There is a connection between economics and society, but neither sociologists nor economists give this connection much attention. Economic transaction influence society just as society determines economic exchange. One of the obvious connections that have been identified between society and economy is social capital.
Money is not the only form of capital, although economists ignore other forms of capital such as social/cultural capital. Social capital is gained through education and personal connection with the elite or influential members of the society (Biggart and Guillen, 1999).
Some people have more of this capital due to being born into certain families and through inheritance. Influential people are members of certain exclusive clubs and being a member is very beneficial. Social exchange is maintained through the exchange of symbolic goods.
In the modern workplace, people are able to rise to the top are often those who are able to access senior managers and board members. These people are accessed in informal places such as exclusive clubs, churches, gatherings, and other social places.
Developing social networks is a form of investment as the networks are important in getting a job or a promotion. Networking is therefore an investment in creating social capital.
Being born into a rich and influential family gives a person contact with other rich and equally powerful people; hence, it is possible to get a good job or even capital to start a venture. Social capital introduces the element of inclusion as well as exclusions.
From an economic perspective, social capital suggests that money is more than a measure of economic value. It can create meaning and identity and meaning can be ascribed to it as well.
Economic theory discusses elements such as perfect competition and other forms of economic relations, but at the heart of exchange is a social relation. People do now want money only for what the money can buy but its impact on social relations with others.
A proper understanding of capital, therefore, goes beyond definition given in economic theory. Modern understanding of what capital was developed a few centuries ago after the rise of capitalism. The idea of capitalism has reduced all forms of exchange to mere mercantile exchange, which is oriented towards profit maximization.
Related to social capital is the cultural capital. Cultural capital is converted into other forms of capital. Cultural capital such as higher education cannot be measured simply in monetary values or return.
There are more returns achieved by investing in education that economists do not measure. It is through education that cultural capital is transmitted from one generation to the next.
Accumulation of social capital takes time, sacrifice, and not just monetary investment. Mastering calculus, for example, takes time and many sleepless nights. Possessors of education of some forms of cultural capital also gain additional benefits such as the distinction, respect, and even gains new friends and influence people in society.
These gains can be transmitted to future generations of a person. The function of money is to give a value to all forms of capital.
If membership of a certain club or possession of a degree gives a person the ability to make huge amount of money at some future date, then the social or cultural value accrued through the membership of the club of acquisition of the degree is tremendous.
In the modern world, money is becoming intangible and cultural. Relations matter a lot especially when getting credit. A person with a good reputation is likely to get a loan than a person who is not. In the article by Quinn (2008), the question about social relations within the society and economy is again highlighted.
Economic theory principally dwells on the forces of demand and supply as the soul of the market. However, the question is whether markets should be amoral or aligned with acceptable morals and social values. Most people believe that life in itself is valuable and wagering on it is immoral and completely unacceptable.
However, it is clear that some financial products created as a form of investment can be used wager on the death of others. From a market point of view, buying an insurance policy from a person who is terminally ill makes perfect sense. The buyer is likely to earn handsome profit, which is the essence of investment but is doing so right.
Markets are not perfect and often they fail. Government intervention in an industry is desirable if there are imperfections that may lead to market failure. Buyers for instance, may get deceptive information from sellers through advertisement and hence make wrong decisions.
In the long run, it is in the interest of the sellers to provide accurate information to avoid alienating potential buyers, but unscrupulous business people may want to maximize short-run revenue by duping buyers. Externalities also are a source of market imperfections that imposes a social cost on the society.
Externalities that results from operating in a certain industry may further entrench the position of natural monopolies due to decreasing costs. The presence of market imperfections makes a strong case for government intervention.
Health care is a scarce resource and like all resources, it should be rationed one way or another, either through market forces or through government intervention. Markets through prices ration better compared to government central planners.
The most obvious reason for government intervention in health care is not to achieve distributional objective or social equity, but correct informational failures in health care markets. Without regulation, a few players would possibly dominate healthcare and this justifies government intervention.
There is also the presence of externalities that call for regulation. Healthcare is an industry that does produce externality goods to some extent. For instance, vaccination and other devices supported by the government to curb some diseases do not only benefit individuals concerned but also the whole society.
Healthy people have lesser chances of contracting the disease once proper interventions are put in place.
Just as social capital is something that is generated from social relations and can be converted into economic capital, conditions in the market can affect the society. In the case of selling insurance in the secondary market, the basic premise on which insurance is built on refuse to hold.
In situations such as these, the prudent thing is for the government to intervene through law laws or changing of policies. Life insurance is taken in order to support dependents of the insured in case of death.
If so many people were left destitute and especially children after sudden death of their parents, the cost to the society would be tremendous. The actions of a free market can therefore negatively affect the society.
Consequently, the government has a role to play to ensure that market conditions align with social values and objectives. Economics and society are intertwined and should be studied together.
References
Biggart, N. W., and Guillen, M, F. (1999). “Developing difference: Social organization and the Rise of the auto industries of south Korea, Taiwan, Spain, and Argentina.” American Sociological Review (vol. 64, October 1999):722-47.
Quinn, S. (2008). The Transformation of Morals in Markets: Death, Benefits and the Exchange of Life Insurance Policies. American Journal of Sociology, Vol. 114, No. 3 (November 2008), pp. 738-780