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Redefining Boundaries of Economics and Sociology

The science of economics is heavily criticized as to be disintegrated from the society. During the war periods, most of the attention of the academics was devoted to the fact that the decision-making of an individual is only based on his or her own motivation, without any altruistic consideration of others. After the World War, some deviation from the prevalent methodology of studying the rationality of humans was realized and the study of economics expanded (albeit quite minimally) to group behaviors and how group interactions can have some certain extent of influence on future individual decision making. However, it has reverted to the initial direction in recent decades and researches in economics are again dominated by findings that can only indicate scanty correlation and not the underlying causality. This is a concern which makes the science of economics and its relevance to the society as fragile as ever. After all, the science of economics evidently belongs to the home of social sciences, so it must have had some degree of relevance to the study of society, which is sociology. Sociology could be seen as the foundations of many economic theories and explanations to many economic matters. In this issue, I would like to dive into how sociology has helped economics so far and why it should receive more attention from economists. There is much more similarity between the two fields than you might think.

Sociology and Classical Economic Theory

George C. Homans, a famous social scientist, believes that there is an agreement, and a fundamental similarity, of social relations with respect to the theoretical foundations of economics. He discovered the observation that the social reward for a particular action is analogous to the classical demand-supply model. For example, the law of supply states that the higher the price of the goods, the more manufacturers would offer the product to be sold. His constructed social theory shares some insight from the law of supply: the more rewarding a course of action is, the more likely an individual is to perform that particular type of behavior. Similarly, the greater the cost of undertaking an action, the less likely an individual is to perform it, which resembles the theory of demand.

However, despite the interesting observations of Homans (along with his other hypotheses), the theory does lack some extent of validity. If the theory is attempted to be generalized to other complicated contexts, for example, extending to the relations between (social) organizations instead of the interaction between a limited number of individuals, then the simple law of demand and supply does not hold true anymore. Extensions of this social theory including the recognition of the difference of social macro-interactions through the difference of regional culture, the social status and other types of perceptions, but it does not seem to help later generations of economists to do their work.

Sociology and Economic Behavior

The studies of sociology and its relationship with economics have gradually shifted from purely focusing on social relations between humans independently to a more central approach on the interaction between multiple social agents. More specifically, in the works of Frank Dobbin (2005), the interference of power, institutions and the networks can be used to identify the myriads of factors influencing the economic behavior of individuals:

Power relates to the manipulation of one’s influence on another party or multiple other parties. The concentration of power in the hands of the few can exert significant influence on society, for example, raising the bargaining position of one relative to others (on a micro-scale) to taking private benefits as being the common interest of the society (on a macro-scale). Karl Marx was the first intellectual to publish a renown detailed description of this matter and put forward many harsh critiques on the how capitalists use political liberalism as the protective tool to push their agenda forward.

Social institutions also affect individual economic behavior through customs and beliefs. The law, regulations and the states indeed shape certain behavior in a manner that some certain courses of economic actions are restricted through the applications of appraisals and punishments to a respective behavior. Religious doctrines can have a significant impact on people’s behavior, as while Protestantism promotes entrepreneurship and work ethics as the pathway to live, other religions praise salvation as the means to achieve the fulfillment of spiritual life. This is arguably the powerful motivator to the prosperity of Europe in the last millennia, compared to their counterparts elsewhere.

Aside from the influence of social institutions, your social milieu can enforce you to perform appropriate courses of actions that are fitting and acceptable. This so-called network effect will influence your behavior depending on which social group you identify yourself to be in. One can be extremely rational (that is, acting solely in your own self-interest) if you are surrounded by the environment in which everybody is more self-centered than altruistic. For example, your own occupation also shapes your future interests and hobbies that follows the behavioral patterns of your friends and colleagues, instead of being perfectly rational as the classical economic theory asserts.

As the relationship between behavioral studies and sociology are so closely connected, in certain cases, these two interests can be often understood almost in an identical manner, especially during the latter half of the previous century. A small difference does arise between the studies of the two disciplines in themselves, is that while behavioral economics is more empirical and utilizes mathematical and statistical methods, sociology is more theory-dependent and analyzes social connections and behaviors in a more qualitative manner.

Sociology and….. the financial crisis?

Although initially, the relationship might seem a bit far-fetched, the social scientists do think about the financial crisis as the anticipation of reconstructing the economic structure. In economic literature, the failure of the financial system, namely the process of securitization, is largely attributed to the collapse of the housing market, the banking sector, and ultimately, the global economy. Social scientists do not see the financial crisis as the corruption of some financial abstract mechanism or structure, but rather see it as the clash of the interaction of individual behaviors and culture.

Professor Michel Wieviorka described the financial crisis in 2008 as the global mutation in the last 35 years. He also prescribed the championing of neoliberalism (as social institutions) in which the adoption of deregulation policies in the financial sector in the United States is highly supported by politicians. These policies have allowed the existence of “modern” financial products that are so complicated that only a few could possibly understand the complex ingenuity behind it. As they were advertised blatantly to the consumers, more people kept being bought into it. This gives rise to a pattern of behavior called moral hazard, which is now widely popularized in economic textbooks.

Economics is defined as the study of how societies use scarce resources to produce valuable commodities and distribute them among different people. However, I think that most people realize that in economic studies, the concern for society is often left out of the equation and it tends to be all about the consideration of the parties as completely separate identities. I personally think that there is some departure of this objective of us as students of economics. In the study of economics, we are seldom tested on the reasoning behind the motivation of individual choices. Although the discipline of game theory can provide some insightful explanation into explaining economic behaviors, it could not uncover the underlying economic reason that most researches that are being conducted. There is too much reliance on finding explanations to an economic problem through with hypotheses which in many cases are quite unreasonable. There should be a necessity of our discipline to go back to its roots where initially economics is studied based on each respective behaviors, and understanding all of that is fundamentally important to take practical steps forward in advancing economics.


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