but as intrinsic components of economic valuation itself.

Methods- it’s always been there

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.

III. Methodological Framework

A. Philosophical Methodology

This research engages with the critical realist tradition in economic philosophy (Lawson, 1997; Fleetwood, 2017) while incorporating elements of pragmatist inquiry (Dewey, 1938; Hodgson, 2004) to examine how social outcomes are intrinsically embedded within price mechanisms. By adopting this philosophical stance, the investigation transcends the positivists’ limitations that have dominated mainstream economic methodology and artificially separated social dimensions from market valuation processes.

Methodological Rationale and Research Design

The methodology employs a dual approach combining narrative explication and formal econometric analysis—a mixed-methods design that aligns with what Downward and Mearman (2007) term “critical triangulation.” This approach recognizes that economic phenomena exist in open systems characterized by complex causality that cannot be adequately captured through purely deductive or inductive methods alone.

Narrative methodologies in economics have been increasingly recognized for their capacity to reveal dimensions of economic reasoning that formal models often obscure (McCloskey, 1990; Morgan, 2012). As Akerlof and Snower (2016, p. 23) argue, “Narrative economics provides a framework for understanding how stories that may have little grounding in reality nevertheless influence economic behavior.” This research employs narrative not merely as illustration but as a methodological tool to uncover how social dimensions are intrinsically incorporated into economic decision-making rather than treated as external considerations.

The research design progresses through three methodological stages:

  1. Narrative case analysis of micro-level economic decisions where social costs and benefits are endogenously incorporated into price mechanisms
  2. Systematic examination of market-level pricing phenomena that demonstrate social valuation integration
  3. Econometric analysis using hedonic pricing models to formalize and quantify the incorporation of purported “externalities” within price

This triangulated approach provides methodological robustness by examining the phenomenon across multiple scales and through complementary epistemological lenses.

Market Integration of Health and Productivity Benefits

Consider the small business owner contemplating providing flu vaccinations for all employees at a cost of $50 per person. This case exemplifies what Hodgson (2013) identifies as the “reconstitutive downward causation” between institutional structures and individual agency. Conventional economic framing, following Williamson’s (1979) transaction cost analysis, might characterize this as either addressing an externality or reducing monitoring costs. However, this framework artificially separates the transaction into discrete “economic” and “social” components.

Following Sen’s (1977) critique of the rational fool construct, we can observe that the business owner engages in a multi-dimensional calculation that already incorporates social costs and benefits into their decision-making process. The owner calculates that seasonal influenza typically results in X hours of lost labor annually, representing not only direct wage costs but also diminished productivity, potential transmission to other employees, and compromised service to customers.

This integration happens not through external regulatory mandates but through what Davis (2003, p. 974) terms the “socially embedded individual” making decisions that intrinsically incorporate both private and social dimensions. The methodological significance of this observation lies in recognizing that the rational economic actor has not abandoned self-interest but rather operates with what Etzioni (1988) terms “I & We” paradigm that transcends artificial boundaries between private and social benefits.

Consumer Valuation of Production Standards

The organic food market provides another methodologically significant case. When consumers willingly pay premium prices for organic products, conventional economics often characterizes this through what Vatn and Bromley (1997) identify as the “commodification of externalities.” However, this methodological framing imposes an artificial separation that does not reflect the actual valuation process.

Following Callon’s (1998) analysis of market devices and Zelizer’s (2012) work on valuation practices, we can recognize that consumers paying a surcharge for organic certification are expressing a valuation that inherently includes both private benefits and social benefits. The price differential between conventional and organic products represents what Anderson and Holcombe (2013) term “integrated social valuation”—a comprehensive valuation where social dimensions are not external to the market but constitute an intrinsic component of the value proposition itself.

Methodologically, this challenges the ontological separation between “market values” and “social values” that has dominated economic analysis since Pigou’s (1920) formulation of externality theory. The organic certification standard operates as what Star and Griesemer (1989) identify as a “boundary object” that allows coordination between different social worlds without requiring consensus about precise meanings—a methodological perspective that permits more nuanced understanding of how social values become embedded in price mechanisms.

Natural Integration of Health, Environmental, and Safety Considerations

These examples illustrate a methodological approach to understanding markets not as fundamentally incomplete systems requiring external correction but as complex valuation mechanisms capable of incorporating multiple dimensions of value. This approach aligns with MacIntyre’s (1984) critique of compartmentalization in modern social thought and Polanyi’s (1944/2001) concept of embeddedness, challenging the philosophical premise that social costs and benefits exist outside market mechanisms.

This methodological perspective diverges from both neoclassical approaches that treat social factors as externalities and from heterodox approaches that reject market valuation altogether. Instead, it aligns with recent developments in socio-economics (Etzioni, 2003; Hodgson, 2019) that recognize the inherent integration of social and economic dimensions in human decision-making.

Formal Analytical Approach: Hedonic Pricing Models

The narrative understanding outlined above finds formal analytical complement in hedonic pricing models, following Rosen’s (1974) foundational work. This methodological approach decomposes price into its constituent value components without imposing artificial separations between “economic” and “social” factors.

Anderson’s recent study, “Wind Turbines, Shadow Flicker, and Real Estate Values” (2024), provides empirical evidence of how economic actors endogenously incorporate what conventional economics would term “externalities” directly into price mechanisms. The methodological significance of this approach lies in its capacity to quantify valuation components without presuming their ontological separation.

This research employs the hedonic pricing methodology with particular attention to what Heckman and Singer (2017) identify as “causal pluralism”—recognizing that price adjustments for social factors represent not market failures but rather evidence of markets’ capacity to incorporate complex, multi-dimensional valuations. Following Mäki’s (2009) discussion of models as isolations and surrogate systems, the hedonic approach allows us to isolate and examine specific components of valuation while recognizing their inherent integration within actual market processes.

Methodological Limitations and Reflexivity

This methodological approach is not without limitations. The narrative cases, while illustrative, cannot capture the full range of market behaviors, and there remains the potential for selection bias in the cases examined. The hedonic pricing models, while powerful, rely on assumptions about market efficiency and information availability that may not fully hold in practice (Bartik & Smith, 1987; Kuminoff et al., 2010).

Additionally, as Bourdieu (1990) emphasizes, researcher reflexivity must acknowledge that the conceptual frameworks we employ shape the phenomena we observe. The methodological challenge lies in distinguishing between artificially imposed conceptual separations and meaningful analytical distinctions—a challenge this research addresses through methodological triangulation and critical engagement with underlying philosophical assumptions.

In summary, this research employs a methodologically pluralist approach that combines narrative explication and formal hedonic pricing analysis within a critical realist philosophical framework. This approach enables a reconstruction of our understanding of how price mechanisms already incorporate social dimensions of value, challenging the artificial separation between private and social components that has dominated economic thought.

Litterature Review

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.

I think this section needs some more work. But here’s what we have so far:

II. Literature Review

A. Mainstream Economic Philosophy Foundations

The philosophical foundations of mainstream economic theory have been constructed upon a series of conceptual separations that artificially divide the economic from the social, the private from the public, and the individual from the collective. This review traces these separations through key philosophical traditions in economic thought, examining how they have shaped our understanding of price mechanisms and market functioning.

The Neoclassical Framework and Methodological Individualism

The neoclassical paradigm, beginning with Marshall (1890/1920) and formalized by Samuelson (1947), established methodological individualism as the dominant analytical approach to economic phenomena. This philosophical stance treats social aggregates as reducible to the actions of autonomous utility-maximizing individuals whose preferences are taken as given. As Arrow (1994, p. 1) acknowledges, “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.”

This methodological commitment has profound implications for price theory. Within the neoclassical framework, prices emerge from the aggregation of individual utility functions, with social dimensions treated as externalities—phenomena that exist outside the core market mechanism. Pigou’s (1920) seminal work on welfare economics formalized this separation, positioning social costs as divergences between private and social valuations that require correction through policy interventions. This philosophical framing fundamentally shapes how economists conceptualize market processes, treating the social as external to rather than constitutive of economic valuation.

Interestingly, even as neoclassical economics rigorously applies methodological individualism, it implicitly relies on group concepts without adequately defining them. Markets, firms, industries—these collective entities serve as the backdrop for individual decisions, yet their constitutive nature remains undertheorized. It is as if economic theory performs an elaborate mimetic gesture, tracing the outlines of social structures while focusing exclusively on the individuals within them, like a mime whose white-gloved hands demarcate invisible boundaries that audiences must imagine rather than observe directly.

Public Choice Theory and Rational Actor Models

The public choice tradition, exemplified by Buchanan and Tullock (1962), extends methodological individualism into the realm of political decision-making. By applying rational actor models to public policy, this approach treats political processes as aggregations of individual utility calculations rather than expressions of collective values. As Buchanan (1984, p. 13) argues, “There is no organic entity called ‘society’ that exists independently of the individuals who compose it.”

This philosophical stance reinforces the separation between economic and social dimensions by treating political processes themselves as markets—mechanisms for aggregating individual preferences rather than constructing collective meanings. While providing valuable insights into institutional incentives, this approach systematically marginalizes the embedded nature of economic decision-making within social contexts.

Again, the public choice tradition alludes to groups—voters, interest groups, bureaucracies—while consistently reducing them to collections of utility-maximizing individuals. The collective dimensions that give these groups meaning and coherence are acknowledged as backdrop but rarely examined as constitutive elements of the analysis itself. The mime continues to trace invisible boundaries without substantiating the spaces they enclose.

Transaction Cost Economics and Institutional Analysis

Williamson’s (1975, 1985) transaction cost economics represents a significant extension of economic analysis into institutional structures, examining how organizations emerge to reduce the costs of market exchange. While acknowledging that economic activities occur within institutional contexts, this approach maintains the philosophical separation between economic and social dimensions by treating institutions primarily as efficiency-enhancing mechanisms rather than socially embedded practices.

As Williamson (1985, p. 18) argues, “Transaction cost economics attempts to explain how trading partners choose, from the set of feasible institutional alternatives, the arrangement that protects their relationship-specific investments at the least cost.” This framing maintains the priority of efficiency considerations while treating social dimensions as constraints rather than constitutive elements of economic organization.

Despite its focus on organizations and institutions, transaction cost economics continues to treat these collective entities as instrumental arrangements serving individual interests rather than examining how they constitute economic actors themselves. The group remains an instrumental backdrop—a cost-minimizing solution to coordination problems—rather than a constitutive dimension of economic reality. The mime’s gestures outline organizational boundaries without examining how these boundaries shape the identities and preferences of those within them.

Behavioral Economics and the Modified Individual

Behavioral economics, pioneered by Kahneman and Tversky (1979) and expanded by Thaler (1991) and others, challenges the rational actor model by identifying systematic deviations from utility maximization. While this approach introduces psychological complexity into economic analysis, it maintains the philosophical separation between economic and social dimensions by treating these deviations as cognitive biases rather than expressions of social embeddedness.

As Thaler and Sunstein (2008, p. 6) argue in their influential work on nudge theory, “The false assumption is that almost all people, almost all of the time, make choices that are in their best interest or at the very least are better than the choices that would be made by someone else.” This framing maintains the philosophical commitment to individual choice while acknowledging limitations in cognitive processing, without fundamentally challenging the separation between economic and social dimensions.

Here too, the social dimension appears as an influence on individual decision-making rather than a constitutive element of economic action. Groups function as reference points that bias individual judgments rather than fields of practice that constitute economic meaning. The mime continues to gesture at social influences without substantiating the collaborative production of economic reality that these influences represent.

B. Critical Theoretical Intersections

Against these mainstream approaches, several critical traditions have challenged the separation between economic and social dimensions, offering theoretical resources for reconceptualizing price mechanisms as inherently incorporating both private and social valuations.

Social Capital Theory: From Group Phenomenon to Individual Asset

Loury’s (1976) groundbreaking paper, “A Dynamic Theory of Racial Income Differences,” introduced social capital as a group-contained phenomenon that shaped economic opportunities. This original conception recognized the embedded nature of economic action within social contexts, particularly in explaining persistent racial disparities. As Loury (1976, p. 176) argued, “The social context within which individual maturation occurs strongly conditions what otherwise equally capable individuals can achieve.”

However, as the concept evolved through Coleman (1988), Putnam (1993), and Lin (2001), it increasingly shifted toward what might be termed an “instrumental network” approach—treating social capital as a resource that individuals could access and deploy strategically rather than a field of relationships in which they were embedded. Coleman (1988, p. S98) exemplifies this shift in defining social capital as “a variety of entities with two elements in common: They all consist of some aspect of social structures, and they facilitate certain actions of actors—whether persons or corporate actors—within the structure.”

This conceptual migration represents a critical juncture in economic philosophy, where a potentially transformative concept that recognized the inherent embeddedness of economic action was gradually reframed to fit within methodological individualism. The group-level phenomenon that Loury identified became increasingly individualized—a network resource rather than a constitutive field of practice.

Notably, throughout this evolution, the central concept of “the group” remains persistently undefined. Social capital theorists allude to communities, networks, and associations without developing a rigorous philosophical account of what constitutes a group beyond the aggregation of connected individuals. The mime traces ever more elaborate networks of connection without substantiating what makes these networks constitutive rather than merely instrumental.

Embeddedness and Economic Sociology

Granovetter’s (1985) influential paper, “Economic Action and Social Structure: The Problem of Embeddedness,” directly challenged the separation between economic and social dimensions by arguing that economic actions are “embedded in concrete, ongoing systems of social relations.” This perspective reframed economic behavior as inherently social rather than merely influenced by social factors.

As Granovetter (1985, p. 487) argues, “Actors do not behave or decide as atoms outside a social context, nor do they adhere slavishly to a script written for them by the particular intersection of social categories that they happen to occupy.” This recognition that economic action is constitutively social rather than merely constrained by social factors represents a fundamental philosophical challenge to the separation paradigm.

Similarly, Zelizer’s (2012) work on “relational work” examines how economic transactions constitute social relationships rather than merely reflecting them. As she argues, “Economic transactions connect persons and establish meaning-laden relationships.” This perspective challenges the philosophical separation between economic and social dimensions by recognizing their mutual constitution.

Yet even within economic sociology, there remains a tendency to allude to social structures without developing a rich philosophical account of their ontological status. The mime gestures toward “concrete, ongoing systems of social relations” without fully substantiating how these systems exist beyond the interactions of individuals within them.

Ecological Economics and Systems Thinking

Ecological economics, developed by Georgescu-Roegen (1971), Daly (1977), and others, challenges the separation between economic and ecological systems by positioning the economy as a subsystem of broader biophysical processes. This approach recognizes the inherent embeddedness of economic activities within ecological contexts, challenging the artificial boundaries that conventional economics draws around market processes.

As Daly (1990, p. 1) argues, “The economy is a subsystem of the finite biosphere that supports it.” This simple yet profound observation challenges the philosophical foundations of mainstream economics by recognizing that economic activities are intrinsically rather than accidentally connected to their ecological contexts.

More recently, Raworth’s (2017) “doughnut economics” has extended this systems thinking approach, arguing for a reconceptualization of economic theory that recognizes social and ecological dimensions as constitutive boundaries of economic activity rather than external constraints. As she argues, economic theory must be “embedded in society and in nature, and that’s inherently connective.”

However, even these systemic approaches often maintain a distinction between “the economy” and its social and ecological contexts, preserving a conceptual separation even while arguing for integration. The mime traces the connections between systems while maintaining their distinct identities, without fully examining how these identities themselves are mutually constituted.

Feminist Economics and the Critique of Separative Self

Feminist economic philosophy has provided some of the most profound challenges to the separation paradigm through its critique of the “separative self” that underpins mainstream economic theory. Nelson (2006), Folbre (1994), and others have questioned the philosophical assumptions about autonomy and independence that shape conventional economic analysis.

As Nelson (2006, p. 30) argues, “The image of economic man as self-interested, autonomous, and rational creates a distorted view of economic life. Most economic decisions and actions are undertaken by people who are deeply connected to others.” This critique challenges not merely the assumptions of rational choice theory but the deeper philosophical conception of the economic actor as fundamentally separate from social contexts.

Folbre’s (1994) work on care economics further demonstrates how economic decisions inherently incorporate social dimensions, particularly in domains traditionally excluded from economic analysis. As she argues, “The invisible hand is all thumbs when it comes to care.” This observation highlights how conventional economic frameworks systematically marginalize activities where social dimensions are most evident.

Yet even these critical perspectives often maintain a focus on individuals—albeit connected and caring ones—without fully developing an alternative ontology of the social. The mime gestures toward connection and care without fully substantiating the collective dimensions these concepts imply.

C. Syntheses and Gaps in Current Literature

The literature reveals both promising directions for reconceptualizing the relationship between economic and social dimensions and persistent gaps that the current research aims to address.

Toward an Integrated Understanding

Several theoretical developments suggest potential pathways toward a more integrated understanding of price mechanisms. Lawson’s (2007) critical realist approach challenges the ontological assumptions of mainstream economics, arguing for a recognition of economic phenomena as emerging from “structured interrelationships in practices and positions.” This philosophical stance aligns with the current research’s emphasis on the inherently social nature of price mechanisms.

Similarly, Hodgson’s (2019) recent work on institutional economics provides theoretical resources for understanding how social institutions constitute economic behaviors rather than merely constraining them. As he argues, “Institutions not only constrain options, they establish the very criteria by which people discover their preferences.” This insight suggests how social dimensions might be understood as intrinsic to rather than separate from price mechanisms.

The Missing Ontology of the Group

Despite these promising directions, a significant gap remains in the philosophical understanding of how social dimensions operate within price mechanisms. Across divergent theoretical traditions—from neoclassical economics to critical alternatives—there persists a tendency to allude to groups without developing a rich philosophical account of their ontological status.

This mimetic quality of economic theory—gesturing toward social structures while focusing primarily on individuals within them—represents a critical limitation in current approaches. Like a mime whose white-gloved hands trace invisible boundaries, economic theory repeatedly outlines social dimensions without substantiating them philosophically. Markets, firms, communities, networks—these collective entities appear throughout economic literature without rigorous examination of their constitutive nature.

The present research aims to address this gap by developing a philosophical framework that recognizes price mechanisms as inherently social institutions rather than merely technical devices. By reconnecting with Loury’s original insight that social capital represents a group-contained phenomenon, this research seeks to recover and extend a more integrated understanding of how social dimensions operate not around but within price mechanisms themselves.

As the subsequent sections will demonstrate, this reconceptualization has profound implications for how we understand market processes, offering a more coherent theoretical account and opening new possibilities for addressing complex socioeconomic challenges through a more sophisticated understanding of how prices already incorporate both private and social dimensions of value.

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.

What is Public, What is Private

Yesterday’s post with Grok, a rather long one for this humble site, was necessary to explore Thomas Sowell’s conceptualization of constrained and unconstrained framing versus the one present at this site of What is Public and What is Private. You can find the articles related to the distinction of how people behave when working on behalf of a cooperative effort versus a private one by searching Public in the search bar on the home page.

Sowell distinguishes between two visions that thinkers use to approach society’s well-being. He names them: the constrained and the unconstrained. Yet he leaves room for all parties to acknowledge the existence of both. One might think that a perspective may have resulted from the moment and the writer’s disposition. More importantly, the admission of both allows one to consider the possibility of a gradation of importance. Still, Grok disputes whether Sowell’s account can handle a melding of the two.

However, its success hinges on overcoming the visions’ deep philosophical divide, which Sowell sees as nearly irreconcilable. The unconstrained vision’s North Star role risks dominating if not rigorously checked, as its moral urgency can overshadow constrained pragmatism. Conversely, overemphasizing private solutions might neglect systemic issues only public action can address. A robust institutional framework—perhaps decentralized governance with empirical feedback—would be crucial to balance these impulses.

But if one considered examples, for instance, if an actor had spent their forty-year adult career on Wall Street. Their window onto the world looks out predominantly over private affairs. The constraints and trade-off model make sense to them. That doesn’t mean they feel constrained in pursuing their passions. They would likely do anything for a child or their spouse’s health. Constraints be gone. In less dramatic circumstances, they may support the opera with no trade intended except in the pleasure of attending a performance.

Humans are complex. It’s not unreasonable to think they can act with dual motives. Bernie Sanders was recently criticised for flying in a private jet. Ayn Rand collected from the public purse. Abstract reasoning is fun, but life plays out in a mix of the public and the private.

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?

Now that people are talking in groups…

Robin Hanson wrote recently about his Status Circles. They start on an enormous scale with the whole universe and then life on Earth. But when most people focus on nation, acquaintances, and family, Robin distinguished his affiliations to people interested in the big questions—the intellectuals. But even within this grouping, he offers a wide range of ever-narrowing groupings.

Government structures are often thought of as falling into one another. The town is part of a county, which is part of a state, which falls under a country’s national laws and jurisdictions. Let’s call this the Russian Doll effect. By encapsulating one organization into the other, it seems a default that the interests of the smallest doll would be taken in consideration up the chain.

In Vincent Ostrom’s book The Intellectual Crisis in American Public Administration, the author uses ideas offered by de Tocqueville to suggest otherwise.

I’m reading Vincent Ostroms The Intellectual Crisis in American Public Administration. On page 80, he refers to De Tocqueville’s impressions of the US administration. Can it be said that the French man thought there was independence between various levels of US governance, and that’s a good thing?

ChatGPT said:

Yes, Alexis de Tocqueville generally viewed the decentralization of governance in the United States as a positive feature. In Democracy in America, he admired how local institutions, especially townships and states, maintained a degree of independence from the central government. Tocqueville saw this decentralization as essential to fostering civic engagement, political responsibility, and democratic stability. He believed that allowing different levels of government to function with relative autonomy helped prevent tyranny and encouraged active participation by citizens in public affairs.

Vincent Ostrom, in The Intellectual Crisis in American Public Administration, often draws from Tocqueville to critique centralized bureaucratic models. Ostrom emphasizes how polycentric governance—where multiple centers of authority operate independently but cooperatively—aligns with Tocqueville’s observations about America’s administrative structure. So yes, Tocqueville did see this independence as beneficial, particularly in reinforcing democratic habits and limiting the overreach of centralized power.

4o

You said:

If one were to take the imagery one step further, could one separate each level out by encapsulating them in a self-interest cloak- the idea being that in terms of action, each level will prioritize the interest at the local level, which can be at odds with other levels of governance.

ChatGPT said:

Yes, you could extend the imagery in that way. If each level of governance is wrapped in a “self-interest cloak,” it suggests that local, state, and federal authorities will act primarily to protect their own interests, which may sometimes conflict with other levels. This aligns with public choice theory, which Ostrom himself engages with, emphasizing that political actors—whether at the local, state, or national level—pursue their own interests rather than some idealized collective good.

Tocqueville observed that the strength of American governance lay in its decentralized structure, where local institutions had enough autonomy to make decisions that best served their immediate communities. However, this same independence could lead to friction when different levels of government pursue conflicting agendas. For example, a state might resist federal mandates that it views as intrusive, or a local government might implement policies that are at odds with state priorities.

This “self-interest cloak” metaphor also ties into the broader tension in American federalism: the push and pull between cooperation and competition among different levels of government. In practice, while decentralization fosters adaptability and local problem-solving, it can also create inefficiencies, redundancy, and legal battles when interests clash. Ostrom, like Tocqueville, would likely argue that this tension isn’t necessarily a flaw but an inherent feature of a system designed to resist centralized authority and encourage pluralism.

The benefit of this model, as opposed to the Russian Doll model, is understanding when a group becomes a competitor rather than an altruistic companion. For instance, during the COVID crisis, all the states bid up the price of masks by bidding against each other. In their actions, which were independent (cloaked in self-interest), Americans increased the costs of masks for all Americans to the benefit of those abroad. When reorganized as a bidding unit at the national level, this price effect is reduced.

The only trick, of course, is that you must trust that the greater group will, in turn, divide out the masks to everyone’s satisfaction.

The Erdos Number

Paul Erdos, featured yesterday, chose a lifestyle that led to a striking number of shared work projects. Due to the sheer number of work friends, a number system was developed to keep track of the network that worked on shared ideas. Chat explains.

Paul Erdős, one of the most prolific mathematicians of the 20th century, collaborated with an extraordinary number of researchers throughout his life. His collaborators are often counted as part of the famous “Erdős Number” system, where Erdős himself has an Erdős Number of 0, his direct collaborators have a number of 1, their collaborators have a number of 2, and so on.

Estimated Number of Collaborators

Erdős collaborated with approximately 511 mathematicians on research papers during his lifetime. These collaborations resulted in over 1,500 papers, making him one of the most prolific authors in mathematical history.

This number of collaborators reflects Erdős’s unique approach to mathematics—he would travel extensively, visiting mathematicians worldwide, and work intensively with them on specific problems. This collaborative approach led to his reputation as a “mathematical nomad.”

Now, how do you think that work went when you think about all these math types puzzling over combinatorics or vertices of convex polygons? Did Erdos have a payroll and dole out cash? It seems it was the opposite. Collaborators and friends brought him into their home and put him up so he could work with them out of their university. This is not work compensated through pecuniary means.

So what’s in it for the collaborators? The Edos number, of course. Being in the Erdos network gives one sense of participation in the mathematical theory underway, and then their Erdos number specifies a claim to a distance from Erdos himself.

To recap, this type of work is voluntary and participatory, and the end product feeds into a jointly held asset—a school of thought in mathematics. Money is not the primary motivation for action. Membership in the network and the potential for the elevated position are the compensating factors. Every participant has access to the knowledge. It is a public good.

Here’s Chat’s visual.

Is it a public good to the whole world? In a sense, yes, but not in a practical sense. Just like it’s not practical to say the streets of Fargo, ND, are public to the whole world. The knowledge is open, but only a few will have the talents and learned knowledge to comprehend it. Only people in the geographic vicinity of Fargo will use their streets.

Is there externalizing and internalizing going on? Sure- when a new entrant learns a theorem, it becomes part of their knowledge. They have acquired the benefit, internalized, of the learned network. If a few of them collaborate on a textbook and sell it for their private pecuniary gain, they externalize knowledge and realize a gain. These actions do not conflict or reduce the network’s accomplishment. They add to the power and benefit of the group. The image you see inflates.

Paul Erdos’ life had living constraints, just as ours do. Yet the value of his research was such that he could be entertained at associates’ homes to assist in writing all 1,500 papers he left to the world.

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?

Embedded bugs

embedded [əmˈbedəd, emˈbedəd] adjective

  1. (of an object) fixed firmly and deeply in a surrounding mass; implanted: “a gold ring with nine embedded stones”

I’ve never followed the use of this word as a descriptor of how norms and values influence economic activity. So I asked Chat. How is it that Karl Polanyi, who wrote The Great Transformation, talks of actors navigating a dynamic system where the act of their own free will and yet somehow is fixed firmly and deeply, i.e., embedded, in pre-set cultural norms? Here’s Chat’s response.

You raise a compelling point about the term “embedded” potentially being seen as static or limiting. However, in Karl Polanyi’s usage, the term “embedded” does not imply a rigid or unchanging system. Rather, it signifies that economic activity is integrally tied to social, cultural, and political frameworks. Within this embedded system, change and enhancement by participants are entirely consistent with the concept.

Why “Embedded” Is Appropriate in Polanyi’s Framework:

  1. Embeddedness Is About Integration, Not Inflexibility:
    • Polanyi uses “embedded” to describe how economies are integrated into social and cultural systems, rather than existing as separate, autonomous spheres (as in the market economy).
    • Embeddedness highlights that norms, values, and institutions guide economic behavior, but it does not preclude change or evolution. It acknowledges that human agency and interaction shape these systems over time.
  2. Dynamic Nature of Embedded Systems:
    • An embedded system evolves as participants interact with and reinterpret the norms and institutions that structure their actions. These systems are adaptive and responsive to changing circumstances, such as shifts in resources, relationships, or external pressures.
    • For example, reciprocity in a small community might evolve to accommodate new technologies or trade relationships, but it remains embedded because it is still governed by the community’s social values.
  3. The Contrast with Disembedded Economies:
    • Polanyi contrasts embedded economies with disembedded ones, where economic activity becomes “autonomous,” governed solely by market principles. In disembedded systems, human relationships are subordinated to market imperatives, creating a more rigid and dehumanized structure.
    • Embeddedness, by contrast, ensures that economic systems remain rooted in human relationships, which are inherently flexible and participatory.
  4. Room for Agency and Innovation:
    • Embeddedness does not eliminate agency or pre-set participants to fixed standards. Instead, it provides a context within which people act, negotiate, and innovate. Participants are active agents in shaping the system, but their actions are always informed by their embedded relationships and cultural understandings.

A Possible Refinement: “Interwoven” or “Integrated”?

For clarity, terms like “interwoven” or “integrated” might better capture the dynamic, evolving nature of the systems Polanyi describes. These terms emphasize the mutual influence between individuals and institutions, as well as the ongoing negotiation and adaptation of norms.

Conclusion:

The term “embedded” in Polanyi’s framework is appropriate because it emphasizes the interdependence of economic, social, and cultural systems. However, it is crucial to understand that embedded systems are not static. They are enhanced and reshaped by participants, reflecting a dynamic and evolving process rather than a pre-set, unchanging standard. If the term “embedded” feels too rigid, alternatives like “interwoven” or “integrated” can convey the same idea with more emphasis on fluidity.

I still say embedded is misleading. Economic activity doesn’t sit in a nest of norms and rules. It participates in making norms and rules along the way. In the process, economic agents are continuously confronted with the choice of Exit, Voice, and Loyalty.

How about you? Does economic activity sit atop a mangle of social requirements calling out orders? Or are social needs slid in side-by-side with personal gains?

Hayek’s Extended Order

Hayek won the intellectual battle. Government of any sort is not be capable of planning their country’s economy. If in doubt, this animated version of Leonard Read’s famous essay, I, Pencil, will surely convince you.

Near the end of his life, Hayel published his last book The Fatal Conceit, The Errors of Socialism (1988). By now the debate had lost its salience. The Berlin Wall would fall just a year later vindicating all who opposed socialism. A reader is left to think of the Fatal Conceit as a remix of a brilliant mind’s famous career.

But I think Hayek was trying to advance his ideas of extended order to a new level. First note, in the clip above, that the creation of the pencil navigates hundreds if not thousands of exchanges between people. It’s a linear activity. The order is rather flat.

Hayek suggests there is more.

Moreover, the structures of the extended order are made up not only of individuals but also of many, often overlapping, sub-orders within which old instinctual responses, such as solidarity and altruism, continue to retain some importance by assisting voluntary collaboration, even though they are incapable, by themselves, of creating a basis for the more extended order. Part of our present difficulty is that we must constantly adjust our lives, our thoughts and our emotions, in order to live simultaneously within different kinds of orders according to different rules. If we were to apply the unmodified, uncurbed, rules of the micro-cosmos i.e., of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilisation), as our instincts and sentimental yearnings often make us wish to do, we would destroy it.

Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of world at once. To apply the name ‘society’ to both, or even to either, is hardly of any use, and can be most misleading (see chapter seven).

We live in two worlds. The mechanics of one would crush the other—but then again, the passions are known to be deadly as well. In this way, the actions in one must bend to the actions in the other. And in the worlds of dual ambitions, the subgroups explode into a cacophony of midlevel playing fields of interactions. He describes the replication process in Appendix C.

Cooperation, Altruism and Moral Judgement

People often conflate cooperation with doing good or what is right. The thought goes that is everyone just gets along and cooperates, than it’s a win for everyone. And getting along is exactly what those nice churchy people do when they reach out into the community with a helping hand to those in need. Out of a sense of duty to our fellow person, an altruist will act to augment the welfare of others.

And this is true. But there are other examples of cooperation that have not a thing to do with do-gooders in their Sunday best.

We’ve been reading David Skarbek’s book The Puzzle of Prison Order. It’s a thoughtful book of comparative analysis. By looking at various prisons, both their physical structures and their management structures, the author elucidates the emergence of a variety of levels of self-governence throughout the convict community. In South America, prisoners maybe responsible for virtually all necessities behind their wardens’ wall. While in Norway the prisoner to guard ratio is virtually one-on-one creating little need for the captive take on any duties.

From the case studies it is clear that where few services are provided, prisoners organize to allocate housing, maintain safety standards, and supplement the meager amount of food provided to them.

In San Pedro prison, governance emerges in the political realm (in the form of housing associations), in the commercial realm (markets and exchange with the outside world), and in civil society (as with the parents association).

Whereas in Bolivia the time invested by the inmates is extensive, in a small Californian prison for the gay and trans population only one position was necessary to be the intermediary between the prison population and the guards. A House Mouse takes on the duties of go between with the prison staff. Skarbek’s examination of the various spontaneous arrangement throws light on the various levels of investments demanded of the convicts. Depending on the need for governance, individuals rise to the occasion and donate their labor hours to the endeavor (one might say the socially necessary amount of labor hours, but that’s for another post).

But wait. It’s easy to forget that these are criminals who have been removed from civil society. Their emerging cooperation is forced upon them as a result of immoral behavior against their countrymen and women. They are not do-gooders. They are not altruists- at least not to the outside. Altruism delivered through self-organization is to noone’s benefit but them and theirs. And the moral behavior is dictated by their own set of rules.

Cooperation is a descriptor for a type of societal action. It’s the act of foregoing a bit of freedom to be apart of a group. Cooperation is a technique to attain an aim for an ingroup while withholding it from an outgroup. Cooperation has no moral compass. Resulting outcomes can either be good or bad depending on which wall surrounds you.

It is not equivalent to altruism. Altruism is a gift for which no duty or repayment is required.