Beyond the Market: The Social Foundations of Economic Efficiency

By Jens Beckert; Barbara Harshav | Go to book overview

NOTES

CHAPTER ONE
THE LIMITS OF THE RATIONAL-ACTOR MODEL AS A
MICROFOUNDATION OF ECONOMIC EFFICIENCY

1. This is not to deny that, in his moral philosophy, Adam Smith considered motives other than selfish interest relevant for the maintenance of social order. This discussion deals with the development of an analytical model.

2. In The Passions and the Interests, Albert Hirschman (1977) discusses contemporary opinions in the eighteenth century that expected the pacification of society from an orientation to interest (acquisition of money).

3. Cf. Albert (1972); Brockway (1993); Etzioni (1988); Gorz (1989); Hollis and Nell (1975); Kahneman, Knetsch, and Thaler (1986); Polanyi: (1944); Sen (1977); Simon (1945).

4. The term “orthodox economics” is not firmly defined and can easily lead to misunderstanding because it suggests that there is a homogeneous school of theory in economics. In this book, orthodox economics means approaches to economic theory that start from the assumption of maximizing action and the development of Pareto-optimal equilibrium through market processes.

5. Even though economists have made this point, it has remained insignificant for economic research. A telling example of this is an article by Kenneth Arrow (1983 [1969]), in which he indicates the significance of social norms for the achievement of efficient economic results: “Norms of social action, including ethical and moral codes… are reactions of society to compensate for market failures. It is useful for individuals to have some trust in each other’s word. In the absence of trust it would become very costly to arrange for alternative sanctions and guarantees, and many opportunities for mutually beneficial cooperation would have to be foregone” (Arrow 1983:151). Arrow’s article, which criticizes the assumptions of the general equilibrium theory and refers to transaction costs and asymmetrical distribution of information as reasons for market failure, has had a marked influence on economics since the 1970s, but Arrow’s emphasis on the significance of social norms for the coordination of economic activities and the achievement of efficient results has been mostly ignored.

6. The difference between risk and uncertainty is explained in the second section of the chapter.

7. Weber’s position (1988) can be understood thus.

8. See Joas’s first chapter (1996).

9. That economic efficiency is obviously a legitimate basis for economic action was formulated impressively by Milton Friedman (1970): “The social responsibility of business is to increase its profits.”

10. It makes a decisive difference for assessing the action if the tip is given in a favorite pub that is often visited or in a restaurant one will probably never return to. In the favorite pub, the tip can be interpreted as a long-term investment in anticipated service. The example of the returned wallet is similar: if the wallet belongs to a friend whom I can assume might know that I found the wallet, the

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