chapter  12
11 Pages

The rationality of embedded individuals

The separation of economic from other social considerations was the

result of the redefinition of the field of economic analysis by the margin-

alists at the end of nineteenth century. In classical political economy the

social field was provisionally dissected by means of abstraction, to

reveal the essential causes that explain economic phenomena. Economic

rationality evolved in a durable system of social relations. Recently, this

theoretical practice has been re-established. Evolutionary institutional-

ists (like North and Hodgson) believe that economic activity is always

institutionally embedded. Institutions, both formal and informal, guaran-

tee regularity and consistency of economic behaviour over time. There-

fore, decision makers reach different outcomes if they operate within

different institutional settings. In that sense rationality is historically

specific, and this is a point of view very close to Smith and Mill. Eco-

nomic sociologists (Granovetter, Smelser, Swedberg and others) also

believe that economic behaviour is socially embedded. The actor is con-

nected with other actors and is part of social groups and social context.