The Sociology of Culture Culture and the Economy

Mankiw’s 10 Principles of Economics #1 People face tradeoffs #2 The cost of something is what you give up to get it #3 Rational people think at the margin #4 People respond to incentives #5 Trade can make everyone better off #6 Markets are usually a good way to organize economic activity #7 Governments can sometimes improve market outcomes #8 A country’s standard of living depends on its ability to produce goods and services #9 Prices rise when the government prints too much money #10 Society faces a short-run tradeoff between inflation and unemployment

“Thinking at the Margins” Hmmm, oranges are $.25 each. I'm going to buy one, because my marginal value exceeds the market price. Now I'm going to buy a second one, because my marginal value still exceeds the market price...

Mankiw’s 10 Principles of Economics #1 People face tradeoffs #2 The cost of something is what you give up to get it #3 Rational people think at the margin #4 People respond to incentives #5 Trade can make everyone better off #6 Markets are usually a good way to organize economic activity #7 Governments can sometimes improve market outcomes #8 A country’s standard of living depends on its ability to produce goods and services #9 Prices rise when the government prints too much money #10 Society faces a short-run tradeoff between inflation and unemployment

Economists’ View of Human Beings Rationally Calculating People are utility-maximizing They seek maximal calculated utility from every exchange They have stable preferences (allowing them to calculate utility) People are perfectly, or near-perfectly, informed Atomistic People are very egotistical People make every decision as isolated from the past

Question: Individuals in pre-capitalist Europe felt more personally connected to their peers, than we do today. Agree or Disagree?

Mark Granovetter on Economy and Society It has long been the majority view among sociologists, anthropologists, political scientists, and historians that [economic] behavior was heavily embedded in social relations in premarket societies but became much more autonomous with modernization. This view sees the economy as an increasingly separate, differentiated sphere in modern society, with economic transactions defined no longer by the social or kinship obligations of those transacting but by rational calculations of individual gain. It is sometimes further argued that the traditional situation is reversed: instead of economic life being submerged in social relations, these relations become an epiphenomenon of the market. (Granovetter, 1985)

Avner Greif Terms Agency: A system that allows certain people to act on behalf of other people’s interests (i.e. as “agents” for other people) Trust: A relationship between two or more people, where these people all mutually believe that the others are disposed to act positively on their behalf Transaction Cost: The costs necessary to make a transaction. Transaction costs are extrinsic (not part of) the price of the product being purchased.

Maghribi Traders Sub-group of the Jewish population living in the Mediterranean region of Europe and North Africa in the 11th C. Economically they were very successful in competitive Mediterranean trading during this period.

Greif’s Model for Maghribi Success