Academic journal article The American Journal of Economics and Sociology

Collateralized Social Relations: The Social in Economic Calculation

Academic journal article The American Journal of Economics and Sociology

Collateralized Social Relations: The Social in Economic Calculation

Article excerpt


ABSTRACT. Traditionally, economists have viewed social relations as "friction" or "impediments" to exchange and have excluded social relations from their analyses by assuming autonomous actors. Recently, however, a number of scholars--economists, sociologists, anthropologists, and other social scientists--have begun to discuss the numerous ways in which social arrangements both prompt and channel economic activity. Rational choice theory, social capital and network analysis, and agency and game theory, are among those approaches that consider the effects of social relations on economic action. In this paper we extend that discussion by arguing that social relations can function as "collateral" or assurance that an economic transaction will proceed as agreed by the parties involved. We review recent microeconomic theories and conjecture how they might be developed following this observation, which is derived from sociological and anthropological studies of economic action and organization.



SOCIAL SCIENTISTS OF VARIOUS PERSUASIONS, however much they may have disagreed about some matters, historically have shared the assumption that advanced capitalism required the movement away from the entanglements of traditional social relations to the impersonal, individuated relations we associate with modern economies in the West. Classical economist Adam Smith ([1776] 1976, pp. 232-233), for example, argued for the abolition of regulations requiring members of a trade to register publicly, fearing they would learn each others' identities and collude. He reasoned that atomized, asocial economic actors better serve competitive markets. Following the same logic, Max Weber (1951), in attempting to account for the failure of industrial capitalism to develop in China, placed the blame on the constraints of a demanding communal structure, what he referred to as "the fetters of the sib." "The legal forms and societal foundations for capitalist 'enterprise' were absent in the Chinese economy. There was no rational depersonalization of business comparable to its unmistakable beginnings in the commercial law of the Italian cities" (1951, p. 85), an important foundation for Western capitalist development.

The idea that the most efficient economy is one in which unencumbered actors rationally calculate and act upon their own interests remains in force in much social science thinking today. Actors hamstrung by family ties, by attachments to traditionally important locales, or by pressure to favor relations cannot make optimal economic decisions. Non-rational social and emotional relations interfere with rational economic calculus and the movement of people and assets to their most economically efficient function.

While not taking on directly the question of the "costs" of social relations to economic efficiency, studies of the economy by institutional social scientists increasingly recognize that economic activity takes place within and in reference to a social context, what Mark Granovetter, reviving the work of Karl Polanyi, calls the "embeddedness" of economic activity (1985). This paper attempts to theorize and extend what a number of studies suggest: while social relations can act as impediments, as classical theories assume, social relations also can be a medium for and catalyst to economic activity. Additionally, we believe that actors knowledgeably and actively utilize social understandings in formulating economic strategies.

In making this assertion, we are going beyond the ideas that social relations are simply the context or playing field on which economic action takes place, or that social structural factors shape preferences. Rather, we will argue that knowledgeable actors actively use their social relations to advance their economic interests and that in some instances social relations can form the basis for market activity where atomized actors cannot. …

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