The Embeddedness of the Economy: Social Capital vs. Economic Institutions

Throughout the 1990s we witnessed the spread of the concept of social capital in many of the social sciences and in particular in socio-economics. Its theorisation is due to sociologists who aimed at correcting methodological individualism due to its poor understanding of the collective and interactive nature of society. Here we argue that, despite the adoption of methodological individualism, a number of difficulties exist in integrating this concept into economics. However, while at the individual level study of the economic consequences of interpersonal relationships is fruitful, it encounters difficulties in aggregation. In fact, aggregating the notion of social capital is a theoretical shortcut which crowds out the more structural view of institutionalism. Some enlargement of the concepts of self-interest and rationality may be in any case of help in improving the understanding of social interactions on which the economy is based.