Social Economics: Between Under- and Oversocialization

by Kai Weiss

This article is part of the series Spontaneous Order: A Rich Tradition with Lessons for Today. Read the previous article here.

The concept of a spontaneous order is as ingrained and deeply rooted in the Austrian tradition as any, with Carl Menger (1840-1921), the founder of the Austrian School of Economics, having put forward a very similar version to Friedrich Hayek’s (1899-1992) under the idea of organic institutions.

To explain what the spontaneous order actually is, however, we should take a step back for a moment and look at the state of the social sciences today – so bear with me. As Peter Boettke (1960-), a professor at George Mason University, has argued, social sciences tends to suffer from two disfunctions: either, depending on who you look at, undersocialization or oversocialization. Undersocialization, for instance, can be found in neoclassical and mainstream economics, where the individual actor is understood to be a rational animal who is not influenced by his or her social context or his or her emotions, but who merely looks at his or her own economic gain – with the goal of always maximizing it by following rational decision-making.

Other schools of thought meanwhile oversocialize their theories, such as behavioral economics, where no such non-existing rationality is assumed, but where the irrationality as well as the social context take on such an enormous role that the individual and his or her decision-making almost vanishes. The result of both under-and oversocialization is similar: the individual becomes a robotic automaton, either by (Economic) Reason or by the masses of society.

The Austrian tradition goes a different way, however, particularly through the discipline of Social Economics, a term that came into being in the early twentieth century through the collaboration of Friedrich von Wieser (1851-1926), Joseph Schumpeter (1883-1950), and Max Weber (1864-1920). Richard Swedberg (1948-) defines Social Economics as “an economic science which has a broad subject area and which must be studied with the help of several distinct approaches in social science.”

Or, put differently, this approach emphasizes the necessity of interdisciplinary study over the minute specialization we see so often in today’s world. Hayek put this succinctly in his famous statement that “nobody can be a great economist who is only an economist – and I am even tempted to add that the economist who is only an economist is likely to become a nuisance if not a positive danger.” A holistic view of the world not solely based on economic, financial, social, political, religious, cultural – what have you – factors, but which encompasses as many of these as possible and tries to identify the interdependencies between them, defines the approach of Social Economics.

The social economic approach is based on methodological individualism, meaning that only individuals – not groups, not collectives – can act. This does not exclude groups of individuals coming together and making decisions together, but in the end, it is always individuals making the decisions. Groups – say, governments – don’t have their own will. While many social scientists follow this individualist approach today, this was not a given when the Austrian School came into being. Indeed, Carl Menger made it a central component of Austrianism and Schumpeter coined this approach methodological individualism. In the German sociologist Max Weber they found a companion who argued that sociology “can only be pursued by taking as one’s point of departure the actions of one or more (few or many) individuals, that is to say, with a strictly ‘individualistic’ method.

In contrast to the undersocialization approach, the individual is not assumed to be a homo economicus, however. Instead, man is born into a society with different traditions, social mores, rules, and institutions. Man is born into a family, with parents, siblings, relatives, friends, and communities. Indeed, man is “by nature a social animal,” with a primordial need to interact with other humans.

It is this concept of the individual in society through which we can understand the concept of spontaneous order – and which we will take a closer look at it in the next article.

Do you want to add something to Kai’s thoughts? Or do you disagree? Then feel free to respond to it by sending or pitching us an article.

Find all articles in German on the blog of the Friedrich A. v. Hayek Institute.

Kai Weiss is the Research and Outreach Coordinator of the Austrian Economics Center and a board member of the Friedrich A. v. Hayek Institute.