What Is Social Economics Theory?


Jane Flores

Social economics theory is a concept that examines the relationship between social behavior and economic activities. It is an interdisciplinary approach that combines principles from economics, sociology, psychology, and political science to explain how social factors influence economic decision-making.

History of Social Economics Theory

The roots of social economics theory can be traced back to the 18th century when Adam Smith, often referred to as the father of modern economics, wrote “The Theory of Moral Sentiments.” In this work, Smith argued that moral and ethical considerations played a crucial role in economic decision-making and that individuals were motivated by more than just self-interest.

In the 20th century, economists such as Amartya Sen and Karl Polanyi expanded on Smith’s ideas by emphasizing the importance of social institutions and cultural norms in shaping economic behavior. They argued that markets were not self-regulating entities but were embedded in society and subject to social norms.

Key Concepts

At its core, social economics theory posits that economic behavior is shaped by social context. Some key concepts associated with this theory include:

  • Social Embeddedness: The idea that markets are not self-contained entities but are embedded within society.
  • Social Norms: The unwritten rules and expectations that govern behavior in a particular society or group.
  • Institutional Analysis: The study of how formal and informal institutions (such as laws, regulations, customs, traditions) shape economic behavior.
  • Distributional Analysis: The examination of how economic outcomes (such as income or wealth distribution) are affected by social factors.


Social economics theory has many practical applications. For example:

  • Poverty Alleviation: Understanding the social factors that contribute to poverty can help policymakers design more effective anti-poverty programs.
  • Social Welfare: Social economics theory can inform the design of social welfare programs that take into account the social and cultural context of the communities they serve.
  • Environmental Policy: Examining the social norms and institutions that shape attitudes towards the environment can help policymakers design more effective environmental policies.


While social economics theory has its merits, it is not without its critics. Some argue that it places too much emphasis on social factors at the expense of individual agency. Others argue that it fails to adequately address issues related to power and inequality.


Social economics theory is a valuable framework for understanding how social factors influence economic decision-making. By taking into account the role of culture, institutions, and norms, we can gain a deeper understanding of economic behavior and design more effective policies to address societal challenges.