Economics for Humanity: Integrating Well-being, Community, and Practical Philosophy

Okabe, Mi suaki
Book
Economics o Humani y: In eg a ing Well-being,
Communi y, and P ac ical Philosophy
Rou ledge F on ie s o Poli ical Economy
P o ided in Coope a ion wi h:
Taylo & F ancis G oup
Sugges ed Ci a ion: Okabe, Mi suaki (2025) : Economics o Humani y: In eg a ing Well-
being, Communi y, and P ac ical Philosophy, Rou ledge F on ie s o Poli ical Economy, ISBN
978-1-040-12300-3, Rou ledge, Ox o d,
h ps://doi.o g/10.4324/9781003478447
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“Pionee ing wo k ha use ully b oadens ou common unde s anding o
Economics i sel .”
Ken Calde , Di ec o , Reischaue Cen e o
Eas Asian S udies, Johns Hopkins Uni e si y SAIS, USA
“Mains eam economics assumes, mos o he ime, man as homo economicus,
which is e y con enien o build up an elegan scien i ic discipline. Acco dingly,
economics is o en p aised as ‘queen o social sciences’. Bu , i economics in e-
g a e mo e di e se human mo i es, we can expand he scope and he dep h o
mains eam economics owa d mo e ui ul humane economics. This book
igo ously and con incingly agues, p obably o he i s ime in he li e a u e,
ha his is he di ec ion o economics o expand.”
Nobuhi o Suzuki, P o esso , Uni e si y o Tokyo, Japan
Economics o Humani y
Economics is o en e e ed o as “ he queen o social sciences.” This is because
mains eam economics has been es ablished as an elegan academic discipline
by assuming mankind simply o be homo economicus— an image o human
beings showing in e es in only ma e ial ul ilmen and ac ing solely in his
in e es . This book challenges his basic pe cep ion o human beings.
By eplacing i wi h a mo e ealis ic and mul i ace ed human mo i e as
suppo ed by esea ch in a ious academic disciplines, he book ies o p o-
ide a no el and mo e plausible pic u e o human socie y. Speci ically, he book
akes in such human aspec s as pu suing well- being, o ming human ne wo ks,
and he ealisa ion o po en ial o abili y. Thus, i we y o be e unde s and
human mo i es and he socie y, i becomes necessa y o eplace he con en-
ional wo- sec o (ma ke – go e nmen ) social model wi h a mo e gene al and
heo e ically supe io social model, he “ h ee- sec o model” consis ing o
ma ke – go e nmen – non- p o i sec o s. This book demons a es he alidi y
o his new iew by u ilising basic p inciples o economic policy and social wel-
a e analyses. Mo eo e , he book has in oduced a newly de eloping p ac ical
philosophy in Japan o e he las 50 yea s o achie e bo h indi idual well-
being and be e human socie y.
Mi suaki Okabe is P o esso Eme i us o Keio Uni e si y, Japan.

Rou ledge F on ie s o Poli ical Economy
Mac oeconomics A e he Gene al Theo y
Fundamen al Unce ain y, Animal Spi i s and Shi ing Equilib ium in a
Compe i i e Economy
Angel Asensio
A His o y o Capi alis T ans o ma ion
A C i ique o Libe al- Capi alis Re o ms
Giampaolo Con e
Economics as Rhe o ic
The Though o Be na d Ma is
Anne Isla
T ansla ed by Aude Di Paolan onio
Inequali y and S agna ion
A Mone a y In e p e a ion
Cap a o, Panico and To es- González
Poli ical Economy o Pos - Capi alism
Financializa ion, Globaliza ion and Neo eudalism
Richa d Wes a
The Poli ical Economy o Medi e anean Eu ope
A G ow h Models Pe spec i e
Luis Cá denas and Ja ie A ibas
Economics o Humani y
In eg a ing Well- being, Communi y, and P ac ical Philosophy
Mi suaki Okabe
Fo mo e in o ma ion abou his se ies, please isi : www. ou le dge.com/ Rou le dge- F on i e s- o -
Poli i cal- Econ omy/ book- se ies/ SE0 345
Economics o Humani y
In eg a ing Well- being, Communi y, and
P ac ical Philosophy
Mi suaki Okabe
Fi s published 2025
by Rou ledge
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© 2025 Mi suaki Okabe
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B i ish Lib a y Ca aloguing-in-Publica ion Da a
A ca alogue eco d o his book is a ailable om he B i ish Lib a y
Lib a y o Cong ess Ca aloging-in-Publica ion Da a
Names: Okabe, Mi suaki, au ho .
Ti le: Economics o humani y : in eg a ing well-being, communi y, and
p ac ical philosophy / Mi suaki Okabe.
Desc ip ion: Abingdon, Oxon ; New Yo k, NY : Rou ledge, 2025. |
Se ies: Rou ledge on ie s o poli ical economy |
Includes bibliog aphical e e ences and index.
Iden i ie s: LCCN 2024014242 | ISBN 9781032764474 (hbk) |
ISBN 9781032764504 (pbk) | ISBN 9781003478447 (ebk)
Subjec s: LCSH: Economics. | Social sciences.
Classi ica ion: LCC HB171 .O37 2025 | DDC 330–dc23/eng/20240612
LC eco d a ailable a h ps://lccn.loc.go /2024014242
ISBN: 978- 1- 032- 76447- 4 (hbk)
ISBN: 978- 1- 032- 76450- 4 (pbk)
ISBN: 978- 1- 003- 47844- 7 (ebk)
DOI: 10.4324/9781003478447
Typese in Gallia d
by Newgen Publishing UK
Con en s
Lis o ables ix
Lis o igu es x
P e ace xi
Acknowledgemen s xii
In oduc ion and o e iew 1
PART I
G oundwo k o be e ing economics 7
1 Need o economics o ully in eg a e human na u e 9
1.1 De elopmen s in economics in ecen yea s 9
1.2 Ligh and shadow o mains eam economics 13
1.3 F om mains eam economics o economics o humani y 21
1.4 Addendum: ma hema ics is a (powe ul) language 26
2 Inhe i ing om Adam Smi h: e hics and o he human ac o s 33
2.1 Adam Smi h’s iew on human na u e and socie y 33
2.2 Adam Smi h’s iew on human po en iali y and i s ecen
de elopmen s 37
2.3 Con lic s be ween ma ke ansac ion and good li e 43
2.4 App oaches o a good li e 52
3 Conside ing humani y (1): al uism 59
3.1 Signi icance and a ious aspec s o al uism 59
3.2 Re iewing al uism om a ious academic disciplines 60
3.3 Al uis ic ac i i ies con ibu e o well- being and heal h 64
3.4 An economic model inco po a ing al uis ic beha iou 65

DOI: 10.4324/9781003478447-1
In oduc ion and o e iew
The a ea co e ed by economics is ema kably wide. Howe e , his book is
no in ended o ake up and analyse some speci ic economic issues. Bu i is
an a emp o b oadly ques ion oday’s mains eam economics om he un-
damen al pe spec i e o a desi able social science when dealing wi h a ious
issues.
In o he wo ds, in cu en mains eam (neoclassical) economics, he gene al
unde s anding is ha humans a e beings who ac wi h he aim o inc easing
hei own consump ion (maximising u ili y) and ha socie y is a se o such
indi iduals. Bo h o hese pe spec i es a e assump ions ha acili a e economic
analysis, which has induced he ma hema ical de elopmen o economics, and
has also led o he cons uc ion o a igo ous and beau i ul in elligen sys em
ha is no ound in any o he social sciences. As a esul , economics has o en
been desc ibed as he ‘queen o he social sciences’.
The basic goal o his book is o p o ide a c i ical assessmen o he main-
s eam economics and o p opose an al e na i e and humane economics.1,2
No ma e how scien i ic he esea ch may be, i is unaccep able o igno e
humani y. Indeed, Maha ma Gandhi, who con ibu ed o India’s independ-
ence, no ed in 1925 ha ‘science wi hou humani y’ is one o he Se en Social
Sins. The o he six he lis ed we e: weal h wi hou wo k, pleasu e wi hou
conscience, knowledge wi hou cha ac e , comme ce wi hou mo ali y, eli-
gion wi hou sac i ice, and poli ics wi hou p inciple (Wikipedia: Se en Social
Sins). Thus, i may be na u al ha such exp essions as ‘Humane Economics’
o ‘Humanomics’ can al eady be ound as he i le o some books3, as well as in
se e al esea ch pape s4. Howe e , hey gene ally and me ely asse ha ‘eco-
nomics needs o inco po a e mo e o he di e se na u e and aspec s o human
beings,’ and hus a e clea ly limi ed in hei con en .
This book, by con as , is no only unique in i s i le i sel , bu also goes
much u he in i s a gumen han books wi h simila i les. The au ho
explo es and p esen s in his book his own answe s o a se ies o such chal-
lenging ques ions as ollows. Namely, (1) whe e we can ind a scien i ic
basis o changing he con en ional iew o human beings assumed by eco-
nomics, (2) wha kind o social iew (speci ically, he h ee- sec o model o
2 In oduc ion and o e iew
unde s and human socie y as p esen ed in Chap e 6) will esul om such a
change, (3) how we can explain he alidi y and supe io i y o such a social
iew by using he analy ical ools o economic and public policy heo ies
(Chap e 7), and (4) whe he he e is a way o achie e bo h he pu sui o
indi idual happiness (e.g. sel - ul ilmen ) and he building o a be e socie y
(Chap e s 8 and 9)5,6.
This publica ion is in ended o p esen he au ho ’s academic analysis con-
genial o in e na ional esea ch communi y. Howe e , he hopes he eade
may ind ha in some espec he unde lying alue and he way o hinking
he ein pa ly e lec he Japanese o O ien al adi ion7.
O e iew o his book
This book consis s o h ee pa s. The na u e o each pa s is shown below,
and a b ie chap e - by- chap e o e iew co e ing he abo e- men ioned issues
is p esen ed.
In Pa I ‘G oundwo k o be e ing economics,’ we c i ically e iew
he essence o mains eam economics, and explo e key elemen s ha a e o be
in eg a ed in o de o make economics mo e humane schola ly esea ch.
Chap e 1 ‘Need o economics o ully in eg a e human na u e’ p esen s
he cu en ea u es o mains eam economics in somewha heo e ical way,
poin s ou ha he e a e basic p oblems wi h i , and sugges s he esea ch
di ec ions needed o o e come he p oblem. In o he wo ds, he chap e a gues
ha : (1) mains eam economics has adi ionally assumed simple cha ac e s o
human beings (ma e ialism, sel ishness, indi idualism); (2) human socie y has
been unde s ood as a se o such indi iduals ( he way o unde s and i being
e med as ‘me hodological indi idualism’); (3) on he con a y many ela ed
ields (psychology, cul u al an h opology, sociology, neu oscience, e c.) ha e
demons a ed ha human is social c ea u e (ha ing some sense o being
connec ed, e hics, and al uism); and (4) economics needs o be de eloped as
a discipline ha inco po a es such human cha ac e is ics (and need o become
Economics o humani y).
Chap e 2 ‘Inhe i ing om Adam Smi h: e hics and o he human na u e’
examines how humans should be unde s ood om he pe spec i e o he his-
o y o ideas and social philosophy. The chap e a gues ha : (1) Adam Smi h
‘ he a he o economics’ ac ually has, along wi h The Weal h o Na ions (1776),
ano he majo wo k, The Theo y o Mo al Sen imen s (1759); (2) Smi h a gued
in he la e ha human beings ha e no only sel - in e es bu also sympa hy
o o he s, bene icence, and a mo al sense; (3) Smi h unde s ood u he ha
human beings usually ha e a po en ial capaci y ha is no ye mani es ed;
(4) economics needs o ea i m and inhe i Smi h’s iew o human na u e
and de elop i in a new way; and (5) i would enable b oade a gumen s ha
a e no solely ma ke - o ien ed (e.g. also conside ing e hical aspec s o public
policy and happiness h ough he lowe ing o po en ial), hus b oadening he
scope o economics.
In oduc ion and o e iew 3
Chap e 3 ‘Conside ing humani y (1): al uism’ de ines al uism and
ou lines adi ional unde s andings o i , by aking in o esea ches om a
numbe o academic disciplines. And he chap e asse s ha : (1) al uism is
usually unde s ood o include wo kinds: pu e al uism (cases in which sel -
in e es is no aken in o accoun a all) and impu e al uism (cases in which
sa is ac ion om al uis ic beha iou is in ol ed), (2) esea ch om many aca-
demic disciplines (psychology, sociology, an h opology, biology, neu oscience,
e c.) has shown ha humans ha e al uis ic sen imen s; (3) he e is also a
mo emen o p omo e al uis ic beha iou , o ake ad an age o he ac ha
al uis ic beha iou b ings happiness and heal h o people; and (4) some he-
o e ical models ha e been p oposed o inco po a e al uis ic beha iou in o
he s anda d model o economics (indi idual’s u ili y maximising beha iou
wi h addi ional cons ain s).
Chap e 4 ‘Conside ing humani y (2): social ne wo ks’ u ilises mode n ne -
wo k science and discusses he na u e o human ne wo k, a ai closely ela ed
o al uism. I a gues ha : (1) humans end o be in insically connec ed ( end
o o m social ne wo ks); (2) his cha ac e is ic is suppo ed by esea ch in
many academic disciplines (e olu iona y heo y, gene ics, biology, beha iou al
science, e c.) and he e is a s ong iew ha i o igina es in human na u e;
(3) indi idual hough s and beha iou a e in luenced by social ne wo ks, while
con e sely hey clea ly in luence o he s (bu only up o h ee deg ees o sepa -
a ion); (4) in social ne wo ks, he inescapable awa eness o he o he gene a es
al uism in humans, while a he same ime c ea es sha ed esou ces (‘social
ela ional capi al’ use ul o human socie y) ha enable human socie ies o ul il
hei po en ial; and (5) mains eam economics, which is ounded on me hodo-
logical indi idualism, he e o e akes li le accoun o hese ma e s, so ha
economics needs o b oaden i s ho izons in he u u e.
In he abo e ou chap e s, i was a gued in u n ha he e a e majo
p oblems wi h con empo a y mains eam economics. In o he wo ds, i has
been assumed ha humans a e homo economicus (economic man) and ha hey
a e subjec s who beha e in a one- dimensional and simple way (Chap e 1);
ha Adam Smi h had a b oad iew o humans bu esea che s ha e long mis-
unde s ood o igno ed i (Chap e 2); ha humans a e assumed o be sel ish
and he iew ha hey ha e al uism has usually been ejec ed (Chap e 3);
and as a esul , mains eam economics has he p oblem o look a socie y as an
a i hme ical sum o sel - in e es ed indi iduals and lacks he impo an aspec
o human ne wo ks (Chap e 4).
Pa II ‘O e iew o economics o humani y’ discusses he di ec ion
and he na u e o economics o humani y, and p o ide a heo e ical p oo o
ha di ec ion. In Chap e 5 “Towa ds ‘economics o humani y’ ” cla i ies
ha he basic idea o mode n mains eam economics, which ha e he abo e
p oblems, is only a oo easy way o unde s and he socie y (o e simpli ica-
ion) and a gues ha a b oade pe spec i e ha inco po a es ‘human na u e’
is necessa y o be e unde s and he human socie y. Acco dingly, his chap e
discusses ha : (1) he e a e h ee main ways o amewo ks o unde s anding
4 In oduc ion and o e iew
he link be ween human beha iou and socie y [(a) me hodological indi idu-
alism, (b) me hodological holism, and (c) science o social ne wo ks]; (2) he
mos app op ia e iew o socie y is no simply based on he abo e (a) bu is
ob ained by adding he iewpoin (c) (a iew o human beings ha may be
called homo socialis o socie al man); and (3) i based on such a iew o man
and socie y, economics can become a social science wi h a ichness ha can be
exp essed as ‘economics o humani y’ .
In Chap e 6 ‘Th ee- sec o model o he economy’, a de ailed a gu-
men is p esen ed ha , i he human and socie al iew in he p e ious
chap e s is o be embodied o unde s and he socie y, i becomes necessa y
and app op ia e o ex end he con en ional heo e ical amewo k o he so-
called ‘ wo- sec o (ma ke – go e nmen ) model’ o ‘ h ee- sec o (ma ke –
go e nmen – communi y) model’. And, he book a gues u he ha : (1) he
hi d sec o o be newly in oduced can gene ally be desc ibed as ‘communi y,’
and i s o m and p inciples o ac ion a e cha ac e ised by a mo e humane
elemen han hose o he ma ke o go e nmen ; hus (2) he h ee- sec o
model, which has an economic- an h opological basis, should become a basic
pe spec i e o unde s anding human socie y ega dless o ime and cul u e;
(3) he newly in oduced hi d sec o is o en e e ed o as he ‘non- p o i
sec o ’ (NPO) in he Uni ed S a es and he ‘ hi d sec o ’ in Eu ope; and
(4) his sec o , ega dless o he name, has he unc ion o p o iding quasi-
public goods o quasi- public se ices, and b ings signi ican bene i s o socie y.
Chap e 7 ‘Theo e ical bases o he h ee- sec o model’ a gues ha he
pa adigm shi om ‘ wo- sec o (ma ke – go e nmen ) model’ o ‘ h ee-
sec o (ma ke – go e nmen – communi y) model’ is alid no only om he
iewpoin o economic- an h opology, as shown in Chap e 6, bu also on he
g ound o basic heo ies o economic policy. The a gumen he e is ha : (1)
he basic policy p esc ip ion o mains eam economics is p oblema ic in ha
i pu s oo much, i no exclusi e, emphasis on e iciency and excludes human
o e hical ac o s so ha some such ac o s need o en e ; (2) he addi ion
o policy goals can logically be jus i ied by unde s anding he economy o
consis o h ee sec o s in ligh o he basic p oposi ions o economic policy
heo y (Tinbe gen’s p inciple, Mundell’s heo em and Poole’s p oposi ion);
(3) public policy based on he h ee- sec o model can heo e ically achie e
a highe le el o social wel a e han in he case o he wo- sec o model; and
(4) al hough he e ha e al eady been se e al p oposals o he idea o ‘ h ee-
sec o models,’ no au ho so a has heo e ically discussed he app op ia eness
and e ec i eness o he scheme in e ms o economic policy heo y o in e ms
o imp o ing social wel a e. The e o e, he au ho p esumes ha he heo e -
ical discussions in his chap e is no el.
Pa III ‘En iching human socie y: a p ac ical philosophy’ explains a
sys em o new hough o sel - imp o emen which deeply ela es bo h o indi-
idual well- being and be e socie y. This opic may seem o be unusual and
oo o e ly an ex ension o economics. Bu , gi en he ul ima e objec i e o
In oduc ion and o e iew 5
economics, he au ho conjec u es ha his kind o academic esea ch may be
ega ded o one new di ec ion o economic o social esea ches.
Chap e 8 ‘A p ac ical philosophy o well- being and be e socie y (I)’
i s , (1) akes up a gene al opic o ‘sel - imp o emen ,’ and conside i s signi i-
cance by e iewing some ela ed books on he opic, including he ‘p ac ical
philosophy’ which was bo n in Japan, hen, (2) explains he basic elemen s and
he amewo k o he p ac ical philosophy.
Finally, Chap e 9 ‘A p ac ical philosophy o well- being and be e socie y
(II)’ explains he essence o ha p ac ical philosophy de eloped by Keiko
Takahashi (1956– ) in Japan since he 1970s, and e alua es i by e e ing such
wo ks as Adam Smi h and Ama ya Sen, as well as e e ing o mode n psych-
ology and he s a is ical e idence. And, he chap e concludes ha : (1) he
imp o emen o human cha ac e (pe sonali y) is equi ed in o de o ealise
one’s po en ial, (2) he wo k o e e y man o woman has he impo an
unc ion o connec ing onesel wi h socie y and b inging a sense o pu pose
o one’s li e, (3) he p ac ical philosophy ul ils hese condi ions e ec i ely,
(4) he numbe o sympa hise s and p ac i ione s has ecen ly been inc easing
bo h na ionally and in e na ionally, pa ly due o he di e si ica ion and
lexibili y o he s udy me hods o he p ac ical philosophy, and (5) u u e
de elopmen s o his p ac ical philosophy is wo h closely wa ching, owing no
only o an a ini y wi h he spi i uali y o ien a ion o mode n people bu also
o a g owing numbe o cases whe e he p ac ice is con ibu ing o building a
be e socie y h ough he p ac i ione ’ own p o ession and wo k.
No es
1 An example o building on his awa eness is a ecen epo by an in e na ional
o ganisa ion (OECD 2020). The epo poin s o he need o b eak away om he
adi ional ocus on economic g ow h and swi ch o a pe spec i e ha emphasises
ou mul idimensional concep s (en i onmen al sus ainabili y, imp o ing li ing
condi ions, educing income and asse inequali ies, and imp o ing c isis p epa ed-
ness). I also emphasises he need o swi ch om he sel ish and indi idualis ic image
o he human being con en ionally assumed by economics o an unde s anding o
he ‘social human being’ (ibid.22). The image o he human being assumed he e
is consis en wi h one o he pe spec i es o his book (see Sec ions 1.3 and 2.4).
2 No e ha a global pandemic o COVID- 19 a e 2020 has a majo impac on he
li es and well- being o people wo ldwide (OECD 2021) and has been an u gen
and impo an p oblem o conside . Bu his book does no discuss ha issue
di ec ly.
3 As a book i le, Humanomics is used in Heuse (2008; in Ge man), Smi h and
Wilson (2019), and McCloskey (2021). Simila ly, Humane Economics is he book
i le o an edi ed olume by High (2006).
4 McCloskey (2016: i le o a icle), and Mo son and Schapi o (2017: 8, 288).
5 The au ho o his book once s a ed he need o a new economics o mee hese
challenges in his book (in Japanese) Humani y and Economics - Towa ds a New
Pa adigm o Social Science (Okabe 2017a). And, he de eloped ha di ec ion

6 In oduc ion and o e iew
u he in a mo e ecen book (in Japanese) Humanomics: Explo ing Economics
Based on Human Na u e (Okabe 2022a). The p esen publica ion is, as al eady
men ioned, he condensed e sion w i en in English o he la e .
6 Fo una ely, a g oup o esea che s in physics, who p oposes a new sys em o
unde s anding om a la ge pe spec i e han he cu en pa icle physics, has
d awn a en ion o he p oposal o a new amewo k de eloped in Okabe (2022a)
e alua ing i as esea ch o simila na u e (Sakuma e al. 2024: 19). This obse a-
ion is e y much app ecia ed.
7 Fo ins ance, he au ho ’s ea lie book (Okabe 2017a) academically discussed
o he i s ime he Japan- bo n p ac ical philosophy (as in he p esen book in
chap e s 8 and 9). Also he same book ook up he impo ance o mo ali y quo ing
Indian- bo n philosophe - economis Ama ya Sen’s a gumen as in his book (as
in Chap e 1– Sec ion 3). Mo e b oadly, he book e lec s such iew as he gene al
image o business co po a ion pe cei ed no as accumula ed capi al bu a he as
a human g oup, which used o be a powe ul pe spec i e on he cha ac e is ics o
Japanese companies (I ami 1987). S ill u he i has been he his o ical Japanese
iew o uni y economy and mo al (Shibusawa 1938).
Pa I
G oundwo k o be e ing
economics
DOI: 10.4324/9781003478447-3
1 Need o economics o ully
in eg a e human na u e
1.1 De elopmen s in economics in ecen yea s
Economics is he social science ha 1 s udies he p oduc ion, dis ibu ion, and
consump ion o goods and se ices (K ugman and Wells 2009: 2). I may
al e na i ely be said ha i is a s udy o he su iciency o goods and se ices,
o bo h indi idual and socie y as a whole.
Mo e speci ically, hen, om wha pe spec i es o assump ions has eco-
nomics de eloped? In his sec ion, we will p esen a b ie amewo k o
unde s anding he de elopmen o economics in ecen yea s and cha ac e ise
he s a e o con empo a y economics based on his amewo k.
1.1.1 Assump ions in economics
In economics (and especially in i s heo y) cha ac e ised as abo e, se e al
basic assump ions ha e been made o e he yea s o acili a e analysis, unde
which he sys em o economics has been buil . These a e, o example, he
assump ions o : (1) pe ec in o ma ion (ba gaining pa ies ha e he same
in o ma ion), (2) a ional choice beha iou , (3) p o i - maximising beha iou
o i ms, and (4) sel ish u ili y- maximising beha iou o humans.
Howe e , analyses ha do no make such assump ions ha e g adually
de eloped, as he e a e aspec s o hese assump ions ha di e ge signi ican ly
om eali y. Examples include he ollowings.
Fi s , wi h ega d o (1) abo e, he concep o ‘in o ma ion asymme y,’
which does no assume pe ec in o ma ion, was in oduced, and human
beha iou and ma ke s unde such condi ions ha e been analysed by S igli z
and o he s since he 1970s. As a esul , a new unde s anding o economic
ansac ions has eme ged.2
Rega ding (2) abo e, he idea o ‘bounded a ionali y’ (i.e. ha humans do
no always beha e a ionally in hei choices) was asse ed ela i ely ea ly on
by Simon3 and i became clea ha in such cases, human and o ganisa ional
decision- making would di e om con en ional unde s anding. This was he
16 G oundwo k o be e ing economics
• Maximisa ion a ge :
Li e- ime sa is ac ion = Sa is ac ion his yea
+ Sa is ac ion nex yea
+ Sa is ac ion hi d yea
+ . . .
• Budge cons ain :
The sum o consump ion and inc ease in ne asse s canno exceed he
sum o wage income and p ope y income.
Figu e 1.3 Indi idual op imisa ion beha iou (meaning o Figu e 1.2).
Sou ce: Okabe (2022a) able 1- 3. O iginally ex ac ed om Blancha d and Fische (1989: 48).
Re u ning again o Figu e 1.2, he meaning o equa ion (1.1) can be some-
wha elabo a ed as ollows: U ep esen s he u ili y (i.e. deg ee o sa is ac ion)
o an indi idual in yea s. And, equa ion (1.1) shows ha his o he u ili y is
de e mined by he amoun o goods and se ices he o she is able o consume
(quan i y consumed) and ha he o she ac s o maximise his o he u ili y
(in English, he sa is ac ion co esponds o u ili y, so he e such an objec i e
unc ion is indica ed by U).
And, i is he iew o mode n mains eam economics ha a pe son’s u ili y
can be exp essed, mo e speci ically, by he igh - hand side o his equa ion.16
Tha is, he u ili y u a a gi en ime depends on he indi idual’s consump ion
c and can he e o e be exp essed as u(c ). Howe e , in o de o e alua e u ili y
a a u u e poin in ime a he p esen ime, i needs o be discoun ed (i.e. o
be e alua ed in e ms o discoun ed p esen alue), and he second e m ( he
powe alue o e, deno ed by exp)17 is mul iplied o indica e his. The u ili y a
one pe iod is i s exp essed as a mul iplica ion o hese wo alues. The u ili y
o each succeeding pe iod, exp essed is hen summed up om he p esen o
he u u e, i.e. ‘ he accumula ed discoun ed p esen alue o u ili y om one
poin in ime o e e ni y (in ac , o he end o li e),’ which is he o al u ili y Us
o he indi idual a a gi en poin in ime, and is unde s ood o be he alue o
he indi idual’s o al u ili y a a gi en poin in ime. This is he unde s anding
ha he indi idual ac s in such a way as o maximise i .
Howe e , u ili y (sa is ac ion) based on such consump ion canno be
inc eased wi hou limi . This is because indi iduals ace ce ain cons ain s.
Equa ion (1.2) exp esses ha cons ain .18 Namely, i is he cons ain ha ‘ he
sum o consump ion c and inc ease in ne wo h (a ) canno exceed he sum
o wage income w and p ope y income ( a )’ (which is called he budge
cons ain ). In o he wo ds, he cons ain is ha ‘ he sum o consump ion
and inc ease in ne wo h canno exceed he sum o wage income and p op-
e y income,’ o , pu simply, ha indi iduals ‘canno consume mo e han
he income hey ecei e in he long un (income om wo k and om asse s
held)’.19 This in i sel is a na u al assump ion, and his cons ain means ha

Need o economics o ully in eg a e human na u e 17
sa is ac ion canno inc ease limi lessly. Thus, mode n economics unde s ands
ha indi iduals base hei a ional beha iou on maximising hei own u ili y
unde he condi ion o an income cons ain .
In a mo e gene al amewo k, his concep o u ili y maximisa ion can also
be unde s ood as he a ional decision- making o a pe son o compa e cos s and
bene i s. In his case, he ac o s ha encou age indi iduals o ac , i.e. incen i es
(expec a ions ega ding ewa ds o punishmen s) and hei eac ions o hem,
a e s udied. In ac , he ela i ely new ields o economics ha ha e de eloped in
ecen yea s (game heo y, con ac heo y, in o ma ion heo y, agency heo y,
e c.) can be posi ioned as esea ches ha ocus p ecisely on ‘incen i es’.20
1.2.2 The ligh s and shadows o mains eam economics
The abo e is a a he igo ous ske ching o he human iew (beha iou al
assump ions) unde lying con empo a y mains eam economics, as well as a
look a some new de elopmen s in economics in ecen yea s. On he basis
o he abo e, i can be said ha mains eam economics has bo h signi ican
and highly p aisewo hy aspec s ( he ligh o beau y o he discipline, so o
speak) and aspec s ha ha e no been ully conside ed o issues ha emain
un esol ed ( he shadow, so o speak). In he ollowing, he e o e, he basic
cha ac e o mode n economics will be highligh ed om he pe spec i e o
‘ligh and shadow’.
1.2.2.1 Economics as he ‘queen o he social sciences’
The au ho has summa ised ha , b oadly speaking, mode n economics has h ee
cha ac e is ics. These a e: (1) elabo a ion and sys ema isa ion, (2) expansion o
he scope o analysis, and (3) collabo a ion wi h adjacen disciplines.21 This con-
inuing de elopmen has led economics o ha e igo ousness,22 sys ema ici y,
and de elopmen al po en ial, no ound in o he social sciences.23 Fo his
eason, economics is some imes e e ed o as he ‘queen o social sciences’.
The i s o hese ea u es ( e inemen and sys ema isa ion) can be seen ypic-
ally in he assump ion o simple (ma hema ically exp essible) human beha iou ,
as desc ibed abo e, and he igo ous ma hema ical de elopmen o en ollows.
Inciden ally, he pape s published in he ecen issue o he Japanese Economic
Re iew (Vol. 69, No. 2, published in June 2018), he English- language
jou nal o he Japanese Economic Associa ion,24 and he human image (u ili y
unc ionssubjec o maximisa ion) assumed he ein, a e shown in Table 1.1
(explana iono a iable names omi ed). As he hemes o he a icles indica e,
he economic phenomena analysed he e a e ela i ely gene al and di e se,
bu i can be seen ha in mains eam economics, e en when analysing such
ma e s, he emphasis is on ela ing a ious phenomena back o he mo i es
o ac ion (u ili y unc ions) o indi idual economic agen s. In such cases, he
speci ic shape o he u ili y unc ion (U) and he a iables ha appea in i na -
u ally a y depending on he opic o he pape , bu in ecen economic pape s,
e en mac oeconomic phenomena a e emphasised (and in some cases made
18 G oundwo k o be e ing economics
manda o y) o ha e his kind o ‘mic oeconomic basis’ (mic o ounda ion).
Thus, mac o and mic o a e now in eg a ed and sys ema ised, a leas in heo y.
Fu he mo e, in such cases, na u al scien i ic me hods o analysis can be
applied, which leads o an emphasis on h ee key concep s in mains eam eco-
nomics: maximisa ion, equilib ium, and e iciency (Okabe 2017a: 34– 35).
In addi ion, i is o en said ha one measu e o whe he a discipline is
sys ema ic is he exis ence o a gene al ex book on he subjec . Le us look
a economics ex books (uni e si y ex books a elemen a y o in e media e
le el) om his pe spec i e. Fo example, he in oduc o y (Mankiw 2021)
and in e media e (Mankiw 2018) economics ex books by Mankiw (Ha a d
Uni e si y, USA), as s a ed by he au ho himsel , we e w i en wi h he main
aim o con eying s anda d con en while a oiding biza e con en (Mankiw
2020: 215– 217). Fo his eason, hese ex books a e used in uni e si ies all
o e he wo ld and a o al o 4 million copies (including o eign ansla ions)
ha e been sold o da e (ibid.). F om his example, i can be said ha he e is
clea ly a s anda dised sys em in mode n economics.
Secondly, he ea u e o economics (expansion o he scope o analysis)
is also s iking. In pa icula , he e is a end in esea ch owa ds a uni ied
unde s anding o human beha iou and socie y by applying he abo e-
men ioned a ional beha iou model o ‘economic man’ o di e se human
ac i i ies, which has o med one majo end wi hin economics.25
Such esea ch ends ha e successi ely inco po a ed many a eas in o eco-
nomics, such as amily, disc imina ion, eligion, and o he a eas o sociology,
law, poli ical science, as objec s o analysis o economics. This endency o
Table1.1 Mic oeconomic ounda ions as emphasised in heo e ical analysis (illus a i e
examples)
Themes o he pape Indi idual u ili y unc ions used he e
Example1. Regional di e ences
in e ili y a es
and economic
ansac ions
U
ACm
ii i
a
i
a
=+



−
1
1
µ
µ
Example2. Li e isks om
pollu ion and
economic g ow h
U cp
pd
=−
()
+−
()
{}
∞
∫explnln
ρσ
0
Example3. Fiscal expansion and
ma ke en y o
en e p ises
U
uC He d
=
()
−
∞
∫
,
ρ
0
Example4. Wo ke s’ social
s a us and
economic g ow h
ec s k
d
−
∞
()
+
()



∫
ρ
loglog
0
No e:The pape s in examples1–4 a e, espec i ely, Mo i a and Yamamo o (2018), Ou a, Mo ide a
and Fu agami (2018), Chang e al. (2018), and Chen e al. (2018). The meanings (de ini ions) o
a iables in each pape a e omi ed he e in his able o a oid edundancy.
Need o economics o ully in eg a e human na u e 19
economics o apply i s logic (sel - in e es and a ional beha iou ) o non-
economic phenomena has been e med ‘economic impe ialism’ (Lazea 2000).
A leading esea che ad oca ing such an app oach was Ga y Becke (1930–
2014)26 o he Uni e si y o Chicago, USA. Becke ’s ea ly wo k included ‘A
heo y o ma iage’ (Becke 1974), ollowed by ‘A heo y o a ional addic ion’
(Becke and Mu phy 1988), which ocused on alcohol and d ugs. And, in
la e yea s, some such excep ional s udies as ‘Suicide: an economic app oach’
(Becke and Posne 2004) can be ound.27 Meanwhile, Ba o and McClea y
(2019) o Ha a d Uni e si y, USA, ecen ly published a book Economics
o Religion. The au ho s claim ha he book ‘does no conce n i sel , pe
se, wi h heology, doc ine, and he con en o eligious belie s. Ra he , we
a e in e es ed in he economic cos s and bene i s o holding ce ain eligious
belie s and he in luence o hose belie s on beha iou ’ (p. 4) as hei posi ion.
In hese s udies, bo h he scales o e alua ing human beha iou (objec i e
unc ion) and he assump ions o beha iou ( a ionali y) a e simple, and he
esea che s ce ainly a oid ha ing speci ic alue judgemen s. Howe e , e en i
e iciency i sel is alue- neu al, i is essen ial o keep in mind ha he posi ion
o e iciency will na u ally change when a ious o he e alua ion measu es
a e conside ed a he same ime ( he e may be cases whe e i becomes mo e
impo an o gi e p io i y o equi y, humani y,28 e c.) be o e discussing he
subjec ma e . I is impo an o poin ou he e ha i is essen ial o discuss
he subjec ma e wi h his in mind (Okabe 2017a: 40).
Wi h ega d o he hi d cha ac e is ic o economics (collabo a ion wi h
neighbou ing disciplines), as men ioned abo e, he pe spec i e has been
b oadened by he ac i e inco po a ion o he esul s o psychology and beha -
iou al science in o economics, and in e disciplina y esea ch a eas (such as
beha iou al economics) ha e de eloped.
1.2.2.2 S eng hs and weaknesses bo h depend on how i iews human beings
As desc ibed abo e, mode n economics has de eloped in many aspec s.
Howe e , on he o he side o his glo ious aspec , a da ke side ine i ably
a ises. The e o e, o social science o become uly s ong, i is also essen ial
o examine economics once mo e om he la e pe spec i e. This, he au ho
belie es, will make economics and he social sciences mo e ui ul.
The ‘ligh ’ pa o mains eam economics, as men ioned abo e, is de i ed
om he ac ha , as epea edly men ioned, economics assumes a dis inc i e
image o human beings (homo economicus). In o he wo ds, o be mo e spe-
ci ic abou he ‘economic man,’ i assumes ha human beings a e beings wi h
h ee cha ac e is ics: ma e ialism, ego ism, and indi idualism (le column o
Table 1.2).29
Ma e ialism e e s o an unde s anding o he objec o in e es , whe eby
people a e only in e es ed in goods and se ices ha hey can ac ually enjoy.
Ego ism is an unde s anding o beha iou al pa e ns in which he pu sui o
human beings is o inc ease his o he own sa is ac ion based on an inc ease
in goods and se ices. Indi idualism is an a omis ic iew o human beings
20 G oundwo k o be e ing economics
ha such indi idual beha iou is no in luenced by, o has no e ec on,
o he s.
I is p ecisely on he basis o hese h ee assump ions ha mains eam eco-
nomics is able o analyse and heo ise igo ously and p ecisely (elabo a ion
and sys ema isa ion as men ioned abo e). I also ends o apply i s analy -
ical me hods o human beha iou o he han he economy (expansion o he
objec o analysis). Fu he mo e, he e is a ecogni ion o he need o seek a
b oade iew o human beha iou and o inco po a e i in o economics (col-
labo a ion wi h adjacen disciplines).
The ac ha mains eam economics emphasises such assump ions is unde -
s andable in some espec s, since axioma ic de elopmen is highly alued
in academia. Howe e , in de eloping o iginal economics o o iginal social
science, i may be necessa y o i s cla i y he ue na u e o human beings
( he human pe spec i e) and de elop i on his p emise. This was he basic
p oblema ic o my p e ious book (Okabe 2017a), and I de eloped his di ec-
ion u he in my mos ecen book (Okabe 2022a).
Table 1.2 Mains eam economics’ iew o human na u e and he need o expand i
Assump ions in
mains eam economics In insic iew o human
na u e Ma e s equi ing
econside a ion (examples)
1. Ma e ialism
People a e only
in e es ed in wha
hey can enjoy in
eali y (goods and
se ices).
Humans ul ima ely pu sue
mo e gene al well- being
(happiness; eudaimonia)
a he han goods and
se ices.
The need o e hink wha
happiness is. Also need o
econside he signi icance
o occupa ion (wo k is
ecognised in economics as
nega i e u ili y).
2. Ego ism
Human beings
pu sue an
inc ease in hei
own sa is ac ion
(u ili y) based
on an inc ease
in goods and
se ices.
Humans ha e sel ish
mo i es o sus ain
li e, bu hey also
ha e al uis ic mo i es
(al uism).
The economics iew (o
in e p e a ion) ha al uis ic
beha iou is ac ually due o
sel ish mo i es needs o be
e- examined.
3. Indi idualism
The beha iou
o indi iduals as
desc ibed abo e is
nei he in luenced
by no has an
e ec on o he s
(a omis ic iew o
man).
Humans a e no a omis ic
beings, bu social beings
wi h mu ual in e es s
and mu ual in luences
(social ne wo k;
communi y; i ue
e hics).
The need o unde s and socie y
om he pe spec i e o he
in insic na u e o human
socie y, including connec ions
(social ne wo ks), communi y
and i ue e hics.
No e: P epa ed by he au ho .
Need o economics o ully in eg a e human na u e 21
1.3 F om mains eam economics o economics o humani y
In his sec ion, he cha ac e is ics o and challenges o mains eam eco-
nomics desc ibed in he p e ious sec ion a e b ie ly summa ised again. I hen
discusses how his can be modi ied o expanded o p o ide a mo e accu a e
unde s anding o human socie y and an economics ha can help o ealise
people’s well- being and build a be e socie y.
1.3.1 Mains eam economics and i s dis o ions
As men ioned abo e, economics is he s udy o economic phenomena, i.e.
he sa is ac ion o goods and se ices, om bo h he le el o he indi idual
and socie y as a whole. Fo his eason, he cen al ask is o i s ocus on he
demand o and supply o goods and se ices, and hen o elucida e how hese
a e adjus ed in he ma ke o each he ul ilmen o socie y as a whole. In
such cases, o analy ical con enience, i is explici ly o implici ly assumed ha
humans a e ‘a omis ic beings’ in he sense ha , as men ioned in he p e ious
sec ion, hey a e subjec s who ac sel ishly and a ionally (homo economicus) and
a e no in luenced by o he s, no in luence o he s. And, his iew o human
beings pene a es cu en mains eam economics.30
In o he wo ds, mains eam economics has a simplis ic unde s anding
o human socie y as consis ing o wo ypes o p i a e ac o s (consume s
and i ms), bu he key poin is ha in bo h cases he emphasis is on he
‘indi idual’.
In o he wo ds, indi iduals i s appea as consume s who aim o maxi-
mise hei u ili y based on he consump ion o goods and se ices. On he
o he hand, companies ha supply goods and se ices a e usually assumed o
be economic agen s ha ac wi h he aim o maximising p o i s, bu hey a e
unde s ood o ha e been made up o wo kinds o indi iduals, wo ke s who
wo k he e and ea n income, and manage s who a e ewa ded om company
p o i s, and he heo y is buil on he unde s anding (assump ion) ha bo h o
hem ul ima ely ac on he p inciple o sel - in e es maximisa ion.31
Analysis based on such a human image is easy o p ocess wi h ma hema -
ical igou , as we ha e al eady seen in Sec ion 1.2. This is why he sys em o
mains eam economics has a s eng h no ound in o he social sciences, and
i s heo e ical sys ems (e.g. gene al equilib ium heo y) ha e a beau y (Okabe
2017a: 12– 16).
The basic p oblem wi h mains eam economics, howe e , is ha i iews
human beings only om he na ow pe spec i e o ‘sel ish, a ional u ili a ians’.
Ama ya Sen32 has bi e ly c i icised, om an ea ly s age, ha his po ayal
o indi iduals as assuming ‘ a ional ools’ (Sen 1977; o a commen a y in
he same ein, see Sen 1987: 10– 12).33 I has also been ha shly c i icised by
esea che s in o he ields (cul u al an h opology) as a ‘ e y simplis ic and
poo heo y o man’ (Takahashi and Tsuji 2014: 189). Indeed, i mus be

22 G oundwo k o be e ing economics
said ha his is an o e simpli ica ion ha akes a oo one- dimensional iew o
human beings.
The cos s o economic analysis ha makes such assump ions abou human
na u e a e no only academically signi ican , bu also p ac ically se ious in e ms
o hei impac on public policy. This is because he social and policy heo ies
de i ed om such analyses place pa icula emphasis on p omo ing compe i-
ion and de egula ion (so- called neolibe al policies) in o de o inc ease e i-
ciency h ough he in e ac ion o sel - in e es ed ac o s. Ce ainly, ‘e iciency’
is an impo an policy goal, and many aspec s o i can be quan i ied and easily
e alua ed in public policy deba e.
Howe e , analysis and public policy deba e based on such a human image
mus ine i ably be dis o ed.34 In concei ing and ini ia ing economic policy, i
is necessa y o be awa e no only o e iciency and quan i a i e expansion, bu
also o goals ha a e essen ial o he cons uc ion o a be e socie y (equi y,
e hics, cul u al alues, e c.).35
1.3.2 Aspec s o humani y ha should be emphasised
In o de o achie e his, i is i s necessa y o unde s and economic and social
phenomena by emo ing he assump ions o he ‘economic man’ (ma e ialism,
ego ism, and indi idualism) and b inging in an inhe en iew o human na u e
and human beha iou , and by d awing public policy heo y on such analysis
(see he middle column in Table 1.3).
In o he wo ds, i is i s necessa y o ake he iewpoin ha he ul ima e
pu sui o human beings is no simply goods and se ices, bu , in gene al and
ul ima ely, happiness. The e a e, o cou se, a ious pe spec i es and exp essions
o happiness. Fo example, in English, hese include happiness, well- being,
wellness, good li e, eudaimonia, h i ing, and lou ishing. These concep s
we e discussed in de ail in my p e ious book36 and will no be discussed again
he e, bu i is i s necessa y o e- examine he ela ionship be ween hem and
human beha iou .
Le us conside some examples. The usual pe cep ion in economics is ha
wo k (labou ) is he opposi e o u ili y (i is ea ed as ‘disu ili y’). Howe e ,
he e is also he impo an aspec ha wo k o occupa ion is ela ed o
‘happiness,’ as i includes he aspec o people achie ing hei mission h ough
i , besides ea ning. I we hink in his way, i is possible o unde s and wo k in
he opposi e way (i.e. ins ead o unde s anding i as me ely a nega i e u ili y,
we can a gue ha i s na u e is signi ican ly ela ed o happiness h ough he ul-
ilmen o he mission). In o he wo ds, i we mo e away om he assump ion
o he ‘economic man,’ he e eme ges a possibili y o such uncon en ional
bu ealis ic unde s andings abou human beings.
Humans na u ally ha e sel ish mo i es because o he need o sus ain li e.
The e is no doub abou his. Howe e , economics akes his (and only his) as
a basic p emise o i s iew o human beings. Fo his eason, economics o en
akes he iew (in e p e a ion) ha , e en when humans pe o m seemingly
Need o economics o ully in eg a e human na u e 23
al uis ic ‘ac ions,’ hei ‘mo i es’ a e sel ish.37 Such a posi ion may be neces-
sa y o keep he logic o mains eam economics consis en .
Howe e , esea ch in a numbe o disciplines has shown ha humans also
ha e genuine al uis ic mo i es (al uism).38 Fo his eason, he idea o assuming
only sel ishness as a mo i e o human ac ion needs o be econside ed.
Fu he mo e, unde s anding humans as indi iduals likened o independen
a oms (a omis ic beings) and socie y as a se o such indi iduals is also oo
one- sided. Ins ead o adhe ing o such a pe spec i e, i is mo e in line wi h he
eali y o unde s and humans as social beings wi h mu ual in e es s and mu ual
in luences.39 I has also been concluded in many academic disciplines o he
han economics ha such a g ea in e es in o he s is one essen ial elemen ha
cha ac e ises human beings.
The e o e, in unde s anding socie y, i is impo an and indispensable o
ake he pe spec i e o human socie y as a social ne wo k, o speci ically as
composed o a ious communi ies in o de o unde s and humans and hei
socie y, a he han simply iewing humans as a omis ic beings.40 In iew o
his aspec , he con en ions, ules, and aci bindings ( i ue e hics) among
humans na u ally become also impo an esea ch subjec s.
To add ess hese di icul ies, i is essen ial o ake in o accoun he a ious
human na u es ound in eali y, such as he ac ha humans can ha e sel ish
mo i es as well as al uis ic beha iou ( he idea o ac ion o ca e abou he
well- being o o he s)41 and ha humans li e in ela ionships (bonds) wi h one
ano he .
In ac , such beha iou is no only a adi ional mo al o e hical s anda d
common o many eligions and cul u es a ound he wo ld, bu acco ding
o many academic s udies and cul u al adi ions, i is a obus p oposi ion
ha humans ha e genuine al uis ic mo i es (See Table 3.1). I was also he
iew o Adam Smi h, he ounde o economics, ha humans a e also always
conce ned abou o he s, which, in a b oad sense, is pa o al uism, as will be
discussed in he nex sec ion.
Fu he mo e, looking a con empo a y s udies, we ind such obse a ions
as ollows. ‘Ou minds a e socially en angled, so ha many social ules a e
mo ally binding’ (Gin is 2016: xi– xiii), o ‘new empi ical knowledge o human
beha iou migh hold o he design o policies and ins i u ions ha would
wo k well o people gi en o bo h sel - in e es and gene osi y, bo h mo al
ac ion and amo ali y’ (Bowles 2016: x i). A numbe o s udies sugges ha
assuming ha humans a e in e ela ed beings (social beings) is a supe io
model o eali y.
Fu he mo e, in an ex ao dina y longi udinal s udy conduc ed by
esea che s a Ha a d Uni e si y (Wadlinge and Schul z 2023), i has been
shown ha humans a e uly social c ea u es. This Ha a d s udy began in
1938 and has acked he same 724 indi iduals o 84 yea s, asking housands
o ques ions and aking hund eds o measu emen s o ind ou wha eally
keeps people heal hy and happy. And, hey ha e i mly concluded ‘good
ela ionships keep us heal hie and happie ’ (ibid 10).42
24 G oundwo k o be e ing economics
In o he wo ds, he assump ions o mains eam economics, i.e. ideas and
heo ies based on wha is known as me hodological indi idualism, a e oo
one- sided in hei iew o human beings. As a esul , he pic u e o socie y
ha eme ges om his is ine i ably dis o ed. In he case o public policy, oo
much emphasis is placed on achie ing e iciency h ough he p omo ion o
compe i ion, as will be discussed in he nex sec ion, and o he ac o s ha a e
impo an o humans ha e o be neglec ed. Human beha iou al mo i es a e
no only sel ish ones, as he esul s o many academic disciplines ha e shown
(Okabe 2017a: 259– 270; see Chap e 3 o his publica ion). Also, human
beings a e no o be ecognised as simple independen en i ies, as i hey we e
a oms, he basic cons i uen uni s o ma e , bu as en i ies o which con ac
be ween indi iduals and hei ongoing ela ionships wi h each o he a e o
i al signi icance. Mains eam economics, lacking his pe spec i e, should be
said o ha e a majo and c ucial law.
1.3.3 Economics o humani y
When o ganised as desc ibed abo e, he cu en mains eam economics has
aspec s ha de ia e conside ably om he o iginal na u e o social science
ha is conce ned wi h human beings. Fo his eason, he e is oom o b ing
i close o ‘humanis ic economics’ and he po en ial o de elop new heo ies
om i . This is he basic pe spec i e o his book, which will be discussed in
some de ail in u n below.43 Howe e , his book does no claim o ha e newly
and sys ema ically cons uc ed a ‘humanis ic economics’.
He e, he main aims o he book a e: (1) o lay ou he issues ha a e
indispensable o esea ch in his di ec ion, (2) o p o ide as many heo e ical
explana ions and e idence as possible o suppo his di ec ion, and (3) o
p o ide componen s and semi- inished p oduc s o de eloping economics in
a new di ec ion on he basis o hese componen s and semi- inished p oduc s,
in he au ho ’s own way.
In his spi i , he economics de eloped in his publica ion will be e e ed o
as ‘economics o humani y’. The main poin s in such a case can be con as ed
o mains eam economics as shown in Table 1.3.
Fi s , mains eam economics assumes ha humans a e u ili a ians and ac
a ionally, and ha hey a e indi idualis s who do no ca e abou he people
a ound hem. Tha is, he pu pose o human beha iou is unde s ood o maxi-
mise one’s own u ili y wi hin a ce ain pe iod o ime by inc easing consump-
ion o goods and se ices.
A i s glance, i appea s highly plausible ha humans ha e a beha iou al
p inciple o maximising u ili y ( o al u ili y wi hin a ce ain pe iod o ime), as
de ined in equa ion (1.1) o Figu e 1.2. Howe e , he psychologis Kahneman
( he ecipien o Nobel P ize in Economics in 2002) has shown ha humans
a e in ac conscious o sa is ac ion h ough a di e en mechanism. His explan-
a ion consis s o wo empi ical ules: he peak- end ule and du a ion neglec
(Kahneman 2011: chap e 35). The o me is an empi ical ule in psychology
Need o economics o ully in eg a e human na u e 25
ha s a es ha when people judge an expe ience (whe he pain ul o pleasan ),
hey end no o judge he whole expe ience acco ding o he o al amoun
o e he whole pe iod o he a e age o each poin in ime, bu a he
acco ding o hei imp essions a wo poin s in ime: how hey el a he ‘peak
poin ,’ and how hey el a he ‘end poin ’ (Kahneman 2011: chap e 35;
Wikipedia:Peak- end ule). This has been con i med by a ious s udies and
expe imen s o e he yea s.
Table 1.3 Mains eam economics and economics o humani y: a con as
Unde s anding o
human beings Pu pose o human
ac ion How o unde s and
socie y
Mains eam
economics
Ego ism
Ra ional choice and
beha iou
Indi idualism
Maximising one’s
own u ili y
h ough inc eased
consump ion
o goods and
se ices.
The ma ke is made
up o indi iduals
(consume s/
wo ke s) and
business i ms.
The go e nmen
compensa es and
complemen s he
ma ke unc ions.
[2- sec o model].
Economics o
humani y
Al uism and
e hics as well as
sel ishness. Also
akes in o accoun
human po en ial.
Shows no
only a ional
beha iou , bu
also bounded
a ionali y
o i a ional
beha iou in
some cases.
Humans a e no
simply a omis ic
beings, bu social
beings ha ing
bond wi h o he s.
The pu sui o
happiness
(pleasan li e, good
li e, meaning ul
li e) a he han
simply inc eased
consump ion.
The p i a e sec o
ac i ely posi ions
he exis ence o
communi ies (e.g.
he non- p o i
sec o ) in addi ion
o indi iduals and
businesses.
Socie y is unde s ood
as being made
up o he p i a e
sec o s, wi h
he go e nmen
joining hem.
[3- sec o model].
The idea ha
he pu sui
o indi idual
happiness can lead
o social e o m
(an idea ha
complemen s he
ma ke mechanism)
is also a poin o
iew o be explo ed
(discussed in de ail
in Chap e 8).
Sou ce: Okabe (2017b) Cha 11.
32 G oundwo k o be e ing economics
37 See Okabe (2017a: appendix 2, 277– 279).
38 Okabe (2017a: chap e 8, and cha 8- 1 as a summa y).
39 This is also he iew o mankind e ealed in Theo y o Mo al Sen imen s by Adam
Smi h, he ounde o economics, as will be discussed in Chap e 2.
40 Inciden ally, in a panel discussion a he Japan Economic Associa ion, a main-
s eam esea che exp essed he opinion ha he subjec o economics should be
in en ionally limi ed, as ‘communi ies a e o eign o economics and an an agon-
is ic concep (omission), so we mus be e y ca e ul’ (P o esso Yasushi Iwamo o
o he Uni e si y o Tokyo). (Genda e al. 2016, 238), bu he au ho (Okabe)
canno help bu ques ion he alidi y o ha idea.
41 See Okabe (2017a), chap e 8, sec ion 3, o esea ch indings om a numbe
o academic disciplines in his ega d. Fo example, when he G ea Eas Japan
Ea hquake occu ed (Ma ch 2011), many people om all pa s o Japan
demons a ed hei beha iou by going o he a ec ed a eas o help by in es ing
hei own ime, e o , and money. Conside ing his eali y, i is clea ha he e is a
g ea impossibili y o assume me ely sel ishness as a mo i a ion o human ac ion.
42 They no only cha ac e ise hei esea ch as ‘ he wo ld’s longes scien i ic s udy
o happiness’ ( he book’s sub i le) bu also men ion, by ci ing se en simila
esea ches, ha he indings a e obus ac oss di e en e as and di e en kinds o
people (ibid. 20– 21).
43 Ini ially, he au ho ’s main in e es was in he Japanese economy (Okabe 1955,
2022). Bu subsequen ly, he has con inuously pu impo ance o in e - disciplina y
o mul i- disciplina y app oach o a ious social issues and public policies, and
published ele an a icles and books. Fo his kind o me hodology, see Okabe
(2003b, 2006b, 2006a). Some conc e e issues he au ho wo ked on in ha spi i
a e: app op ia e pe cep ion o he economic sys em (Okabe 2011a, 2014a, 2018e,
2019a), human na u e and economics (Okabe 2012a, 2012c, 2014b, 2014e,
2021, 2022a), happiness o well- being (Okabe 2013b, 2014a, 2015a, 2015b,
2020a), al uism (Okabe 2014c, 2014d, 2019b, 2019d), co po a e o o ganisa -
ional go e nance (Okabe 1997, 1999b, 2009a, 2016c, 2017c), s uc u al change
om goods economy o se ices economy (Okabe 2019c, 2019e; and issues
ela ing o Lusch and Va go: 2014), and impo ance o in eg i y (Okabe 2016c,
2017c, 2019 ).
44 In addi ion o hese wo sec o s, he diag am also shows he ‘Res o he wo ld’
(O e seas sec o ).
45 See Okabe (2017a: 43– 44).
46 Chie o Resea ch Di ision 1, Ins i u e o Mone a y and Economic S udies, Bank
o Japan.
47 See Okabe (2017a, oo no e 17 o page 45) o he his o y o his p ocess o chan -
ging he Japanese ade s a is ics.

DOI: 10.4324/9781003478447-4
2 Inhe i ing om Adam Smi h
E hics and o he human ac o s
In he p e ious chap e , we poin ed ou he p oblems wi h con empo a y
mains eam economics and ou lined he di ec ion in which i should espond
o hem. In eali y hough e y ew esea che s claim such a iew and sense
o di ec ion o he s a e o economics.1 One o he main easons o his is
ha he iew ha Adam Smi h, he pionee o mode n economics, is aguely
ega ded as ‘ he gu u o laissez- ai e o ma ke undamen alism based on sel -
ishness’ is pe sis en ly widesp ead,2 which makes i di icul o c ea e a si ua ion
ha o ces e lec ion on mains eam economics.
In his chap e , Sec ion 2.1 poin s ou ha such an unde s anding o human
beings as Smi h is said o ha e held con ains a majo allacy, and hen se s ou
Smi h’s o iginal iew o human beings and socie y. In Sec ion 2.2, i will be
a gued ha Smi h also a ached g ea impo ance o he inhe en po en ial o
human beings, and ecen esea ch ha succeeds his iew will be in oduced.
In he nex sec ion, Sec ion 2.3, i will be a gued on he basis o many conc e e
examples om he pe spec i e o social philosophy ha he ma ke sys em is
o undamen al impo ance in he ope a ion o mode n socie y, bu ha he e
a e aspec s o i ha con lic wi h he good li e. In he las sec ion, Sec ion 2.4,
we will discuss h ee app oaches o he de ini ion o well- being in ligh o he
abo e3.
2.1 Adam Smi h’s iew on human na u e and socie y
This sec ion shows how Adam Smi h’s iews on man and socie y ha e
been g ossly dis o ed and misunde s ood, and desc ibes wha his o iginal
iews we e.
2.1.1 P e ious misconcep ion called ‘Adam Smi h p oblem’
Adam Smi h (1723– 1790), Sco ish economis , philosophe , and mo al phil-
osophe , w o e wo majo books. The bes known o hese is An Inqui y in o
he Na u e and Causes o he Weal h o Na ions (Smi h 1776),4 while he o he
34 G oundwo k o be e ing economics
which has ecei ed less a en ion is The Theo y o Mo al Sen imen s (Smi h
1759, 6 h ed. 1790).5
I was once poin ed ou ha he e is a majo ‘disc epancy’ o ‘con adic-
ion’ be ween he wo books’ iews o man, which was discussed as he ‘Adam
Smi h p oblem’ (Smi h and Wilson 2019: 3; Okabe 2018a: 23– 24).
In o he wo ds, The Weal h o Na ions has adi ionally been unde s ood
as a guing ha he mo i a ion o human ac ion is he pu sui o sel - in e es ,
and ha such ac ion esul s in he ealisa ion o he in e es s o socie y as a
whole h ough he unc ioning o ma ke s o he ‘in isible hand’.6 In con-
as , The Theo y o Mo al Sen imen s discusses mo al sen imen s as opposed
o sel - in e es , and he con o e sy a ose om he ques ion o whe he he
a gumen s o he wo wo ks a e incompa ible.
Howe e , his ‘Adam Smi h p oblem’ was a spu ious one, a ising om
igno ance and misunde s anding (Raphael and Mac ie 1976: 20). I will no go
in o he de ails o how i came abou and was se led, bu I ha e summa ised
a gumen s o i as Table 2.1. In sho , he e we e no disc epancies o
Table 2.1 The ‘Adam Smi h p oblem’ and i s co ec ion
The Weal h o Na ions (1776) The Theo y o Mo al Sen imen s
(1759)
(1) Cha ac e is ics o he wo books
Cha ac e is ics
o each book
The subjec o discussion is
mo e na owly limi ed o
‘weal h’ han in The Theo y
o Mo al Sen imen s, and he
de ails a e discussed.
As he domain o economic
ac i i y is cen al, sel -
in e es is cen al when
discussing mo i es o
ac ion.
The book ha p eceded The
Weal h o Na ions. Smi h
discusses man, his mo i es o
ac ion and hei consequences
om a b oade pe spec i e
han in The Weal h o Na ions.
I assumes as a ma e o cou se
ha humans ha e sel - in e es
( he opening sen ence o
he book), and hen analyses
he sou ces o mo ali y, i s
unc ions and i s ela ion o
he social o de .
F equen ly
ci ed ele an
sec ions
‘I is no om he bene olence
o he bu che , he b ewe ,
o he bake , ha we expec
ou dinne , bu om hei
ega d o hei own in e es .
We add ess ou sel es, no o
hei humani y, bu o hei
sel - lo e; and ne e alk o
hem o ou own necessi ies
bu o hei ad an ages.’
(Smi h 1776: 14, book 1,
chap e 2)
"How sel ish soe e man
may be supposed, he e a e
e iden ly some p inciples in
his na u e, which in e es
him in he o une o o he s,
and ende hei happiness
necessa y o him, hough
he de i es no hing om i
excep he pleasu e o seeing
i . O his kind is pi y o
compassion, he emo ion
which we eel o he mise y
o o he s (omi ed he ea e ).
"(Smi h 1790: 1– 2,
beginning o chap e 1).
Inhe i ing om Adam Smi h: e hics and o he human ac o s 35
The Weal h o Na ions (1776) The Theo y o Mo al Sen imen s
(1759)
(2) The assessmen o he ‘p oblem’
‘The Adam
Smi h
P oblem’
The Weal h o Na ions
a gues ha he mo i a ion
o human ac ion is
undamen ally he pu sui o
sel - in e es , which in u n
p omo es he in e es s o
socie y as a whole h ough
he ‘in isible hand’.
On he o he hand, he
p eceding The Theo y o
Mo al Sen imen s discusses
human mo ali y and i s social
signi icance in de ail, so he e
is a majo disc epancy o
con adic ion be ween he
claims o bo h books.
I was he e o e a gued ha :
(1) i is ques ionable whe he
he same pe son eally w o e
he wo books, o (2) i is
necessa y o conside ha he
au ho (A. Smi h) adically
changed his iews on human
beha iou .
Assessmen o
he ‘p oblem’
The abo e ‘p oblema ic’ iews
a ose because a small pa
o he The Weal h o Na ions
was popula ised, while The
Theo y o Mo al Sen imen s
was neglec ed o a long
ime in he 19 h and 20 h
cen u ies.
Such ‘p oblems’ a e
‘ alse p oblems’ a ising
om igno ance and
misunde s anding. A ca e ul
eading o The Theo y
o Mo al Sen imen s,
conside ing he ime o
publica ion o he wo books
and he con inuous e ision
o bo h by he au ho , makes
i clea ha he wo books
a e closely in e linked.
(1) The Weal h o Na ions
ex ensi ely discusses no only
sel - in e es bu also c edi ,
law, ai play, and o he
ma e s closely ela ed o The
Theo y Mo al Sen imen s, in
o de o ma ke s o unc ion
(i is di icul o de i e hese
om sel - in e es ).
(2) The Theo y o Mo al
Sen imen s was published in
1759, and Smi h e ised i a
o al o six imes he ea e
un il sho ly be o e his dea h.
As The Weal h o Na ions was
published in he mids o a
se ies o such e isions, i is
di icul o belie e ha he
le he con en o hese wo
books a odds wi h each o he .
No e: P epa ed by he au ho based on Sen (2014), Raphael and Mac ie (1976: 20– 25), and
Dome (2008).
con adic ions in Smi h’s iew o man and socie y as he de eloped in bo h
books, and his unde s anding was consis en .
2.1.2 Mic oanalysis o social o de o ma ion
Wha , hen, was Smi h’s iew o man and socie y? He e, he au ho would like
o o ganise hem in his own way, e e ing o he abo e wo wo ks o Smi h
Table 2.1 (Con inued)
36 G oundwo k o be e ing economics
as app op ia e, bu elying hea ily on h ee books published in ecen yea s
(Mo son and Schapi o 2017; Bowles 2016; Dome 2008).
Wha Smi h sough o elucida e in his wo wo ks is ul ima ely an explo -
a ion o he in isible o ces ha keep human socie y oge he and lou ishing
(Mo son and Schapi o 2017: 256). In o he wo ds, he ques ion is wha is
social o de and how is i de i ed om human na u e? He e, social o de e e s
o he peace ul and sa e li e o all membe s o socie y by ollowing some ules
(Dome 2008: 25). The gis o Smi h’s a gumen is ha such a s a e o a ai s
can be logically explained by s a ing om he p emise (an axiom, so o speak)
ha human beings a e no me ely sel ish beings, bu ha hey ha e an in e es
in o he people. Acco dingly, The Theo y o Mo al Sen imen s is no i s and
o emos a wo k o mo al philosophy, le alone a hymn o al uism. Ra he , i
is a wo k o mo al psychology and sociology“ (No man 2019: 49).
2.1.2.1 Gene a ing a sense o mo ali y
The s a ing poin o Smi h’s a gumen is ‘sympa hy’. This means d awing
o one’s own mind he a ious kinds o ellow- eelings ha people ha e
owa ds o he s, i.e. joy, sadness, ange , e c. (Smi h [1759] 1790: 10, pa 1,
chap e 1).7 Sympa hy is conside ed o be o pa amoun impo ance o he
indi idual because while I ha e his emo ional unc ion, o he s ha e a simila
emo ional unc ion owa ds me. And because I wish o be endo sed by o he s,
I y o ma ch my eelings and ac ions wi h hose ha o he s can endo se.
Smi h’s iew is ha , as a c i e ion o doing so, one has an ‘impa ial spec-
a o ’ wi hin onesel ha anscends one’s own in e es s and conce ns. Then,
since I y o con o m my eelings and beha iou o wha he impa ial spec-
a o endo ses, I ac as he impa ial spec a o endo ses by sel - egula ion.
Thus, wo gene al ules eme ge om his among humans.
The wo a e: (1) jus ice (no o commi ac s ha inju e he li e, body, p op-
e y o honou o o he s) and (2) bene icence ( o commi ac s ha p omo e
he in e es s o o he s). The sense ha one mus ha e ega d o gene al ules
as a c i e ion o one’s conduc is a sense o du y, which is no hing mo e
han a mo al sense o mo al acul ies (Smi h [1759] 1790: 164– 165, pa 3,
chap e 5).
Smi h ega ds i as ‘a p inciple o he g ea es consequence in human li e’
(id. a 162), and conside s ha i one ac s con a y o he gene al ule, i.e. he
mo ali y, he is condemned by he impa ial obse e in his own hea , e en i
he is no condemned by he wo ld, and canno keep a calm mind. The idea is
ha he calm mind is a happy mind. On he o he hand, a calm mind ( an-
quilli y) is no hing bu happiness (id. a 149). Fo his eason, one is subjec
o mo ali y. These a e he mo al senses ha Smi h expounds, and his iew o
mo ali y.
O pa icula impo ance o Smi h’s a gumen is ha he included sel ishness
o sel - in e es as one o he objec s ha needs o be con olled by a sense o
du y. Fo his eason, he idea ha unlimi ed sel - in e es should be le alone
Inhe i ing om Adam Smi h: e hics and o he human ac o s 37
does no eme ge om Smi h’s hough (Sedlacek 2011: 197; Sen 2011: 265;
Dome 2008: 59).
As desc ibed abo e, Smi h ook human emo ion (sympa hy) as his s a ing
poin , and a gued ha he e is an ‘impa ial spec a o ’ in human beings. The
esul o his is he sequen ial de i a ion o mo ali y, law, and social o de .
In o he wo ds, i is an app oach ha a emp s o unde s and he exis ence
o social ma e s (mo ali y, law, and social o de ) conce ning many people on
he basis o pe sons eelings. In mode n e minology, Smi h’s iew o socie y
is a heo y o mo ali y, law, and social o de wi h a mic o ounda ion, since i
is based on he concep ion o indi idual human eelings and beha iou . Thus,
The Theo y o Mo al Sen imen s is a book ha uses he me hod o ‘model ana-
lysis’ and a gumen a ion o explain how humans can build ba ie s [mo al
senses] agains hei emo ions, e en i humans a e sel ish in na u e (Skinne
2008: 542).
2.1.2.2 Impo ance o ai play
Fu he mo e, Smi h makes he ollowing asse ion in The Theo y o Mo al
Sen imen s.
‘In he ace o weal h, and honou s and p e e men s, he [man] may un as
ha d as he can, and s ain e e y ne e and e e y muscle, in o de o ou s ip
all his compe i o s. Bu i he should jus le, o h ow down any o hem,
he indulgence o he spec a o s is en i ely a an end. I is a iola ion o ai
play, which hey canno admi o .’ (Smi h [1759] 1790: 83, pa 2, sec ion
2, chap e 2).
In o he wo ds, i is commendable ha one s i es o win he compe i ion,
whe eas i is denounced and unaccep able o gi e onesel an ad an age by
d agging o he s down (Skinne 2008: 563– 564). I is impo an no o o e -
look he ac ha Smi h makes hese a gumen s.
2.2 Adam Smi h’s iew on human po en iali y and i s ecen
de elopmen s
Adam Smi h unde s ood, as discussed in he p e ious sec ion, ha human
beings a e no only economically o sel ishly mo i a ed, bu also ha e a ious
social aspec s, such as e hics, jus ice, and bene icence (cha i y). I is also
impo an o no e ha , as Smi h belie ed, all he human beings ha e po en ial
ha has no ye mani es ed i sel in ou daily li es.8 And, hese po en ials a e o
g ea impo ance. This is because whe he o no hey a e ealised de e mines
whe he o no people achie e a ‘good li e’ o ‘happiness’.
In he ollowing, we i s look in o how Adam Smi h unde s ood human
po en ial. Then, we ace how his iew o man was inhe i ed and de eloped
by Ama ya Sen, a philosophe and economis wi h a b oad con empo a y

38 G oundwo k o be e ing economics
in ellec . Since he e is a conc e e way o each human being o ealise his o
he po en ial, i.e. a p ac ical philosophy, i will be explained la e in Chap e 8,
Sec ion 8.2.
2.2.1 Adam Smi h’s pe cep ion o human po en ial
As he i le o his book The Theo y o Mo al Sen imen s sugges s, Adam Smi h
had a deep unde s anding ha human beings a e social beings who a e con-
scious o each o he a he han exis ing alone in socie y. Alongside his, Smi h
was con inced ha humans ha e g ea po en ial, and ha hese abili ies a e
expec ed o be mani es ed. This poin has no un o una ely been explici ly
add essed in he pas . One eason o his may be ha Smi h himsel ook such
ecogni ion o g an ed and did no explici ly subjec i o analysis.
Howe e , i is one o he co es o Smi h’s hough , and has signi ican con-
empo a y implica ions. I is because how o d aw ou human po en ial is a
ques ion di ec ly ela ed o public policy o educa ion and equal oppo uni ies,
and because i is signi ican o ul ima ely ealise a good li e o happiness.9
2.2.1.1 Smi h was con inced o human po en ial
Pe haps he g ea es con ibu ion o he app ecia ion o Smi h’s unde s anding
(o belie ) o human po en ial and i s con empo a y de elopmen was made
by Ama ya Sen (Nobel Lau ea e in Economics). This sec ion p o ides an
o e iew o Smi h’s heo y o human po en ial, e e ing o he main poin s
made in Sen (2014).
Sen no es ha ‘i is no ewo hy ha Smi h ega ded human po en-
ial as equal, ligh ly eclipsing ba ie s o class, gende , ace and na ionali y,
and ecognised no essen ial di e ence in na u al alen s and abili ies’ (Sen
2014: 27). He quo es he ollowing passage om The Weal h o Na ions, and
asse s ha he passage shows Smi h’s empi ical con ic ion ha human capaci-
ies a e equally endowed is clea ly s a ed.
‘The di e ence in na u al alen s in di e en men is, in eali y, much less
han we a e awa e o ; and he e y di e en genius which appea s o dis-
inguish men o di e en p o essions, when g own up o ma u i y, is no
upon many occasions so much he cause, as he e ec o he di ision o
labou . The di e ence be ween he mos dissimila cha ac e s, be ween a
philosophe and a common s ee po e , o example seems o a ise no so
much om na u e, as om habi , cus om, and educa ion’. (Smi h 1776: 15,
pa 1, chap e 2)
This iew, based on Smi h’s expe ience, is con a y o scien i ic e idence
ha he e a e also gene ic di e ences be ween indi iduals (Sen 2014: 28).
Impo an ly, howe e , ha passage e lec ed Smi h’s belie ha his is he
co ec assump ion (ibid). The wo king class has less access o educa ion,
Inhe i ing om Adam Smi h: e hics and o he human ac o s 39
especially good educa ion, han hose wi h s a us and asse s. Mo eo e , he
wo k engaged in by he wo king class is demanding and hey do no ha e he
same oppo uni ies o hone hei skills as hose wi h s a us and asse s. So ha ,
class di isions, Smi h a gued (id. a 30), do no imply di e ences in na u al
alen o abili y, bu e lec inequali ies o oppo uni y.
Smi h’s endency, o a he his longing, o belie e ha all human po en ials
a e equal mus by all means be unde s ood (id. a 29). This is also he belie
ha inequali y is he p oduc o socie y a he han a e lec ion o inhe en
di e ences (id. a 32), and he ein lies he ou s anding o esigh ha is s ill
ele an oday (ibid.).
2.2.2 Con empo a y de elopmen o Ama ya Sen’s capabili y heo y
Adam Smi h emphasised he impo ance o human po en ial, bu did no
go as a as o de elop he heo y. Unde hese ci cums ances, Ama ya Sen
p oposed and heo e ically de eloped he heo y o po en iali y, o he ‘cap-
abili y app oach’ o a happy li e (well- being o good li e). I is a heo e ical
amewo k o unde s anding human beings and hei well- being.
Howe e , he o iginal sou ces ha p esen ed i (Sen 1985, 1988) a e a he
di icul o unde s and, and he in oduc ions and explana o y pape s w i en
by esea che s a e wa ds a e no always plain10 and also a y conside ably in
hei emphasis. In wha ollow, he e o e, we will e iew Sen’s heo y o cap-
abili y, elying p ima ily on Robeyns (2016) and Wells (2017), bo h o which
p o ide ela i ely easy- o- unde s and explana ions o he heo y.
2.2.2.1 Two co e concep s
In unde s anding human beings in adi ional economics, as discussed in
Chap e 1, ‘u ili y’ ( he deg ee o ul ilmen o desi e) o he amoun o
‘income and asse s’ closely ela ed o i has been accep ed as an impo an and
he s anda d c i e ion (as is s ill ollowed in cu en mains eam economics).
Sen, howe e , c i icised such measu es as being undamen ally lawed in
e ms o wha is mo e impo an o human beings (good li ing o good li e)
since hey only ha e an indi ec ela ionship. So, Sen in oduced wo al e -
na i e c i e ia o e alua ing hem: (1) ‘wha kind o being can one be’ and
(2) ‘wha can one do’. This iew in oduces wo al e na i e c i e ia o e alu-
a ion: ‘wha kind o being can one be’ and ‘wha can one do’.
This iew is based on he idea ha he ull ul ilmen ( ealisa ion) o hese
‘ unc ions’ is conside ed o be well- being, and ha he condi ions ( eedom,
e c.) o ealising his s a e a e unde s ood as an in eg al pa o i ( he la e
also being subjec o e alua ion), he eby unde s anding he ac ual s a e and
po en ial o human beings. This can be said o be he idea o unde s anding
he ac ual s a e and po en ial o human beings by unde s anding hem as an
in eg al pa o he condi ions (such as eedom) o ealising hei s a e ( he
40 G oundwo k o be e ing economics
la e being subjec o e alua ion). This can be illus a ed in Figu e 2.1. The
wokey concep s a e ‘ unc ionings’ and ‘capabili ies’.
Sen i s unde s ands ha i a pe son is imp o ing hei quali y o li e o
achie ing ‘happiness (well- being)’, i is a ‘ ealisa ion o unc ions’ ( unc ioning).
And, he conside s ha his can be exp essed as ei he he ealisa ion o ce ain
s a es (beings) o he ac ual pe o mance o ce ain ac i i ies (doings), and
a gues ha in de e mining happiness, bo h o hese a e impo an . In o he
wo ds, he capabili y app oach in oduces he unique concep o ‘ unc ioning’,
and p oposes wo aspec s, he g asping o s a es (beings) and ac i i ies
(doings), o e alua e he unc ioning.
Fo example, he o me (beings) include being in good nu i ion, ha ing
ee access o ood, being in com o able li ing condi ions, o being in
unheal hy si ua ions. On he o he hand, he la e (doings) include doing
(being able o do) hings such as buying ood, a elling, aising child en,
o ing in elec ions, smoking d ugs, o dona ing o cha i y.
To ake a mo e conc e e example, a pe son’s s a e o being can be exp essed
as ei he being in a ‘mode a ely hea ed’ com o able house (s a e: being) o con-
suming ‘la ge amoun s’ o ene gy o hea hei own home (beha iou : doing),
bo h o which a e di e en in cha ac e and need o be conside ed. In his way,
i can be unde s ood ha he capabili y app oach inco po a es bo h subjec i e
(emo ional) and objec i e (quan i a i e) pe spec i es o unde s and he good li e.
The abo e is he s a e o unc ioning, bu he ques ion is whe he i can
be ealised. The concep o ‘capabili y’ co esponds o his judgemen . This
consis s o wo elemen s. One is he exis ence o a ious s a es (capabili y se s)
ha a e ac ually a ailable, selec able, and aluable o people. The second is
he ac ual a ailabili y o ‘ eedom’ o people o choose om among hem
(e ec i e eedom).
In o he wo ds, a key ea u e is ha i includes he e hical concep o
eedom (o choice) as a undamen ally impo an componen o capabili y.
Figu e 2.1 ‘Capabili ies app oach’ o he good li e (well- being).
Souce: P epa ed by he au ho om Robeyns (2016) and Wells (2017).
Inhe i ing om Adam Smi h: e hics and o he human ac o s 41
In his espec , Sen’s capabili y heo y goes beyond he s anda d economic
amewo k and spans e hics.
2.2.2.2 I comes down o wo e hical p oposi ions
Thus, he abo e heo y o capabili y as p esen ed by Sen ul ima ely comes
down o wo no ma i e p oposi ions (Robeyns 2016). Namely, (1) ‘ eedom’
o people o achie e happiness (well- being) is undamen ally impo an om
a mo al pe spec i e, and (2) people he e o e ha e he oppo uni y o ealise
hei po en ials (capaci ies), i.e. happiness. In pa icula , he essence o he cap-
abili y app oach lies in he g asp o eedom as an impo an elemen (e hics)
(Suzumu a and Go o 2001: 188).11,12
These Sen’s a gumen s do no see human na u e (human na u e) simply as
a subjec ha ac s sel ishly, bu a he inco po a e he unde lying ac ha i
has mul iple ace s. In o he wo ds, he human mind needs o be unde s ood
as deeply connec ed o o he s and socially en angled (Gin is 2016: xi– xiii).
Al e na i ely, i is assumed o unde s and ha he human mind is connec ed in
a socially ne wo ked way and ha humans a e he e o e social beings.
Such a iew o human beings is a philosophical posi ion ha was pionee ed
by A is o le, Smi h, and Ma x in he his o y o hough , and Sen’s hough
as an economis and philosophe is posi ioned as a con inua ion o his pos-
i ion.13 He also conside s he ‘good li e’ (well- being) no only as a ‘good’
wo h pu suing o indi iduals, bu also as a ‘good’ wo h demanding social
commi men , and p esen s a policy heo y om a new pe spec i e ha
conside s desi able social assis ance and secu i y o such a good (Suzumu a
and Go o 2001: 24).
In summa y, he abo e may be summa ised as ollows. The capabili y
app oach is a way o unde s anding human well- being, which emphasises: (1)
eedom o choice, (2) indi idual he e ogenei y, and (3) he mul idimensional
na u e o well- being and wel a e.
2.2.2.5 Assessmen o capabili y heo y (1): ea u es
Wha a e he cha ac e is ics o he capabili y heo y ou lined abo e, and how
can i be e alua ed? Al hough he e is some o e lap wi h wha has al eady been
said, we would like o summa ise hem below.
Fi s , he heo y o capabili y p oposed by Sen in he la e 1980s in oduced
esh analy ical concep s o ‘ unc ioning’ and ‘capabili y’ o unde s and
‘happiness’, ‘good li e’, o ‘well- being’ (Suzumu a and Go o 2001: 8).
I is no ‘p ope y’ ( esou ce), such as goods o income which has been he
ocus in he pas , no ‘u ili y’ which is de i ed om he use o p ope y, bu
‘ unc ion’ ( unc ionings) which is a ‘ heo e ical middle e m’ inse ed be ween
p ope y and u ili y (id a 185). I inco po a es, as al eady men ioned, bo h
subjec i e and objec i e pe spec i es (unde s anding he mul idimensionali y
o he ac o s ha b ing abou well- being), and as a esul , i p o ides a new
48 G oundwo k o be e ing economics
2.3.2.3 In oduc ion o emune a ion
The abo e example o a nu se y school in Is ael is a case whe e he inancial
incen i e is nega i e (a ine), bu when i is posi i e (a ewa d), i has he same
dis up i e e ec on in insic mo i a ion (Gneezy and Rus ichini 2000b: 793).
An example o his is Case A abo e, bu an equally in e es ing example is
men ioned in Bowles (2016), which is p esen ed he e.
I is desc ibed as an in e es ing expe ience old o he au ho o a book
(Bowles 2016: 39– 40) by Thomas Schelling,20 a iend o he au ho . I was
50 yea s ago, in he 1950s, Schelling wo ked as a s a membe in he US
p esiden ial adminis a ion (Whi e House). His colleagues he e wo ked long
hou s. They all el ha i was a job o achie emen , and ha hey also el
impo an as indi iduals in ol ed in i . Unde hese ci cums ances, F iday
a e noon mee ings usually las ed un il 20.00 o 21.00, and when he chai
sugges ed ha he mee ing be esumed on Sa u day mo ning, no one objec ed,
and he mee ing o en con inued in o Sa u day. Howe e , sho ly a e wa ds,
a p esiden ial dec ee was issued s a ing ha ‘anyone who wo ks on Sa u day
shall ecei e o e ime pay’. Schelling’s expe ience was ha a e ha , Sa u day
mee ings we e i ually no longe held. A i s glance, i would appea ha
he e would be mo e Sa u day mee ings because i mee ings we e held on
Sa u days, hey would ecei e o e ime pay, bu in ac he opposi e was ue
(ibid.).
Why? When he e was no o e ime allowance, he mee ings we e ali e wi h
a spi i o olun ee ism and all pa icipan s knew hey had an impo an ole o
play. This mean ha mee ings we e o en ca ied o e o Sa u days. Howe e ,
his was no always he case, as he inancial allowance o Sa u day mee ings
ans o med hem in o me e ‘wo k’ and changed he meaning o mee ings o
pa icipan s. In o he wo ds, i can be unde s ood ha he inancial incen i es
in ol ed ha e ‘co up ed’ he cha ac e o he mee ings as pe cei ed by he
pa icipan s, and as a esul , con a y o expec a ions, Sa u day mee ings ha e
almos disappea ed (ibid). When policies ha elici sel - in e es a e in oduced
o beha iou ha was o iginally suppo ed by public spi i , hey des oy
public spi i .
We ha e seen abo e he case o paymen o eading, he case o child pick-
up and he case o paymen o Sa u day mee ings. I hese hings a e obse ed,
hen economis s can no longe emain in he ealm o con en ional economics
in explaining he wo ld a ha poin , bu need o s ep in o mo al philosophy
o an h opology (Sandel 2012: 90).
Table 2.1 u he e e s o economis s’ belie ha i is a ional o gi e cash
a he han goods as Ch is mas gi s, he ecommenda ion ha he sale o
kidneys should be allowed ( he idea being ha ading human kidneys could
sa e many pa ien s by inc easing kidney dona ions) and he in e na ional p o-
cu emen o comba an s (ou sou cing o wa a e h ough in e na ional p o-
cu emen o comba an s using labou ma ke s) a e men ioned by economis s,
all o which a e iden i ied as ha ing e hical p oblems (see Table 2.2 o de ails).

Inhe i ing om Adam Smi h: e hics and o he human ac o s 49
2.3.3 Th ee p oblems associa ed wi h ma ke - based policies
The abo e is a a he de ailed accoun o he si ua ion in which he inc easing
end owa ds ma ke isa ion in a ious se ings is in con lic wi h he good
li e and e hical issues o human beings. So, how should we hink abou he
p oblem o he con lic be ween ma ke isa ion and he good li e o e hics, and
wha ideas and esponses a e desi able in e ms o economic policy? These
a e all di icul ques ions (especially o economis s who ha e a oided alue
judgmen s), bu he e, elying mainly on Sandel (2012), I would like o sum-
ma ise hem in o he ollowing h ee ca ego ies.
2.3.3.1 Injus ice and co up ion
The i s p oblem wi h ma ke ism is ha i leads o injus ice and co up ion.
Today, he logic o buying and selling no longe applies only o physical goods,
bu has inally come o domina e he whole o li e, and ma ke s and ma ke
alues a e expanding in o a eas o li e whe e hey do no i in. This is indeed
he e a o ma ke iumphalism (Sandel 2012: 6– 8). As a esul , ma ke and
ma ke - o ien ed ideas ha e en e ed aspec s o li e p e iously go e ned by non-
ma ke no ms, and almos e e y hing has a p ice ag and is subjec o buying
and selling (ibid.).
This si ua ion needs o be seen as p oblema ic o wo easons (Sandel
2012: 8– 11, 33– 35, 109– 111). One ela es o ai ness o inequali y and he
o he o co up ion. And simila ly, he ques ion o wha money should and
should no buy can always be discussed in e ms o hese wo aspec s (id.
a 110).
This is because, i s ly, he mo e hings money can buy, he mo e impo an
i becomes o be weal hy (o no weal hy). In o he wo ds, as money becomes
mo e impo an , he gap be ween ich and poo has a g ea e impac on li e in
gene al. Ma ke isa ion hus b ings p oblems in e ms o equi y and pe pe ua es
social and economic inequali ies. Fo example, in he case o he c ea ion o
a ma ke o he kidney ade desc ibed abo e (Case D in Table 2.1), he sel-
le s o kidneys a e likely o be ela i ely poo , while he buye s a e likely o be
weal hy, esul ing in injus ice and inequali y, whe eby he weal hy li e longe
a he expense o he poo .
The second eason, ‘co up ion’, is a li le mo e di icul o explain (Sandel
2012: 9). I means ha , apa om he issues o ai ness and inequali y
men ioned abo e, ma ke s ha e a co osi e endency ( endency o co up ). I
you pu a p ice on he good hings in li e, he e is a ea ha hey will become
co up . This is because ma ke s no only alloca e hings, bu also exp ess and
p omo e pa icula a i udes owa ds he hings and hings aded in hem
(ibid.).
When we hink o co up ion, we o en hink o ill- go en gains, such as
illegal b ibes o o icials o quid p o quo, bu co up ion he e goes beyond
such phenomena and e e s o a much wide ange o hings. Tha is, o
50 G oundwo k o be e ing economics
co up a good o a social p ac ice is o deg ade i , o ea i acco ding o a
lowe mode o alua ion han is app op ia e o i (id. a 34).
Ex eme examples a e easie o unde s and. Fo example (id. a 46), ha ing
babies in o de o sell hem o p o i is a co up ion o a pa en hood, because
i ea s child en as hings o be used a he han beings o be lo ed. In his
case, i is co up ion because pa en s a e deg ading and demeaning he baby by
ollowing lowe no ms han hose app op ia e o he pa en ’s ask. The a o e-
men ioned kidney- a icking ma ke can suppo he a gumen o co up ion
because i sees humans as a se o eplaceable pa s and p omo es a ma e ialis ic
iew o humans.
A gumen s in e ms o co up ion may also ela e o ins i u ional in eg i y
(id. a 110– 111). When ma ke ela ions en e (i.e. when ea ed as a com-
modi y wi h a p ice: o example, he buying and selling o uni e si y admis-
sion igh s in ude), hey dis o , unde mine, ex inguish, o downg ade he
no ms and alues o hei pu pose. Many impo an hings in li e ha e ma ke
alue ( alue as a commodi y) as well as non- ma ke alue. Fo example, i is
necessa y o know he alue o he good ( he goods) heal h, educa ion, amily
li e, na u e, a , and ci ic du y. I is impo an o unde s and ha hese a e
mo al and poli ical issues and no jus economic issues (id. a 10).
I a kidney is bough wi h money, he kidney will s ill unc ion physio-
logically. Howe e , whe he a kidney should be he objec o sale o no
needs o be conside ed om a mo al poin o iew (id. a 95). As ano he
example, conside he case whe e a iend gi es a hea - wa ming g ee ing a
you wedding. In ha case, anyone would eel bad ( eel ha i is a co up ed
e sion o a genuine g ee ing) i hey ound ou la e ha he g ee ing had
been commissioned o be p epa ed by a p o essional company (and bough
wi h money) (id. a 97– 98). In o he wo ds, he cong a ula o y manusc ip is,
in a sense, a ‘good’ ha can be bough . Howe e , i i is bough and sold (i.e.
u ned in o ‘goods’), he cha ac e o he cong a ula o y add ess changes and
i s alue is los (id. a 98).21
Mode n poli ical and economic policy discou se lacks he concep o he
good li ing, he good li e, and a se ious discussion o he ole and scope o
ma ke s. The mo al limi s o ma ke s ha e no been conside ed, despi e he
need o do so. This has led o a si ua ion in which mode n socie y p ese es
ma ke iumphalism and he logic o he ma ke (id. a 13– 15).
2.3.3.2 Fallacy ha ma ke s a e alue- neu al
The second p oblem is ha wha is implici ly assumed in ma ke - based
p inciples, namely ha ma ke s a e alue- neu al, is inco ec .
As al eady men ioned, economis s o en assume ha ‘ma ke s do no ac
wil ully and do no in luence he subjec o he ansac ion’. In o he wo ds,
he s anda d logic o economics s a es ha ‘commodi ying a good’ does no
change he na u e o ha good. The a gumen is ha ma ke ansac ions
inc ease economic e iciency wi hou changing he good i sel , and ha
Inhe i ing om Adam Smi h: e hics and o he human ac o s 51
mone a y incen i es should he e o e be used o guide desi ed beha iou
(Sandel 2012: 113– 114).
Howe e , his iew is inco ec (id. a 114). This is because he ma ke is
no jus a mechanism, bu encompasses ce ain no ms. Tha is, i is assumed
he e ha he good o be exchanged is alued in a gi en way, and his endency
is p omo ed (id. a 64). Fo his eason, ma ke incen i es des oy o shu ou
non- ma ke incen i es (e.g. mo ali y) (ibid.).
As is clea om ecalling he case o he Is aeli kinde ga en discussed
abo e, some imes non- ma ke alues ha should be che ished a e c owd ou
by ma ke alues. In o he wo ds, ma ke s lea e hei ma k on social no ms
(id. a 64). Ano he p oblem is ha , as can be seen om he example o he
wedding g ee ing abo e, ma ke isa ion does no comple ely des oy i , bu
i does damage i s alue. The eason o his is simila o he eason why
money canno buy iends. Tha is, because he social p ac ices ha unde pin
iendships a e cons i u ed by ce ain no ms, and commodi ica ion would
educe hese no ms (empa hy, gene osi y, compassion) by eplacing hem wi h
ma ke alues (id. a 107).
2.3.3.3 Pi alls o e iciency- o ien ed economic policy
The hi d p oblem is ha ma ke - based economic policies, whose basic objec i e
is o imp o e e iciency, ha e impo an pi alls ha a e o en o e looked.
The e a e wo such p oblems, one o which is he inequali ies ha a ise.
Since i is o en ecognised by economis s, and we al eady discussed abo e, i is
no epea ed he e. Howe e , he e is ano he impo an p oblem. Tha is ha
he economis s’ idea o using he ma ke o inc ease e iciency has an aspec o
des oying he common good (co up ion in he b oad sense), a p oblem ha
is la gely un ecognised.
I is expe imen ally known ha humans ha e a public spi i , a eeling o mo al
conce n, such as a commi men o he common good (Sandel 2012: 115). In
o he wo ds, i is ai o say ha humans ha e al uism in he b oades sense.
This human na u e is p ecisely wha Adam Smi h analysed and poin ed ou
260 yea s ago in his book The Theo y o Mo al Sen imen s, as we al eady saw in
Sec ion 2.1 o his chap e . I mone a y measu es a e in oduced in a si ua ion
whe e sen imen s and non- ma ke alues a e impo an in his way, people’s
a i udes will change, wi h he esul , as men ioned abo e, ha mo al and ci ic
esponsibili y will be shu ou (id. a 116).
The economis iew o i ue, which emphasises e iciency, ex ends ma ke s
and p opels hei each in o places hey do no belong, hus c ea ing a ma ke -
d i en socie y (Sandel 2012: 130). The downside o such economic policies is
ha hey debili a e alues such as i ues, al uism, gene osi y, solida i y, and
ci ic spi i (ibid). We need o know ha he policies ad oca ed by mains eam
economis s a e unconsciously and always accompanied by hese biases.22 I is
hen impo an o de elop ideas and, in his case, public policy heo ies ha
co ec such biases.23 Adam Smi h, on he one hand, app ecia ed he ac ha
52 G oundwo k o be e ing economics
sel - in e es is consis en wi h ma ke unc ioning, bu on he o he hand, he
s essed he impo ance o ai play in he ma ke , as well as deep insigh s in o
human beings, such as mo ali y and happiness. Economics needs o e isi and
de elop Smi h’s la e a gumen in pa icula in he u u e.
2.3.4 In e ac ion be ween incen i es and social p e e ences
The abo e examples show ha he in oduc ion o ma ke ac o s (incen i es)
such as ines and ewa ds can des oy he e hics and goodness ha enable
human socie ies o unc ion smoo hly, causing injus ice, o unde mining
social ules.
Fo example, in he case o he a o emen ioned Is aeli kinde ga ens
( ines o a diness), he in oduc ion o inancial incen i es had he opposi e
expec ed esul (inc eased la e pick- ups). In o he wo ds, a ce ain in e ac ion
occu ed be ween economic incen i es and mo al beha iou , which esul ed
in an a ophying o he sense o e hical obliga ion ha he pa en s o he
p eschool child en had. Using he concep o economics, he in oduc ion
o incen i es can be desc ibed as a c owding ou o e hical and o he - ca ing
mo i es.
Conside ing such phenomena mo e gene ally, i can be assumed ha
he in e ac ion be ween economic incen i es and mo al beha iou may no
only c owd ou (push away) e hical mo i es, bu may con e sely c owd in
(in i e in) e hical mo i es. In ac , Bowles (2016: chap e 3) ocuses on hese
in e ac ions be ween incen i es and e hics and p esen s a model wi h gene -
ali ies o which bo h c owd- ou and c owd- in concep s can be applied. This
p o ides an in e es ing pe spec i e as one way o imp o e he e ec i eness o
economic policy, bu we s op he e o poin ou ha .24
2.4 App oaches o a good li e
Roughly said, economics is he s udy o he su iciency o goods and se ices,
bu i is also ine i ably conce ned wi h he s a e o human well- being and,
ul ima ely, wi h he s a e o happiness. A discussion o his head- on would lose
i s limi s and exceed he scope o his book, so only wo basic poin s will be
discussed he e:25 ha is, he e a e h ee ways o looking a well- being, and ha
i canno be aken wi hou he aspec o human sociali y.
2.4.1 Th ee app oaches o ‘well- being’
Fi s , le us conside he concep o ‘well- being’, i.e. o be in a good s a e
o li e. The e a e wo adi ional ways o looking a his, based on an eco-
nomic pe spec i e, bu i we add Sen’s capaci ies app oach, explained in he
p e ious chap e , we can unde s and ha he e a e h ee ways o hinking
(Table 2.3).
Inhe i ing om Adam Smi h: e hics and o he human ac o s 53
The i s is o ocus on subjec i e well- being o u ili y, i.e. he ex en o
which an indi idual’s desi es a e sa is ied. The second ocuses on he objec i e
measu e o esou ces ha people possess. P ope y and income ce ainly ha e
a signi ican in luence on wha we can and canno do. Howe e , i can also be
said ha p ope y and income a e me ely a mean o ealise o expand one’s
inhe en powe (po en ial). A oiding ha issue, a hi d app oach, he cap-
abili y app oach, has been p oposed by Ama ya Sen, as desc ibed in Sec ion
2.2.2 o his chap e , which can be posi ioned as a no el amewo k ela ed o
well- being o a oid hese p oblems.
Table 2.3 Th ee app oaches o good li ing (well- being)
U ili y- based app oach Resou ce- based
app oach Capabili y app oach
Basic concep Subjec i e app oach.
U ili a ianism,
which ocuses on
subjec i e well-
being (u ili y)
in e ms o he
sa is ac ion o
desi es.
Objec i e
app oach.
Ma e ial well-
being heo y
( esou cism),
which emphasises
he s a e o
acquisi ion o he
means (income
and p ope y) o
a good li e.
An app oach ha
inco po a es
bo h subjec i e
and objec i e
elemen s.
Focus on he
ealisa ion o
‘ unc ions’ ha
b ing abou well-
being, and he
po en ial ac o s
ha make his
possible.
Rep esen a i e
s a is ical
measu es
GDP pe capi a. Asse s pe capi a. UN Human
De elopmen
Indica o a.
P os and cons Simple and
con enien , because
well- being is
cap u ed solely by
a low economic
indica o (income).
Only one-
dimensional in he
unde s anding o
happiness. Also, he
pe spec i e is qui e
indi idualis ic.
Mul i ace ed o
some ex en in
ha i includes
a ious s ock
indica o s (asse s)
o cap u e
well- being.
Limi a ion since
i unde s ands
happiness solely
in economic
e ms.
No only economic
measu es, bu also
wide aspec s (li e
expec ancy, access
o knowledge,
e c.) a e
aken in o.
Insu icien
heo isa ion, e.g.
on how bes o
combine which
po en ials is no
clea .
No e:
a An indica o ha syn hesises he h ee componen s o heal h, educa ion, and income wi h he
same weigh s.
Sou ces: P epa ed by he au ho based on Robeyns (2016), Wells (2017), Wikipedia “Capabili y
app oach”, Okabe (2017a: Chap e 6).

54 G oundwo k o be e ing economics
2.4.1.1 U ili y- based app oach
Gene ally speaking, people can be unde s ood as li ing o happiness, well-
being o he good li e. In such cases, hese e ms and concep s need o be
clea ly de ined, bu he simples and he adi ional app oach in economics is o
ocus on subjec i e well- being (u ili y), i.e. he ex en o which an indi idual’s
desi es a e ul illed.
In o he wo ds, he idea ha humans ac o maximise hei own sa is ac ion
(i.e. psychological well- being), which, in e ms o he his o y o academic
heo y, co esponds o he classical u ili a ianism cu en o J. Ben ham. And,
his can be cha ac e ised as a subjec i e app oach.
A ypical s a is ical measu e based on his idea is g oss domes ic p oduc
(GDP) pe capi a. This is based on he idea ha a highe income inc eases he
amoun o goods and se ices ha can be acqui ed h ough i , hus inc easing
u ili y (making people happie ). Howe e , while his is a simple economic
measu e, i is clea ly oo simplis ic o equa e i wi h he well- being o socie y
as a whole. This is because i does no ake in o accoun he deg ee o equali y
o inequali y in he dis ibu ion o income o asse s. I also has a majo limi a-
ion in ha i does no ake in o accoun igh s and eedoms, which ha e an
in insic alue o human happiness apa om u ili y.
2.4.1.2 P ope y- based app oach
Ano he common app oach in economics is o ocus on esou ces ins ead o ,
o in addi ion o, income. This is based on he unde s anding ha he g ea e
he weal h possessed, he g ea e he oppo uni ies o goods, se ices, and
ac i i ies ha can be acqui ed om i , and hus he be e he li e. This can be
unde s ood as a heo y o ma e ial well- being ( esou cism), which emphasises
he acquisi ion o he means (income and p ope y) o a good li e.
This akes a b oade pe spec i e han u ili a ianism in ha i ocuses on he
means o a good li e. I is also an objec i e app oach (as i is based on objec i e
indica o s such as asse s pe capi a), whe eas u ili a ianism is a subjec i e
app oach. Howe e , like u ili a ianism, i has signi ican limi a ions, since i
measu es well- being based only on economic aspec s ( he amoun o asse s).
In addi ion, he amoun o asse s is less meaning ul i people do no seem
o ha e he capaci y o make app op ia e use o hei asse s (no aking in o
accoun he di e si y o human beings in his espec ). Fo example, a pe son
wi h a se e e physical disabili y will equi e a much la ge amoun o income
o daily li ing han a no mal pe son, so ha e en i hei p ope y holdings
a e equal, he e will be a la ge di e ence in he enjoymen o quali y o li e.
2.4.1.3 An app oach ha ocuses on capabili y
Weal h and income ce ainly ha e a g ea in luence on wha we can and canno
do. Fo his eason, people end o ocus on he immedia e ma e ial o inan-
cial weal h and o ge abou he ul ima e goal. Howe e , p ope y and income
Inhe i ing om Adam Smi h: e hics and o he human ac o s 55
a e me ely a means o ealise o expand one’s inhe en powe (po en ial).
Sen’s capabili y app oach, desc ibed in Sec ion 2.2.2 o his chap e , can be
e alua ed as a amewo k ha ocuses on hese p oblems wi h con en ional
app oaches and p esen s a new amewo k o add ess he issue.26
The capabili y app oach can be cha ac e ised by: (1) he basic ecogni ion
ha income and p ope y a e no he only ac o s in de e mining well- being,
(2) he ac ha i does no ocus only on he means o well- being, bu also
de ines wha a good li e is and looks a he po en ial o well- being, e e -
ing also o social and mo al p inciples (such as eedom) o ealise i and,
(3) i s ocus on he po en ial o happiness, while also e e ing o he social
and mo al p inciples (such as eedom) ha a e necessa y o ealise i . This
is an idea ha simul aneously inco po a es bo h he subjec i e and objec i e
elemen s o he wo app oaches men ioned abo e. In o he wo ds, he cap-
abili y app oach speci ies he ‘ unc ions’ ha b ing abou well- being and also
conside s he po en ial ac o s ha enable i s ealisa ion (e.g. li e span, access
o knowledge, e c.).
This app oach, which o igina ed wi h Sen, came o ui ion in he ea ly
2000s wi h he c ea ion o he Human De elopmen Index (HDI)27 by he
Uni ed Na ions. The HDI is a comp ehensi e index ha syn hesises s a is ics
on h ee basic human domains (long and heal hy li e, access o knowledge and
decen s anda d o li ing) and publishes a ime se ies o da a on an annual basis.
2.4.2 Essence o ‘happiness’
Wha is happiness o well- being? This has na u ally been he subjec o much
deba e since ancien imes om a a ie y o pe spec i es. Howe e , i we look
a i om he pe spec i e o economics, i can be unde s ood as a u he
de elopmen o he h ee ‘well- being’ concep s men ioned abo e.
Wha needs o be emphasised he e is ha , as many psychologis s (e.g.
Seligman 2002; Ry and Keyes 1995) poin ou , happiness mus no be
concei ed o as simply an indi idual ma e , bu mus also ake in o accoun
ela ionships wi h o he human beings as an impo an ac o . In o he wo ds,
as indi iduals canno exis in isola ion, he ‘social aspec s’ o human beings,
such as connec ions be ween indi iduals, become impo an ac o s o well-
being (Okabe 2017a: 222, 234– 236). Me hodological indi idualism in main-
s eam economics is oo one- dimensional in his espec .
Unde s ood in his way, economics should no simply discuss indi idual
well- being as a pe spec i e, bu should also ocus on he indi idual and his o
he social connec ions. Le us conclude his chap e by s a ing ha i is he
basic s ance o his book, and mo e on o he nex chap e .
No es
1 The e a e also p ac ical easons o his, such as he ac ha esea che s ha e
o become isk a e se in secu ing hei posi ion (Okabe 2017a: 44– 48). Based
on his ecogni ion, Hi oshi Yoshikawa (Uni e si y o Tokyo) says: ‘I hink ha
56 G oundwo k o be e ing economics
esea ch ac i i ies in economics a e becoming mo e and mo e like a “Keynesian
beau y con es ”. Leading academics se he ends. Then, in he expec a ion ha
such “ esea ch” ac i i ies will ca ch on o he ad, “ esea ch” o he same kind will
con inue all o e he wo ld’ (Yoshikawa 2020b: 93– 94).
2 Adam Smi h is o en c edi ed wi h asse ing h ee ee- ma ke slogans: (1) he
sel - su iciency o he ma ke economy, (2) he iden i y o a ional beha iou and
he p o i mo i e, and (3) he iden i y o sel - in e es and p oduc i e beha iou o
socie y (Sen 2011: 258– 259). Howe e , his iew is a majo dis o ion o Smi h’s
iew o man and socie y (ibid). Smi h no only analysed mo ali y, as his book i le
sugges s, in The Theo y o Mo al Sen imen s, bu also po ayed he mul i ace ed
na u e o human beings in The Weal h o Na ions (ibid). Inciden ally, Smi h ne e
used he exp ession ‘capi alism’ (id. a 259) in his w i ings.
3 This chap e is based on Okabe (2022a: chap e s 2 and 3; 2018a, 2018b).
4 A g ea deal o esea ch has been published on The Weal h o Na ions, and he e is
also a commen a y (Ma uyama 2011) ha summa ises he book’s con en s using
he s anda d analy ical ools o mode n economics (cha s and ma hema ics).
5 The i le o he au ho (Adam Smi h) is lis ed as ‘P o esso o Mo al Philosophy in
he Uni e si y o Glasgow’ on he middle doo o his book.
6 The ollowing passage om The Weal h o Na ions is equen ly quo ed as an illus-
a ion o his: ‘[E e y indi idual di ec s his labou and money wi h he in en ion
o ] his own gain, and he is in his, as in many o he cases, led by an in isible hand
o p omo e an end which was no pa o his in en ion. [Omi ed] By pu suing
his own in e es he equen ly p omo es ha o he socie y mo e e ec ually han
when he eally in ends o p omo e i .’ (Smi h 1776: 423, pa 4, chap e 2).
7 Smi h’s e m ‘sympa hy’ co esponds o he 20 h cen u y e m ‘empa hy’, which is
he abili y o ecognise he eelings ha o he s a e expe iencing (Wikipedia ‘Adam
Smi h’).
8 This sec ion builds on Okabe (2018a, 2018b).
9 The e a e na u ally many policy issues ha look a he blossoming o human
po en ial om he pe spec i e o educa ion and equal oppo uni ies, which we do
no en e in o in his publica ion. On he o he hand, he iewpoin o de eloping
po en ial h ough sel - imp o emen is ou lined in Sec ion 2.2.2 o his chap e
and deal wi h in de ail in Sec ion 8.2 and 8.3.
10 Fo example, Suzumu a and Go o (2001: chap e 6) is a commen a y by Japanese
au ho i ies in his ield, bu he explana ions gi en he e we e qui e di icul o he
p esen au ho (Okabe).
11 Sen’s iden i ica ion o eedom ( he exis ence o he possibili y o choice) as an
impo an componen o po en ial has signi ican implica ions. Fo example, e en
i he esul is he same agic ou come o s a a ion, a pe son who dies wi h dig-
ni y h ough ‘ as ing’ by au onomously and esponsibly e using o consume ood
in p o es agains poli ical opp ession, and a pe son who s a es o dea h wi hou
choice because he ood o be consumed is no a ailable due o he debili y o
ex eme po e y, ha e a poin o no ea ing ( unc ioning). Al hough common in
he wo cases, hey need o be assessed di e en ly in e ms o ‘ eedom o a good
li e’ (well- being eedom) (Sen 1988: 7– 8; Suzumu a and Go o 2001: 188). This
is because in he o me case he po en ial in e ms o eedom o choice is la ge,
while in he la e case i is small.
Inhe i ing om Adam Smi h: e hics and o he human ac o s 57
12 This is p obably why he app oach by Sen is named he capabili y app oach ins ead
o he unc ional app oach.
13 A is o le’s iew o happiness (eudaimonia) is closely ela ed o e hics ( i ue),
which go e ns he ela ionships be ween humans (Okabe 2017a: chap e 7).
Smi h also emphasised and deeply examined he eelings people ha e owa ds
o he s (mo al eelings) (Smi h 1759; Okabe 2018a, 2018b).
14 The Human De elopmen Index (HDI) is a summa y measu e o a e age
achie emen in key dimensions o human de elopmen : a long and heal hy li e,
being knowledgeable and ha e a decen s anda d o li ing.
15 As no ed abo e, Sen ci es ha ‘ he di e ence be ween wo ke s seems o be due
mo e o di e ences o habi and educa ion han o na u al bi h’ (Adam Smi h,
The Weal h o Na ions, pa 1, chap e 2, sec ion 4) (Sen 2014: 28).
16 One example o ackling his poin head- on is he P ac ical Philosophy, which is
discussed in Sec ion 8.2 and 8.3.
17 The ollowing sec ion is hea ily indeb ed o Sandel (2012).
18 In Table 2.2, we quo e i e examples o Sandel (2012). In addi ion, he discusses
such o he cases as he igh o mig a e o he USA (USD 500,000), su ogacy in
India (USD 6250: a hi d o he ma ke p ice in he USA), he igh o emi one
onne o ca bon in o he a mosphe e (EUR 13 <abou USD 18>), he igh o cu
in o p io i y lanes in Minneapolis (USD 8, du ing ush hou ), and he ading o
uni e si y admission igh s, among o he examples.
19 This s udy is ci ed by Sandel (2012) and also by Bowles (2016), as will be
discussed below.
20 Ame ican economis . He a gued ha economics should no be limi ed o he ana-
lysis o ma ke s, bu should expand i s pe spec i e o include human in e ac ion
beyond ma ke s, and was awa ded he Nobel P ize in Economics in 2005 o his
in e ac ional decision heo y (game- heo e ic analysis).
21 Sandel (2012) ci es examples om he USA, bu he e a e simila examples in
Japan. Fo example, a company called Wedding Speech W i ing Same- Day
Deli e y.com (h p:// www.kekkon shik ispe ech- speedd aihi su.com/ ). The com-
pany sells a se ice whe eby i he e is a eques o a speech o be w i en, he
clien is in e iewed by phone and a d a ma ching hei needs is comple ed and
p o ided. In addi ion o cong a ula o y speeches as a iend, he company also
o e s an ea ly bi d cou se (JPY 24,800) and a same- day deli e y cou se (JPY
29,800). The company also o e s a b ushed Japanese pape manusc ip se ice
(ex a cha ge) on he basis ha ‘a high quali y b ushed Japanese pape manusc ip
would be a welcome p esen o he b ide and g oom a e he speeches ha e been
concluded’.
22 The me i oc acy associa ed wi h hese ideas has also di ided US socie y in o
‘winne s and lose s’ o e he las 40 yea s, as well as causing a loss o digni y in
wo k (Sandel 2020: 59, 211).
23 In economic policies ela ing o a ious indus ies (especially ag icul u al policy
which is di ec ly ela ed o na u e and land), he pe spec i e needs o go beyond
me e compe i ion and e iciency (Okabe 2022a: chap e 10).
24 Fo de ails, see Okabe (2022a: chap e 10, sec ions 1- 3).
25 ‘Happiness’, o example, has many exp essions, including well- being, wel a e,
good li e, meaning ul li e, and eudaimonia, in addi ion o happiness, which is he
64 G oundwo k o be e ing economics
he possibili y o human beings ha ing ‘genuine al uism’. On he o he hand,
hose who a gued o he possibili y o ha ing ‘genuine al uism’ we e Bu le ,
Hume, Adam Smi h, and o he s. Fo a b ie su ey o he discussion o how
he exis ence o human al uism is posi ioned in majo con empo a y esea ch
ields (philosophy, economics, psychology, an h opology, e olu iona y biology,
neu oscience, e c.), see Okabe (2017a: 259– 270).
3.3 Al uis ic ac i i ies con ibu e o well- being and heal h
As discussed abo e, al uism is a pa o human na u e, ega dless o cul u e o
e a (Whi e 2016 and Table 3.1). And, i has been con i med by many s udies,
including psychology and neu oscience, ha when people beha e al uis ically,
hey expe ience a sense o happiness ( ul ilmen and sa is ac ion). The e o e,
one e ec i e p esc ip ion o human beings o achie e a sense o happiness
may be o ac i ely engage in al uis ic beha iou .
Psychologis s ha e a gued ha al uis ic beha iou o achie e hese goals
(i.e. o achie e eelings o happiness) is alid. This may ha e elemen s o ‘impu e
al uism’, as al uis ic beha iou is ca ied ou wi h he aim o inc easing one’s
own sense o sa is ac ion, bu i is an in e es ing de elopmen , so le ’s look a
some o he a gumen s below. I is also impo an o no e ha he e is oom
o hese elemen s in al uis ic beha iou , as his will lead o a mo e gene al
unde s anding o al uism (inciden ally, he model analysis p esen ed in he
ollowing Sec ion 3.4 is o his na u e).
3.3.1 Psychologis s and o he s ecommend he concep o ‘helpe ’s high’
The concep o ‘helpe ’s high’ e e s o he posi i e emo ions ha a ise om
sel less se ice o o he s (Dossey 2018: 393). The ecogni ion ha al uis ic
beha iou p oduces hese emo ions (which can be desc ibed as upli ing, sa is-
ying, and happy) eme ged in he 1980s, and he phenomenon has since been
s udied by a numbe o academic disciplines (ibid.). Today, no only does i
con inue o a ac a en ion, bu many psychologis s (Ca e 2014) a he
e e se i and p each he ‘ ecommenda ion o al uism’ wi h he aim o enhan-
cing hei own sense o well- being.
‘Helpe ’s high’ has a ac ed such a en ion, i s ly, because i has no only
been con i med by nume ous psychological expe imen s and s udies, bu also
by na u al scien i ic esea ch on humans as li ing o ganisms, as men ioned
abo e. This is due o he ac ha i has also been p o en by esea ch, as
men ioned abo e, in he case o humans as li ing o ganisms. Fo example,
many biochemical s udies ha e shown ha people who engage in cha i able
beha iou ypically p oduce endo phins (a weak mo phine- like subs ance)
inside hei b ains, which inc eases hei sense o well- being (Dossey 2018;
Ba az and Alexande 2010). I is also belie ed ha humans helping o he
humans in his way has played a majo ole in he su i al o he human
species.

Conside ing humani y (1): al uism 65
Secondly, al uis ic beha iou does no jus b ing abou a good psycho-
logical s a e (happiness), as i is also conside ed o con ibu e o be e heal h
and longe li e o humans (heal h bene i s) (Ca e 2014; Dossey 2018).
Acco ding o a s udy by he Na ional Ins i u e o Heal h in he USA, he joy
(happiness) o hose who help boos s he immune unc ion o he human body
and lowe s s ess ho mones. Fo his eason, people who olun ee o make
cha i able dona ions a e mo e likely o epea such beha iou , and i has also
been no ed ha his con ibu es o be e heal h and longe li e expec ancy.
3.3.2 ‘Helpe ’s high’ h ough aining
‘Helpe ’s high’ has many o he a ou able ou comes desc ibed abo e o
humans, so he e a e also a ious claims o ac i e aining (albei condi ional)
in ended o p oduce ha eeling.
Fo example, psychologis Ca e (2014) poin s ou ha , i s o all, i is
necessa y o ecognise ha he e a e se e al isks associa ed wi h al uis ic
beha iou . Fo example, he inc eased s ess associa ed wi h one’s o e loaded
schedule, he possibili y o bu nou , and he possibili y o hings no going
he way one wan s hem o ( us a ion). Howe e , Ca e (2014) a gues
ha al uis ic ac i i ies, while aking ca e no o all in o hese ca ego ies, can
inc ease happiness, educe s ess and ha e posi i e e ec s on physical heal h
and longe i y. In o he wo ds, ac i ely engaging in such al uis ic ac i i ies is
bene icial o onesel .
Ba az and Alexande (2010) also a gue ha he e a e ways o each helpe ’s
high wi hou ac ually aking ac ion. Fo example, hey sugges ha one can
ain onesel o ‘sympa hise and empa hise wi h he su e ing and dis ess o
o he s’ (compassion medi a ion) o o medi a e (mind ulness- based medi a-
ion p ac ice). Fu he mo e, all such elemen s o empa hy and al uism a e
included in he Buddhis eaching o Bodhisa a,4 which sugges s ha when
one becomes a pe son wi h he a - eaching aim o sa ing all li ing beings om
su e ing and ha dship, one a ains a s a e o happiness. They also explain ha
he e is a p og amme (Bodhisa a- in- T aining) o his pu pose. Howe e ,
ac ing o he bene i o o he s wi h he main aim o pu suing one’s own
happiness may be e be called as ‘sel ish al uism’, which is said o be a play ul
exp ession by he Dalai Lama (Ba az and Alexande : 2010).
Thus, al uism can na u ally be mixed wi h a sel ish elemen . In he nex
sec ion, we will he e o e e iew one in e es ing economic model ha also
akes such a pe spec i e in o accoun .
3.4 An economic model inco po a ing al uis ic beha iou
As we ha e seen abo e, humans expe ience joy and sa is ac ion (emo ional
ewa ds) om pe o ming ac s o help o he s. Focusing on his poin , an
economis And eoni (1989,5 1990) p esen ed an in e es ing economic model
o explain how his wo ks. In he ollowing, we e iew he pape ‘Impu e
66 G oundwo k o be e ing economics
Al uism and Dona ions o Public Goods: A Theo y o Wa m- Glow Gi ing’
(And eoni 1990).
The e a e wo poin s o bea in mind he e. Fi s , when conside ing he sa -
is ac ion (wa m- glow) ha comes om doing hings o o he s, i is assumed
he e ha his is a sel ish pleasu e o he pe son conce ned, ega dless o he
ac ual impac o his o he gene ous ac . In o he wo ds, he pe spec i e o
‘impu e al uism’ is in oduced he e: when people gi e some hing o o he s,
he e is a mix u e o bo h al uis ic and sel ish (egocen ic) mo i es.
Second, i is assumed ha sa is ac ion (wa m- glow) is only a non- mone a y
quid p o quo. This is because he wa m- glow phenomenon when he e is a pos-
sibili y o mone a y ewa d is ‘ ecip ocal al uism’ (al uism wi h he possibili y
o di ec mone a y ewa d), which is di e en om he unde s anding he e.
The pape by And eoni (1990), which is discussed below, deals speci ically
wi h cha i able gi ing and analyses i om an economic heo e ical pe spec-
i e. The ‘wa m- glow gi ing’ dona ion beha iou desc ibed in his heo e ical
model p o ides a use ul economic amewo k o conside ing he supply o
public goods, collec i e ac ion issues, cha i able dona ions, and gi gi ing.
3.4.1 Economic analysis o al uis ic beha iou : And eoni (1990)
Al uis ic means he mo i a ion o do wha is bene icial o o he s, and is he
opposi e concep o sel ish (sel - in e es ed; egois ic) (K au 2018). Al hough
hese wo ‘mo i es’ a e diame ically opposed, a single human ‘ac ion’ can be
based on bo h beha iou al mo i es (K au 2018). And eoni (1990) modelled
such cases.
Whe he people dona e o a public good (e.g. a cha i able und) ha
is p o ided p i a ely a he han by he go e nmen . This is in luenced by
nume ous ac o s, no jus al uism. Mo i a ions include gaining social admi -
a ion, espec , o as a oken o iendship, and he e may be o he social and
psychological objec i es as well. They may also be mo i a ed by social p essu e,
guil associa ed wi h no dona ing, o wa m- glow eelings.
The ollowing sec ion p esen s an o e iew o an economic model
(And eoni 1990) cons uc ed om he pe spec i e o how o inc ease public
good6 o sha ed asse s, which a e asse s o all membe s o socie y, and how
o inance hem.
Assume now he ollowing si ua ion. (1) The e is only one ype o p i a e
good (e.g. passenge ca s) and one ype o public good (e.g. pa ks) in he
economy. (2) Indi idual i owns asse wi, which can be eely alloca ed ei he
o consump ion o a p i a e good (xi) o dona ion o a public good (gi) (and
he e is no go e nmen subsidy o he public good). And, (3) assume ha
socie y is composed o n indi iduals and ha he o al amoun o public goods
is inanced by G below (dona ions om all membe s o socie y):
n
G = Σ g i
i = 1
Conside ing humani y (1): al uism 67
In his case, he u ili y unc ion o each pe son can be w i en as shown
Ui below.
Ui = Ui (xi, G, gi), i = 1, 2, ..., n (3.1)
In o he wo ds, an indi idual’s u ili y is de ined by h ee hings: (1) he
amoun o p i a e goods consumed (xi), (2) he amoun o public goods (G),
and (3) he amoun o money spen on public goods by hemsel es (gi). I
should be no ed he e ha gi en e s he u ili y unc ion wice. The i s ime as
pa o he public good (G) and he second ime as a p i a e good ( hi d e m
o he u ili y unc ion). The eason o his se up is o cap u e he ac ha
he gi by he indi idual himsel has he cha ac e o a p i a e good, which is
independen o i s cha ac e as a public good. Fo mula ed in his way, equa ion
(1) can be unde s ood as an exp ession ha includes h ee cases.
In o he wo ds, when equa ion (1) abo e becomes like equa ion (3.1a)
below, i can be unde s ood as a case ha ep esen s a ‘pu ely al uis ic’ case,
as indi iduals do no gain u ili y om hei pe sonal dona ions. On he o he
hand, equa ion (3.1b) ep esen s a case whe e public goods a e no aken in o
accoun and indi iduals only dona e when hey ha e wa m- glow eelings, hus
ep esen ing a pu ely egois ic case. And, when bo h G and gi a e included (in
equa ion (3.1) abo e), he pe son ep esen s an ‘impu ely al uis ic’ (ha ing a
mix u e o al uis ic and sel ish mo i es) case.
Ui = Ui (xi, G) (3.1a)
Ui = Ui (xi, gi) (3.1b)
Nex , le us exp ess he con ibu ions o all o he s, excep o indi idual i, as:
G - i = Σ gi
j≠i
Then, he indi idual dona ion unc ion is ob ained by sol ing he ollowing
condi ional maximisa ion p oblem.
Maximise: U i (xi, G, gi) (3.2)
xi, gi, G
Cons ain s: xi + gi = wi (3.3a)
G– i + gi = G (3.3b)
Equa ion (3.2) implies ha each indi idual maximises his o he u ili y Ui
unde wo cons ain s, (3.3a) and (3.3b). While equa ion (3.3a) implies ha
indi idual i will use his o he asse s (wi) o pu chase p i a e goods (xi) and
68 G oundwo k o be e ing economics
o dona e o public goods (gi). And, equa ion (3.3b) implies ha he o al
amoun o public goods consis s o he con ibu ions o e e yone excep indi-
idual i (= G- i), and o he con ibu ion o indi idual i (= gi).
Whe e gi = G - G- i by de ini ion, and subs i u ing cons ain s (3.3a) and
(3.3b) in o he u ili y unc ion equa ion (3.2), he maximisa ion p oblem is
inally exp essed as ollows.
Maximise: Ui (wi + G- i - G, G, G - G- i). (3.4)
G
A i s glance, his u ili y unc ion appea s o be he same as he no mal u ili y
unc ion7 ha appea s when consume s maximise hei own u ili y, bu in he
abo e, he con en is comple ely di e en . The eason is his. In he no mal
u ili y unc ion, indi iduals inc ease hei u ili y (sa is ac ion) by inc easing
hei consump ion, bu he u ili y unc ion in (3.4) abo e is based on he idea
ha indi iduals inc ease hei sa is ac ion by including bo h public goods buil
by indi idual dona ions and indi idual consump ion.
Sol ing his maximisa ion p oblem (al hough he calcula ions a e qui e
complex) leads o conclusions, o example ha i he go e nmen adop s an
asse edis ibu ion policy and edis ibu es asse s om people wi h ela i ely
small al uis ic endencies o a g oup o people wi h ela i ely s ong al uis ic
endencies, he supply o public goods can be inc eased (An eoni 1990: 473).
This analysis shows an in e es ing aspec o he supply o public goods: namely
he ques ion o whe he o inc ease he supply o public goods can be discussed
also by using he analy ical amewo k o indi iduals inc easing hei own
u ili y unde his o he budge a y cons ain s.
While he abo e is a heo e ical model, empi ical s udies based on i ha e
ecen ly eme ged. Namely, O oni- Wilhelm e al. (2017) ook a cha i able
o ganisa ion as one example. They de ined G in he abo e model as he o al
amoun dona ed by all indi iduals o a cha i able o ganisa ion, and G- i as
he amoun dona ed by indi iduals o he han hemsel es, and conduc ed an
empi ical analysis o he ac i i ies and und aising o one local chap e o he
Ame ican Red C oss in suppo o i e ic ims. They concluded ha : (1) pu e
al uis ic suppo by indi iduals ( he joy o gi ing) canno be igno ed, bu
(2) a he he abili y o cha i ies o expand hei ac i i ies is he payback o
dono s (such payback being an impo an mo i a ion o dona ion).
I is common among economis s o belie e ha people gi e o o he s
because hey expec some e u n in e u n,8 and such an idea appea s o be a
he oo o his empi ical s udy. Howe e , he alidi y o such an unde s anding
ul ima ely needs o be e i ied by empi ical esea ch.9 Fo his eason, i is
hoped ha such esea ch will expand in he u u e, and ha esea ch on
ano he impo an aspec o human na u e (human connec ions o ne wo ks)
will also become mo e ac i e. The e o e, nex chap e will ocus on human
in e connec edness.
Conside ing humani y (1): al uism 69
No es
1 This chap e is based on Okabe (2022a: chap e 5; 2018a, 2018b).
2 This empi ical s udy is b ie ly explained in Sec ion 4 o his chap e .
3 The Roman empe o and philosophe Au elius, in his wo k Sel - Re lec ions, which
was also an exho a ion o himsel , w o e: ‘Wha else did you expec om helping
someone ou ? Isn’ i enough ha you’ e done wha you na u e demands? You
wan a sala y o i oo? And when we do help o he s- - o help hem o do some-
hing- - we’ e doing wha we we e designed o . We pe o m ou unc ion.’ (Au elius
2002: book 9, numbe 42, page 128).
4 In Buddhism, a bodhisa a is a pe son who is on he pa h owa ds bodhi
(awakening, enligh enmen ) o Buddhahood.
5 P o esso , Uni e si y o Cali o nia, San Diego, USA.
6 See Okabe (2017a: 318) o de ini ions and de ails.
7 By no mal u ili y unc ions, we mean he a ious ypes o u ili y unc ions as shown
in Figu e 1.2 and Table 1.1 in Chap e 1. The easons o why elying on such u ili y
unc ions is p oblema ic, see Sec ion 1.3.3.
8 These ideas a e clea ly illus a ed, o example, in game- heo e ic analyses o al u-
is ic beha iou (Okabe 2017a: 277– 279, appendix 2).
9 When empa hising wi h he o he pe son: (1) does he pe son beha e in a (genu-
inely) al uis ic manne o , e en in such a case, (2) does he pe son’s beha iou
s ill esul om he expec a ion o some ewa d o onesel , o (3) does he pe son
beha e in he expec a ion o escaping punishmen ? One in e es ing expe imen al
epo (Ba son e al. 1988) aimed o cla i y his. I consis ed o i e expe imen s
wi h be ween 60 and 120 uni e si y s uden s, he esul s o which showed ha
(1) was indica ed while (2) and (3) we e ejec ed in all cases.

DOI: 10.4324/9781003478447-6
4 Conside ing humani y (2)
Social ne wo ks
In he p e ious chap e , we a gued, based on ecen esea ch, ha humans ha e
a endency o ca e abou o he s ( he mos posi i e o m o i being al uism) as
well as sel - in e es , and ha his is ela ed o hei own heal h and well- being.
In his chap e , we conside how hese human connec ions can be unde s ood
om he pe spec i e o mode n ne wo k science.
In Sec ion 4.1, we discuss how he basic laws o ne wo k science can be
applied o human connec ions. In Sec ion 4.2, we look a some speci ic
examples o he e ec s o social ne wo ks. And, in Sec ion 4.3, we a gue ha
social ne wo ks ha e he impo an unc ion o c ea ing common esou ces
(social ela ional capi al), hus implying socie y is no a simple a i hme ic sum
o humans.1
4.1 Ne wo k science and human links
Mains eam economics usually assumes ha ‘each human being has his o he
own p e e ences and makes decisions and ac s sel ishly and a ionally wi hou
being in luenced by o he s’ (a omis ic iew o human beings). Howe e , as
seen in he p e ious chap e , i is clea om esea ch in many academic ields
and om ac ual human beha iou ha humans always ake in o accoun people
o he han hemsel es ( hei su oundings o o he pe sons). In addi ion, hei
own beha iou is con e sely o en in luenced by o he s.
The e o e, man’s ue na u e lies in he ac ha he o she li es in an
in e connec ed way.2 The e o e, i mus be said ha cu en mains eam eco-
nomics, which lacks he pe spec i e ha humans a e beings li ing in social
ne wo ks, is inhe en ly e y lawed. Wha is essen ial in making economics a
mo e humanis ic discipline is o conside and inco po a e human ‘connec -
edness’ (in e connec ion, o social ne wo ks) which has mul iple dimensions.
In e na ionally, he e a e a numbe o s udies in academics ha a emp o
open up new a eas o economics om hese pe spec i es.3 Un o una ely, how-
e e , he e a e e y ew such s udies among Japanese economis s a p esen .4
Conside ing humani y (2): social ne wo ks 71
4.1.1 Reduc ionism in mode n science
In mode n sciences, ‘ educ ionism’ has become a uni e sal app oach in
unde s anding u h. I is he me hod o explaining a ious phenomena and
p ope ies, whe he physical phenomena o li e o ms, by acing hem back o
a ine dimension. And, i has been conside ed o be a scien i ic and a ional
app oach, and esea ch in his di ec ion has been p omo ed. In o he wo ds,
educ ionism is a esea ch di ec ion in which he smalle elemen s ha make up
he whole a e examined one a e ano he in o de o unde s and he whole. In
physics, his has de eloped om ma e o a oms, om a oms o nuclei, and is
explained in e ms o he beha iou o suba omic pa icles in he in ini esimal
small wo ld. In li e, esea ch has de eloped om o gans o cells and hen o
gene ic unde s anding.
This end has been p omo ed no only in he na u al sciences, bu also in
he social sciences. In economics in pa icula , he idea ha mac oeconomic
phenomena (p ices, unemploymen a es, e c.) ha e been hough as can be
explained by educing hem o he mo i es and ac ions o mic oeconomic
agen s (i.e. indi iduals). Tha is, he end owa ds ‘me hodological indi idu-
alism’, as de ailed in Sec ion 5.1, has been gaining momen um o e he pas
50 yea s. This end which is s ong in mains eam economics oday no only
in heo e ical esea ch bu also in policy esea ch. And, he impo ance o such
ideas is emphasised and p aised as an ‘analyses wi h a mic o ounda ion’ and
in some cases a e almos manda o y.5 Fo his eason, in many ields o social
sciences, wi h he excep ion o economics, he e m me hodological indi idu-
alism has ‘c i ical conno a ions’ (mean his as c i icism), bu in he case o
economics i is con e sely aken as ‘wo hy o p aise’ ( aken i as p aise) (Basu
2011: 44).
4.1.2 The need o ake accoun o human in e connec edness
Unde he educ ionis o a omis ic iew o humans in economics, humans a e
unde s ood as beings ha epea ins an aneous op imising beha iou unde
e e - changing ci cums ances. Howe e , he eali y is ha o e a pe iod o
ime, e e y human being is in con ac wi h a ce ain ange o o he people in
a ious si ua ions o social li e. Such si ua ions a e di e se, and he numbe o
people wi h whom hey come in o con ac , he densi y o con ac and e en
he manne o con ac a e also di e se. Fo example, he e a e a ious o ms
o con ac in e ms o dis ance, densi y, and con ac s yle, s a ing wi h imme-
dia e amily membe s, colleagues a wo k o school, acquain ances, and iends
in he communi y, and e en iends who come in o con ac exclusi ely ia he
in e ne . Human beings ac in he con ex o hese connec ions, so i is unda-
men ally necessa y o emphasise his.
In o he wo ds, human in e connec edness is one undamen al aspec o
human na u e. Howe e , his has no been emphasised in mains eam eco-
nomics, and i will ce ainly be necessa y o es uc u e he sys em o economics
72 G oundwo k o be e ing economics
o explici ly inco po a e his elemen in he u u e. Based on his ecogni ion,
his chap e akes his pe spec i e on humans as ‘social ne wo ks’. I hen d aws
hea ily on he book Connec ed: The Su p ising Powe o Ou Social Ne wo ks
and How They Shape Ou Li es, by Ch is akis and Fowle (Ch is akis and
Fowle 2009)6 7which consolida es he cu ing- edge esul s in ha ield o
esea ch. We also ci e ele an pape s whe e necessa y o p esen he esul s o
con empo a y esea ch on his aspec o human beings.
F om his pe spec i e, being connec ed means being awa e o he exis -
ence o o he s, and he e o e human al uism, o wha e e deg ee i may be,
ine i ably comes in o iew. Mo eo e , as human beings a e seen as embedded
wi hin o he s in social ne wo ks, hey a e ine i ably in luenced by o he s who
a e connec ed nea o a (i.e. hey ine i ably lose some o hei independen
decision- making capaci y), bu he lip side o his is ha by being connec ed,
people a e able o anscend hei own limi a ions.
4.1.3 Social ne wo ks: examples and laws
In his sec ion, we would like o b ie ly summa ise he basic elemen s and laws
o social ne wo ks.
A ne wo k consis s o wo componen s. One is a node, which is a poin
o in e sec ion, a poin o junc ion o a poin whe e a line ends. The o he
is a link, ie, o connec ion, i.e. a sec ion o line connec ing poin s (Ba abasi
2016: 26– 27; Ch is akis and Fowle 2009: 8– 12).
This is e iden i we imagine an in ui i e diag am, showing a pe son by a
small ci cle and connec ion o indi iduals by a s aigh line, as will be discussed
sho ly. Resea ch on i eme ged a he end o he 20 h cen u y as ne wo k
science, which has an in e disciplina y cha ac e , and hen de eloped ap-
idly wi h he digi al e olu ion ( undamen al changes in he possibili ies o
collec ing, sha ing, compiling, and analysing da a abou connec ions) (Ba abasi
2016: 25– 27). Ne wo ks a e ound h oughou na u e and human socie y,
and he indings o ne wo k science ha e had a signi ican impac ac oss all
disciplines.8
4.1.3.1 An example o a social ne wo k
To unde s and he sense o human connec edness (social ne wo k)9 and i s basic
elemen s, le us e e o a simple diag am in Ch is akis and Fowle (2009: 14),
which shows a ne wo k o 105 s uden s (line- connec ions indica ing close
iends) in a uni e si y esidence hall in he USA. In ha diag am (which is no
ep oduced he e o copy igh easons), each small ci cle ep esen s a s uden
and each line connec ing hem ep esen s a mu ual iendship.
On his basis, le us y o unde s and he s uc u e o he ne wo k. Fi s ,
(1) s uden s A and B bo h ha e ou iends, bu A’s ou iends a e mo e
likely o know each o he (a connec ion exis s be ween hem), while none o
B’s iends know each o he . This is exp essed as A ha ing a g ea e ansi i i y
Conside ing humani y (2): social ne wo ks 73
han B. Also, (2) C and D bo h ha e six iends, bu he e is a signi ican di e-
ence in he posi ion o hei social ne wo ks. Tha is, C has a high deg ee o
cen ali y, whe eas D is ela i ely pe iphe al (C’s iends ha e many iends
hemsel es, whe eas D’s iends ha e ew iends hemsel es o no iends a
all). (3) The deg ee o being in he cen e o he ne wo k is assessed no only
by he numbe o di ec iends, bu also by he numbe o iends o iends,
iends o iends o iends, e c. And, in he case o his example, (4) one
can poin ou ha on a e age a s uden has di ec connec ions wi h six close
iends, and so on (C&F: 13– 14).10
4.1.3.2 Cha ac e is ics o social ne wo ks and he i e laws
Social ne wo ks ha e wo cha ac e is ics (C&F: 16). One is he exis ence o
linkages ha indica e who is connec ed o whom. These linkages o connec ions
can be di e se and complex in cha ac e , such as whe he hey a e empo a y
o li e- long, passing h ough o dense, pe sonal o anonymous. The o he is
ha some hings p opaga e (con agion) h ough connec ions.
These wo hings (linkages and p opaga ion) a e essen ial o unde s anding
why social ne wo ks exis and how hey unc ion. This is because he exis ence
o connec ions and wha is p opaga ed h ough hem c ea es a whole ha is
g ea e han he sum o i s pa s (C&F: 16). This is desc ibed in economics
as ha ing ‘ex e nali ies’ (discussed in mo e de ail in Sec ion 4.3). And such
e ec s a e due o he ac ha he ollowing i e laws ha e been es ablished o
ne wo ks (C&F: 17– 26).
Law 1. Ne wo k o ma ion is only possible h ough ou human beha iou .
Fo example, he phenomenon o ‘bi ds o a ea he lock oge he ’, o
homophily ( he endency o people o choose o associa e wi h o he s who
ha e simila a ibu es o hemsel es), is no hing mo e han he wil ul o -
ma ion o g oups o ne wo ks o people who sha e common in e es s, his-
o ies, d eams, e c., and is clea ly he esul o human ac ion. I is clea ly a
esul o human beha iou . The s uc u e o he ne wo k is also de e mined
by humans— ha is wha o ocus on, how la ge he ne wo k should be, and
how dense he connec ions should be.
Law 2. Ne wo ks in luence us. In o he wo ds, by belonging o a ne wo k we
a e in luenced by i . This is he opposi e ela ionship o Law 1 abo e, and
Laws 1 and 2, when combined, show he dynamism o causali y wo king
in bo h di ec ions. The magni ude o Law 2 is de e mined by he na u e o
ansi ion ( ansi i i y) o he ne wo k.
Law 3. We ecei e a ious in luences om ou iends. The in luence we ecei e
om he ne wo k (Law 2 abo e) is speci ically om ou iends. In his case,
i is c i ically impo an wha kind o hings (in o ma ion, belie s, e c.) low
h ough he connec ions. Also, he p opensi y o humans o in luence and
imi a e each o he is one undamen al de e minan o he low (such mu u-
ali y is discussed in de ail in Sec ion 4.2).
80 G oundwo k o be e ing economics
communi ies a e mo e likely o imi a e each o he ’s beha iou and hus sp ead
obesi y. The o he is he p opaga ion o no ms. No ms a e sha ed alues abou
wha is app op ia e o cus oma y ules abou he way o beha iou . Speci ically,
in obese communi ies, obesi y is hough o sp ead because he g ea e accep -
abili y o being o e weigh (less nega i e image o being obese) mo e di ec ly
in luences he pe son’s beha iou (Ch is akis and Fowle 2007: 377). Mo e
gene ally,obesi y may sp ead in social ne wo ks because cul u es and p ac ices
become sha ed (C&F: 116).
4.2.3 The o ma ion o connec ions has i s o igins also in human na u e
Human beha iou has ecip ocal spillo e e ec s, as desc ibed abo e, which
a e caused by humans o ming connec ions. So why do humans seek o be
socially connec ed? The idea ha i ‘has i s o igins in human na u e’ is now
gaining g ound (C&F: 217– 221). Two ypes o a gumen can be o ganised
he e. In addi ion, when discussing connec ion, i is cha ac e is ic ha he
Figu e 4.2 A ne wo k o 2200 people om he F amingham Hea S udy in he yea
2000: he obesi y ‘epidemic’.
No es:
1. The size o nodes (small ci cles) is p opo ional o obesi y. The obese and non- obese popula ions
can be seen ha hey a e loca ed in speci ic places. No e ha in he o iginal diag am, nodes and
connec ing lines a e shown in colou o each o he a ious ac o s.
2. Based on ime se ies da a o he F amingham Hea S udy.
Sou ce: Ch is akis and Fowle (2007: 373) and Ch is akis and Fowle (2009: 174 ).

Conside ing humani y (2): social ne wo ks 81
a gumen o al uism is in e wined wi h i ( his poin will be discussed o he
main poin in Sec ion 5.1 in he nex chap e ).
Fi s , i is possible o explain ha humans end o o m connec ions
( o ming g oups o people close o each o he ) a e pa ly due o he in luence
o human genes (C&F: 214– 217). In o he wo ds, i can be unde s ood ha
hese beha iou al pa e ns we e selec ed du ing he e olu ion o human genes
and ha e been inhe i ed in he genes (id. a 214).
I we assume Da win’s heo y o na u al selec ion (su i al o he i es ),
he genes o indi iduals who beha e sel ishly (showing beha iou in which
hey su i e) a e passed on om gene a ion o gene a ion, while hose who
beha e al uis ically (showing beha iou ha bene i s o he s a he expense
o hemsel es) ha e a educed chance o su i al. So, he numbe o indi id-
uals who inhe i he la e gene will dec ease and should e en ually pe ish. In
human socie y, howe e , coope a ion and al uism a e ac ually obse ed. In
o he wo ds, i people who only hink and ac o hemsel es p edomina e,
he chances o su i al o hose who y o help o he s should dec ease, bu
his is no he case. This can be unde s ood as due o he ac ha people
o en o e look hei own sel ish endencies when in e ac ing (in e ac ing) wi h
connec ed people (id. a 218). Thus, connec ions a ise in people.
In ac , he esul s o nume ous expe imen s on al uism and coope a ion
con i m his endency. In o he wo ds, in abou hal o hese cases, people
choose o help o he s a he momen , e en i hey ha e no chance o in e ac ing
wi h hem in he u u e. Pu di e en ly, i egocen ici y always wo ked in one’s
a ou , hen e e yone would exhibi egocen ic beha iou , bu his is no he
case (id. a 218). In he eal wo ld, whe e, unlike in he labo a o y, in i-
ca e human ela ionships a e long- las ing, mu ual coope a ion (a si ua ion
e olu ionis s call di ec ecip oci y) can also occu (id. a 218– 219).
A second pe spec i e on explaining human connec edness comes om a
ela i ely ecen and di e se ange o disciplines. One example, which I will no
go in o de ail, is poli ical scien is Robe Axel od’s amous and o iginal s udy
The E olu ion o Coope a ion (1984). The e, i was shown ha adop ing a kind
o coope a ion s a egy, known as a e alia ion s a egy ( i o a ), is e en
mo e e ec i e han always being coope a i e o always being sel ish. In o he
wo ds, ‘i someone coope a es wi h you his ime, coope a e wi h hem nex
ime, and i someone does no coope a e wi h you his ime, ake e alia o y
ac ion agains hem nex ime ( he s a egy o ep isal)’. Unde his s a egy,
coope a ion (al uism) always occu s (C&F: 219).
Ano he example is he ma hema ical model analysis o e olu ion by Fowle
(2005) on how human coope a ion de elops. I shows ha no only do
coope a o s and ee ide s exis , bu punishe s wi h al uis ic puni i e beha -
iou also ise, leading o a wo ld o inc eased coope a ion and connec edness
(and he eme gence o al uism in he p ocess) (C&F: 220– 221). Inciden ally,
he online encyclopaedia Wikipedia pe o ms a aluable unc ion as a kind o
public good because o he exis ence o he abo e h ee ypes o ac o s and he
unc ions hey pe o m.19
82 G oundwo k o be e ing economics
Fu he mo e, i has been shown ha he endency o humans o o m
social solida i y is due o he ac ha i is biologically imp in ed in he human
genes (C&F: 232). This is ela ed o he i s eason (e olu iona y p ocesses
o genes), he esul s o which can be empi ically con i med in con empo a y
socie ies. Namely, in a s udy conduc ed by he au ho s (C&F) on 1110 pai s o
wins (d awn om 90,115 s uden s in 142 schools in he USA) o de e mine
he ole o genes in social ne wo ks (Fowle e al. 2009), i has been shown
ha genes play a ole in de ining he s uc u e.20
4.3 Social ne wo k c ea es common pool esou ces
Human socie y, as we ha e seen abo e, is no simply an a omis ic se o indi-
iduals (an a i hme ical sum o indi iduals). The e, indi iduals cons i u e a
social ne wo k wi h di e se ela ionships. This allows indi iduals’ knowledge
and in o ma ion o be ans e ed o each o he , ampli ied and complemen ed
as necessa y, so ha human socie y as a whole can ul il i s po en ial. And, such
social ne wo ks ha e he ollowing cha ac e is ics (C&F: 290– 292).
Fi s ly, i supplemen s and s o es in o ma ion communica ed be ween
people (no ms o us , ecip oci y, o al his o ies, e c.) and enables, so o
speak, a i hme ical p ocesses o in eg a e millions o decisions (de e mining
ma ke p ices, selec ing he bes pe son h ough elec ions, e c.). Inciden ally,
Hayek (1945), who p aised he high unc ion o he ma ke sys em as no hing
less han one la ge in o ma ion- p ocessing mechanism, which ul ils i s coo d-
ina ing unc ion when in o ma ion on demand and supply mee , is a iew ha
emphasises exac ly his aspec .
Second, social ne wo ks main ain a memo y wi h ega d o hei s uc-
u e and unc ioning (cul u e: alue c i e ia), e en when he me abolism o
hei membe s occu s. This communica es wha us is, i espec i e o he
indi idual membe s, and encou ages indi iduals o change hei beha iou al
no ms i necessa y.
Thi d, social ne wo ks can ep oduce hemsel es as i hey we e li ing
o ganisms, anscending place and ime. E en i people a e eplaced, hey can
ep oduce i hey know how o connec . And ou h, social ne wo ks a e o en
sel - epai ing (i.e. i pa o he ne wo k is missing, o he s will ac o comple-
men i ).
The unc ion o social ne wo ks wi h he abo e cha ac e is ics can be unde -
s ood, in o he wo ds, as he c ea ion o aluable sha ed esou ces. Public
goods a e goods ha a e consumed by one pe son wi hou hinde ing he
consump ion o o he s and wi hou educing he amoun used by o he s. I is
no hing mo e han a common asse o i s membe s, which has a con as ing
cha ac e o p i a e goods.21 In o he wo ds, a social ne wo k is no me ely he
a i hme ic sum o he indi iduals who compose i , bu has a new alue beyond
ha , an ex e nal e ec in economic e ms. I is also called social capi al.22 I
is he basis o he smoo h unc ioning o socie y. The abo e h ee aspec s
Conside ing humani y (2): social ne wo ks 83
b ough abou by human connec ions (social ne wo ks) can be unde s ood as
a g a i ying gi o his na u e.
Fu he mo e, i needs o be added ha while he o ma ion and unc ioning
o social ne wo ks is an aspec ha gene a es al uism in humans, i also
suppo s connec edness (C&F: 296). I people do no ac al uis ically, ha is
i hey do no espond in kind o kindness, o con e sely i hey a e always io-
len , hen social connec ions will dissol e and he ne wo ks ha su ound us
will disin eg a e. The e o e, a ce ain deg ee o al uism and ecip oci y, as well
as posi i e emo ions such as lo e and happiness, a e c ucial o he eme gence
and su i al o social ne wo ks. Fu he mo e, once a ne wo k is es ablished,
al uis ic beha iou ( anging om small ac s o kindness o he dona ion o
ansplan ed o gans) will di use wi hin i (ibid.).23,24
I should also be ecalled ha , om he pe spec i e ha human beings
li e in ne wo ks, one e hical alue— ‘in eg i y’ (cohe ence, hones y, since i y,
ai ness)— has uni e sali y and impo ance when unde s anding socie y
(Mon e io e 1999). One example o his can be summed up in he exp es-
sion ‘Hones y is he bes policy’. This is one o he apho isms o Benjamin
F anklin (US s a esman, physicis , and au ho o he Founding E a) and
has become he mos well- known p o e b conce ning hones y. Yukichi
Fukuzawa, a leading igu e in Japan om he end o he Edo pe iod o he
Meiji e a and ounde o Keio Uni e si y, lis ed se en i ems in his bookle
Daily Teachings (Fukuzawa 2006) ha his sons should lea n a home. The
i s o he se en was ‘no o ell lies’. Also, in mode n imes, he Uni ed
Na ions has h ee undamen al alues as an o ganisa ion, one o which is
in eg i y. These a e p o essionalism, in eg i y, and espec o di e si y, and
i is s a ed ha when ec ui ing o he UN’s execu i e s a om all o e
he wo ld, he candida e a e equi ed o ul il hese h ee alues (Okabe
2007b: 82). In eg i y is hus a alue o uni e sali y o human beings and
hei socie ies.
In his chap e , we ha e seen ha he pe spec i e o human in e connec ions
o social ne wo ks is indispensable o an accu a e unde s anding o human
socie y. The cha ac e is ics and impo ance o his pe spec i e a e discussed
again in Chap e 5 (Sec ion 5.2) om a b oade pe spec i e.
No es
1 This chap e is based on Okabe (2022a: chap e s 6 and 7; 2019b).
2 The Roman philosophe Au elius, in his Sel - Re lec ions, unde s ood he ollowing：
‘E e y hing is in e wo en, and he web is holy; none o i s pa s a e unconnec ed.
They a e composed ha moniously, and oge he hey compose he wo ld’.(Au elius
2002：book 7, numbe 9, 86).
3 Fo example, an o e iew pape discussing how social ne wo k s uc u es ac on
people’s beha iou , economic ou comes, and well- being (Jackson e al. 2017), and
a s udy heo e ically elucida ing he in e ela ionship be ween communi ies and
ma ke s om a ne wo k pe spec i e (Gagnon and Goyal 2017), among o he s.
84 G oundwo k o be e ing economics
4 I we look a he Japan Economic Associa ion, he la ges academic socie y o
Japanese economic esea che s, he numbe o pape s (in Japanese and English)
p esen ed a he 2019 Sp ing and Au umn Mee ings eached a o al o 343 pape s.
Howe e , among he i les o hese pape s (including he session i les o he panel
discussions), hose on ne wo ks (pape i les ha ing ei he ne wo k o kizuna)
numbe ed i e, and hose on al uism (pape i les wi h ei he al uism o al u-
is ic) only wo cases. Fu he mo e, wi h ega d o ne wo ks, mos o he a icles
discussed he ne wo ks o companies o supply chain sys ems, and almos none o
hem ook he pe spec i e o ying o unde s and socie y by ocusing on human
ne wo ks o al uism.
5 Okabe (2017a: 36– 37). Fo he de ails o o mula ion and i s p oblems, see
appendice 1 and 2 o Okabe (2019d).
6 Ch is akis is P o esso o Medicine and P o esso o Sociology, Ha a d Uni e si y,
USA (a he ime o publica ion o he book. He is cu en ly P o esso a Yale
Uni e si y, USA). Fowle is P o esso o Medicine and Social Sciences a he
Uni e si y o Cali o nia, San Diego, USA. Ch is akis was lis ed as one o he ‘100
mos in luen ial people in he wo ld’ by Time magazine (2009) and on Fo eign
Policy’s lis o ‘bes global hinke s’ (2009 and 2010).
7 Inciden ally, a e iew o he book on Amazon on he in e ne shows ha 394
people ha e pos ed a ings o he book, many o hem o he e ec ha he
book ‘ adically changes he con en ional iew o humani y’, wi h he pe cen ages
(%) om 5 o 1 s a on a 5- s a scale, wi h he esul ing poin o 61, 21, 11, 3, and
3, espec i ely ( he a e age o all a ings is 4.3 s a s, as o 14 No embe 2022).
8 Examples o complex ne wo ks include: (1) cellula ne wo ks (sus aining li e);
(2) neu al ne wo ks ( he wo kings o he b ain); (3) communica ion ne wo ks ( he
in e ac ion o communica ion de ices); (4) powe ne wo ks ( he links be ween
gene a o s, consume s, and powe lines); (5) ading ne wo ks ( he mechanisms
o exchanging goods and se ices) and (6) social ne wo ks ( he mechanisms
h ough which p o essional, iendship, and amily ies di use knowledge, beha -
iou , and esou ces). The esul s o ne wo k science (which has a i s co e he
ma hema ical heo y o g aphs) ha e had a signi ican impac on hese a ious
ields. Fo an o e iew, see Ba abasi (2016: chap e s 1 and 2).
9 In his publica ion, hese wo exp essions (human connec ions, social ne wo ks)
a e used in e changeably.
10 In his chap e , he book by Ch is akis and Fowle (2009) will be e e ed o
below as C&F o simpli ica ion.
11 On he alidi y o he six deg ees, e c., see Ch is akis and Fowle (2009: 26– 27),
Wikipedia ‘Six deg ees o sepa a ion’ (h ps:// en.wikipe dia.o g/ wiki/ Six_ de g ee
s_ o _ sep a a ion), and Ba abasi (2016: igu e 3.12).
12 A US online social media and social ne wo king se ice, he lagship se ice o
which Facebook, Inc (based in Cali o nia, USA) is named. The company changed
i s name o Me a Pla o ms, Inc. in 2021.
13 When eligion is seen as ‘a connec ion wi h a Highe Powe beyond human know-
ledge’, i can be unde s ood as ha ing a s abilising ole in social connec ions. Fo
mo e in o ma ion, see Okabe (2022: appendix 5- 2 in Chap e 5).
14 The s udy sample was 12,067 people selec ed in he US s a e o Massachuse s.
15 Fo example, his esea ch is also p esen ed as an example o ‘Complex Con agion’
in he majo book Ne wo k Science (Ba abasi 2016: box 10.2, 408), a comp ehen-
si e compila ion o ne wo k heo y.
Conside ing humani y (2): social ne wo ks 85
16 BMI is weigh (in kilog ams) di ided by heigh (in me es) squa ed. A no mal BMI
is 20– 24, 25– 29 is o e weigh , and 30 and abo e is conside ed (mo bidly) obese.
17 Da a om an exhaus i e su ey o esiden s o F amingham, MA, USA, conduc ed
biennially since 1948 by Ha a d Uni e si y medical esea che s on body size and
a ious ac o s in o de o de e mine he causes o ca dio ascula disease.
18 Fu he mo e, Ch is akis and Fowle (2007) ound ha : (1) when adul siblings
a e obse ed on a one- o- one basis, obesi y in one inc eases he likelihood o
obesi y in he o he by 40%; (2) obesi y in one spouse inc eases he likelihood o
obesi y in he o he by 37%; (3) hese ends a e no obse ed be ween geog aph-
ical neighbou s (social dis ance has a g ea e e ec han geog aphical dis ance);
(4) hese e ec s a e ela i ely mo e widesp ead be ween people o he same sex
han be ween people o he opposi e sex; and (5) he e is no ela ionship be ween
he sp ead o smoking cessa ion and he sp ead o obesi y wi hin he ne wo k.
19 Fo he easons o his, see Okabe (2022a, appendix 6- 2 o Chap e 6).
20 Fo example, he esul s include: (1) people wi h i e iends ha e a di e en
gene ic make- up compa ed o hose wi h only one iend; (2) gene ic make- up
also in luences posi ion in a social ne wo k (cen al o pe iphe al posi ion); (3) i
in luences pa e ns o iend connec ions ( ansi i i y); and he e o e (4) dem-
ons a e ha he e a e aspec s o human g oup o ma ion in which genes a e
in ol ed (he i abili y) (C&F: 232– 235; Fowle e al. 2009: 1720).
21 Fo mo e in o ma ion, see oo no e 37 o Chap e 6.
22 See Okabe (2017a: chap e 10, sec ion 5) o mo e in o ma ion on i s componen s,
unc ions, and a ibu ion.
23 Fo example, cha i able ounda ions (cha i y) a e an example o ac s o kindness
pe o med h ough ne wo ks. Inciden ally, app oxima ely 89% o all households in
he USA gi e o cha i y each yea , wi h an a e age annual dona ion o USD 1620
in 2001 (C&F: 296– 297). Globally, he non- p o i sec o is also a much la ge
economic o ce han common sense would sugges (Okabe 2017a: 313– 317).
24 In Japanese socie y wi h an accele a ing ageing popula ion and declining bi h
a e, he demand o a ious se ices o he elde ly (e.g. nu sing ca e, medical ca e
o he elde ly) is g owing apidly, and i makes mo e sense o espond o hese
demands based on a sense o communi y han on compe i i e p inciples (Akiyama
and Miyagaki 2022).

Pa II
O e iew o economics
o humani y
DOI: 10.4324/9781003478447-8
5 Towa ds economics o humani y
In he abo e ou chap e s, i is speci ically a gued ha while mode n main-
s eam (neoclassical) economics has s eng hs, i also has weaknesses o majo
p oblems when iewed as a discipline conce ned wi h human beings.
On he one hand, mode n economics has come o be known as he ‘queen
o he social sciences’ o i s igo ous applica ion o he ‘scien i ic’ me hod, by
de ining man simply as homo economicus (economic man) (Chap e 1). On he
o he hand, Adam Smi h’s b oad iew o human beings has been misunde -
s ood (Chap e 2), o e simpli ied o he ex en ha human beings a e sel ish
beings (Chap e 3), and ha socie y is seen as an a i hme ic se o such indi-
iduals, missing he impo an pe spec i e o he in e connec edness o human
beings (Chap e 4).
This chap e pu s he abo e issues in o a la ge amewo k and conside s
wha new di ec ion economics should ake as a discipline conce ned wi h
human beings. To his end, Sec ion 5.1 shows ha he e a e h ee ways o
hinking as a amewo k o unde s anding human beha iou pa e ns and
socie y, and a gues ha he ne wo k concep is impo an o unde s anding
human socie y. Nex , Sec ion 5.2 d aws ou sugges ions o inco po a ing
he social na u e o human beings by aking up and examining ou sug-
ges i e books ha ex ensi ely discuss wha human beings and socioeconomic
ins i u ions should be. And, in Sec ion 5.3, i is a gued ha , based on he
abo e, ‘economics’ needs o be ans o med in o ‘economics o humani y’, a
humanis ic discipline ha inco po a es a wide ange o human na u e.1
5.1 Limi s o me hodological indi idualism
The p e ious chap e has ske ched ou he di e se aspec s o human beings i
human socie y is iewed om he pe spec i e o connec ions (social ne wo ks)
based on he esul s o mode n ne wo k science. This p o ides a e y di e en
pic u e o man and socie y om mains eam economics, which is ounded on
an a omis ic iew o man (me hodological indi idualism).
To illus a e his mo e clea ly, he ollowing sec ion akes h ee ep esen-
a i e pe spec i es o unde s anding he ela ionship be ween he indi idual
96 O e iew o economics o humani y
Pe spec i es on
human socie y The eason Assessmen and
issues
C G ano e e
(2017).
[US sociologis
and economic
sociologis ].
Economic
beha iou is
only one aspec
o human
beha iou and
i is basically
impossible o
unde s and
human socie y
me ely on
economic basis.
Human beings
exis in social
ne wo ks, so
i is necessa y
o unde s and
socie y in a
heo e ical
model ha is
consis en wi h
his iew.
Economis s see
humans as
sel - in e es ed
agen s guided
by quan i iable
incen i es,
bu hei
unde s anding
(me hodological
indi idualism) is
oo na ow.
Human socie y
should be
unde s ood o
include economic
ac o s as well
as he mu ually
in luencing social
ac o s ( us ,
no ms, alues,
ins i u ions, e c.).
I is easonable
o ejec he
iew ha man
is an a omis ic
being who
li es sel ishly,
while insis ing
man should be
unde s ood as
a being who
li es in a social
ne wo k.
On he o he hand,
al hough i is
claimed ha he
simul aneous
pu sui o all
goals is possible,
no conc e e
model o his is
p esen ed in he
book ( he book
emains en i ely
abs ac ex ual
desc ip ions).
D Collie (2018).
[B i ish
economis
specialising
de elopmen
economics].
Con empo a y
Wes e n socie y
is deeply
di ided on
h ee on s
(u ban and
u al, eli e
and non- eli e,
and be ween
na ions) and
needs o be
epai ed.
This equi es
policies ha
es o e e hical
beha iou o all
h ee: he s a e,
he co po a ion
and he amily.
Capi alis socie ies
mus be e hical.
I is he e o e
possible o
deal wi h he
phenomenon
o social
agmen a ion
i i is based on
mu ual human
commi men .
In he 1930s,
capi alism could
be es o ed
h ough
policies such as
Keynesianism,
so i can be
es o ed again
his ime wi h
a ealis ic and
comp ehensi e
esponse.
The a gumen ha
he majo i y o
human beings
a e no simple
‘economic man’
bu a li le mo e
ma u e (also
emphasising
conside a ion o
o he s, ai ness,
hones y, eedom,
e c.) makes sense.
On he o he hand,
i is somewha
ques ionable
whe he an
exhaus i e policy
package (e hical
s a e, business
and amily) is
eally a p agma ic
one.
No e: P epa ed by he au ho based on he abo e ou books.
Table 5.2 (Con inued)

Towa ds economics o humani y 97
i allows o a simple and logical de elopmen — indi idual beha iou can be
ma hema ically a ibu ed o a ‘condi ional maximisa ion p oblem’.9
Howe e , i is a gued in all ou books ha his limi s he mo i a ion o
human ac ion oo much and mis ep esen s he na u e o human beings. The
common unde s anding o hem is ha humans ha e economic and non-
economic (social) goals, and ha humans a e beings who adop beha iou s
ha simul aneously achie e hese goals. In o he wo ds, i is necessa y o
unde s and he socie y on he basis ha humans li e in a social ne wo k (a
pe spec i e ha inco po a es he exis ence o o he s, om which no ms, us ,
e c. eme ge), as emphasised by Book C in he diag am. I is also necessa y o
unde s and ha humans do no ac solely om sel ish mo i es, bu ha he e is
an aspec o beha iou (i.e. e hical beha iou ) ha e lec s he commi men o
humans o each o he , iewing hem as a li le mo e ma u e beings (Book D).
5.2.1.2 Na ow- mindedness wi h a bias owa ds neolibe al economic policies
Second, mains eam economics concei es o economic mechanisms and eco-
nomic policy wi h he ma ke unc ion a i s co e, and hus p omo es de egu-
la ion and ee compe i ion, bu hese policies a e denounced in he abo e
ou books as neolibe al policies. Such policies ha e esul ed in he sp ead o
income inequali y and po e y and he widening gap in ea men be ween
o mal and in o mal employmen in he labou ma ke (Book A). They ha e
also made people awa e o he ini e na u e o he Ea h’s esou ces and ha e
esul ed in he widening o la ge dispa i ies by coun y, which does no b ing
abou human happiness and spi i ual ul ilmen (Book B).
The social di isions hus gene a ed can be add essed on he basis o a
communi a ian e hic by swi ching o policies ha alue mu ual human
commi men , a he han by ma ke undamen alism (Book D). And, such
policies ha do no ely on neolibe alism a e poli ically posi ioned as social
democ a ic policies (ibid.). In Sweden, as well as in Ge many and Denma k,
such policies ha e been in oduced, and as a esul ha e been e alua ed as
success ul in b inging abou a humane li e (Book A, Book B). This can be seen
as a majo lesson o Japan’s economic policy.
5.2.1.3 The need o unde s and socie y by a h ee- sec o model
Thi d, i humans a e unde s ood as beings li ing wi hin a social ne wo k,
hen economic socie y needs o be unde s ood no acco ding o a wo- sec o
(ma ke / go e nmen ) model, bu acco ding inhe en ly o a h ee- sec o
(ma ke , go e nmen , and communi y) model.
In mains eam economics (neoclassical economics), as men ioned abo e,
i is cus oma y o unde s and socie y h ough a wo- sec o model based on
he ‘economic man’ assump ion. Howe e , he e a e di e se aspec s o human
mo i es o ac ion. In o he wo ds, he e a e communal o cha i able mo i es
(Book A) and he exis ence o he h ee p inciples o ‘p i a e, public, and
98 O e iew o economics o humani y
common’ (Book B) in ela ionships be ween people, which makes i essen ial
o ake he iewpoin ha human beings li e wi hin a social ne wo k (Book
C). In addi ion o conside a ion o o he s, e hics such as ai ness, hones y,
eedom, and in eg i y a e also said o in luence human beha iou (Book D).
All o hese pe spec i es s ongly sugges he need o conside he exis ence
o a hi d sec o (o he exis ence o such elemen s wi hin exis ing sec o s). In
he case o Jinno (2010: Book A), o example such a hi d sec o is named
he ‘social sys em’ (common economy), in con as o he economic sys em
(ma ke economy) and he poli ical sys em (go e nmen o public inance), as
men ioned abo e.
Howe e , in e ms o bo h cla i y o he meaning and he con en-
ional e minology, he exp ession ‘ma ke , go e nmen ’ and communi y’,
as used by Hi oi (2015) would be mos app op ia e (as sugges ed by Ka l
Polanyi. See Figu e 6.2). Inciden ally, he p esen au ho has adi ionally
ad oca ed he concep and used he naming o ‘ h ee- sec o model’ (Okabe
2009b: igu e 3; 2017a: igu e 4- 3), so ha i will be used in his book also
(Chap e 6). As we show la e in he book, unde s anding socie y h ough
h ee- sec o model gi es no only accu a e desc ip ion o human socie y
bu also can lead o a mo e app op ia e public policy han by wo- sec o
model. Theo e ically speaking, a highe le el o social wel a e can be b ough
abou as an equilib ium (Okabe 2017b: appendix 1). This is one o he co e
poin s o he book and is discussed in somewha mo e de ail in Chap e 7,
Sec ion 7.3.
I u ns ou ha he a gumen s o he abo e ou books ha e a leas h ee
clea basic commonali ies, as desc ibed abo e. These a e: (1) he un ealism
o he assump ion o he ‘economic man’, (2) he na owness o ision o
neolibe al economic policy, and (3) he need o unde s and socie y by a
h ee- sec o model. They join ly sugges he di ec ion owa d he necessi y o
‘economics o humani y’, as in oduced in he nex sec ion and o be de ailed
la e in Chap e s 6 and 7.
5.3 F om economics o economics o humani y
In he abo e, we ha e poin ed ou some o he p oblems acing mode n main-
s eam economics and sough di ec ions o imp o ing hem. Wha became
clea is ha : (1) mains eam economics has un o una ely no succeeded he
human and social iews o Adam Smi h, he ounde o economics; (2) i is
based on he na ow human image o he ‘economic man’ (me hodological
indi idualism) when i comes o unde s anding he na u e o socie y; and
(3) he e a e some ecen esea che s who a gue o a esea ch o ien a ion
based on he ‘social man’ a he han he ‘economic man’.
Unde hese ci cums ances, his sec ion will ske ch a sense o he di ec ion
ha economics should pu sue in he u u e, i.e. an economics ha akes in he
b oad human na u e in o accoun .
Towa ds economics o humani y 99
5.3.1 Man as a social being
To summa ise Adam Smi h’s w i ings i s , his sys em o hough eaches he
impo ance o iewing man as a ‘social being’ (Dome 2008: 270). Social being
is he iew ha man is a subjec who is in e es ed in he eelings and ac ions
o o he s and ies o empa hise wi h hem (ibid.). Socie ies cons i u e, c ea e
and ope a e mo als and laws by such people. This is qui e di e en om he
image o human beings assumed by mains eam economics (an a omis ic iew
o human beings and a iew o socie y based on i , in which hey ac sel ishly
and wi hou conce n o o he s).
F om which s andpoin should we unde s and people and socie y? The
simple and incisi e app oach o mains eam economics na u ally has nume ous
ad an ages. Howe e , he e a e s ill signi ican limi a ions in he way i
assumes human beings, and he e o e he public policy heo ies de i ed om
ha analysis (an emphasis on e iciency gene a ed by compe i ion) may neglec
human alues and con lic wi h e hical issues ( he las poin is discussed in he
nex sec ion). Na u ally, a mul i ace ed discussion is needed o add ess hese
issues, bu he e, we would like o sugges one basic di ec ion o he u u e o
economics.
5.3.2 Swi ching om an economic man o a ‘social man’
Fi s , i is necessa y o change he basic assump ions o he human image. The
con en ional iewpoin o unde s anding human beings assumes an economic
man (homo economicus) who ac s sel ishly and a ionally, and posi ions man as
an isola ed exis ence de ached om socie y. In con as o his, i is necessa y
o in oduce he image o he human being as a ‘social pe son’ (homo socialis),
a pe son who ac s also in ela ion o o he s (Bowles 2016: 41).
This is because i is mo e accu a e o unde s and human na u e (mo i es o
ac ion) as a human being who ac s also in conside a ion o ela ionships wi h
o he s (as a gued by Smi h abo e), a he han as an economic man as assumed
by con en ional economics. And indeed, acco ding o a ious examples and
expe imen al esul s, ew people in any human g oup consis en ly pu sue sel -
in e es alone, and mo al and conside a ion- o - o he s mo i es a e widely
obse ed (Bowles 2016: 41). On his basis, a ious public policies can be
designed o be mo e human and mo e e ec i e (ibid.).
5.3.3 F om economics o economics o humani y
Second, he scales by which he socie y is assessed also need o be changed. In
adi ional economics, economic a ionali y, especially e iciency, is an impo an
concep , and in many case, i is he basis o judging he s a e o socie y and
public policy. Howe e , e iciency does no sol e all e hical p oblems, no is
he economic dimension pa amoun o many issues (Mo son and Schapi o
2017: 3). Economics ine i ably in ol es e hical issues ha canno be a ibu ed
100 O e iew o economics o humani y
o economics i sel . I is, as Smi h poin ed ou , a conce n o o he s as well as a
conce n o onesel , and he ein lies he co e o human na u e (ibid.: 10– 19).
Fo example, a heal hy espec o e hics is one o he condi ions o iginally
equi ed o economics (ibid.: 10– 13), bu mains eam economics delibe a ely
a oids en e ing in o i , which equi es a econside a ion.
Beha iou al economics, which has gained momen um in ecen yea s, is ce -
ainly an ad ance in ha i has ques ioned he co e assump ions o mains eam
economics ( a ionali y o human beha iou ) and pionee ed a new app oach
o i s obse ing human beha iou , as men ioned abo e.10 Howe e , while
he e is an emphasis on how people ac ually beha e ( eal beha iou : ‘does’),
i does no go in o he con en o how people should beha e (ideal beha -
iou : ‘should’). Tha is, i is no accompanied by a no ma i e deba e ( he
impo ance o he la e has been obscu ed so a in economics). Beha iou al
economics is he e o e in some ways on he same oo ing as mains eam eco-
nomics and canno be assessed as poin ing in he di ec ion o inco po a ing
human na u e (Mo son and Schapi o 2017: 262– 289).
To add ess his, beha iou al economics also needs o be supplemen ed,
whe e necessa y, by insigh s om he humani ies (ibid.: 286– 287). In cu en
beha iou al economics, cul u al in luences a e a ely aken in o accoun 11 and
esea ch is o en conduc ed om he pe spec i e o human beha iou in gen-
e al, i.e. om he iewpoin o human beings as an o ganism a he han as
people (ibid.: 272). Fo economis s, e hical judgemen s a e usually unde -
s ood o be ex e nal o hei own a ea o expe ise (ibid.: 289), which gi es he
imp ession ha hey a e exemp om esea ch.
Howe e , i economis s we e o se iously y o inco po a e he wisdom
o psychology, philosophy, sociology, an h opology, he a ious sciences and,
abo e all, he humani ies in o economics, economic analysis would be much
iche han i is now (ibid.: 290), and economics could become a ‘humanis ic
economics’, ‘humanomics’ (ibid.: 288; Smi h and Wilson 2019: 2), o eco-
nomics o humani y, i.e. humanis ic social science. In public policy analyses
also, i can also lead o ecommenda ions ha ake in o accoun cul u al and
e hical alues ha a e in eg al o human beings,12 a he han jus p o iding
p esc ip ions inclined owa ds e iciency sup emacy.
Also, i should be poin ed ou ha he esea ch philosophy o he main-
s eam economics, especially hose o Anglo- Ame ican economics, has an
appa en con adic ion o he eali y o hei socie ies. Namely, he ela i e
size o wo ke s in non- p o i sec o s in hese well- de eloped economies is sig-
ni ican ly la ge han in he case o less de eloped economies (see Figu e 6.3 in
Chap e 6). So ha , i would ha e been na u al ha he economic esea ch in
hese well- de eloped economies should ha e paid mo e a en ion o non- p o i
sec o . Pu di e en ly, Anglo- Ame ican economic esea ch has some in e nal
con adic ion in his sense, because i should ha e paid mo e a en ion, no
less a en ion as is ac ually he case, o non- p o i sec o han in he economic
esea ch in o he coun ies.
Towa ds economics o humani y 101
‘Economics is essen ially a mo al science’ was Keynes’ iew (A kinson
2009: 791), which needs o be ecalled again oday. Howe e , ecen eco-
nomics has been co up ed in a oiding alue judgmen s (e hical s anding) in
o de o acili a e discussion (ibid.: 794– 799). Fo example, (1) i ea s ep e-
sen a i e indi iduals by assuming om he ou se ha he e a e no di e ences
in indi idual p e e ences o condi ions, (2) i assumes om he ou se ha he
c i e ia o judging wel a e a e he same o e e yone, (3) i does no judge
he le el o wel a e, bu a he whe he a ce ain esponse will imp o e o
wo sen he ini ial le el o wel a e (i i dec eases he wel a e o one membe
o socie y, i is judged o be a de e io a ion).13 The e is a g ea conce n ha
policy judgemen s will be i ialised unde such a concep ion. Shouldn’ eco-
nomics be mo e willing o adop highly gene alised alue judgemen s and
de elop cons uc i e deba e?
5.3.4 Two p oblems acing mode n economics and he modi ica ion:
‘economics o humani y’
I we ake in some o he abo e b oad pe spec i es, we may be able o cope
wi h wo p oblems acing mode n economics ha Ama ya Sen has poin ed
ou so sha ply.
The i s p oblem Sen poin s ou is ha mode n economics has oo
na ow a iew o he genuine mo i es o human beha iou (na owness in
unde s anding human mo i es o ac ion). Fo many yea s, economis s ha e
unde s ood socie y by cons uc ing a model ha sees human mo i es o
ac ion as pu e, simple, and obus (i.e. ac ing sel ishly and a ionally) and
excludes unwieldy aspec s such as good in en ions and mo al emo ions (Sen
1987: 1). Howe e , he c i icism is ha he mo i es o human beha iou in
eali y a e di e se and ha i is highly unusual o economics o ha e de eloped
in such a na owly de ined way (ibid.). This c i icism can be add essed i he
abo e- men ioned image o human beings is assumed in economics o he
social sciences.
The second p oblem is ha mode n economics has been ans o med in o
a discipline o an ‘une hical’ cha ac e (delibe a e une hicali y), which has
ex emely na owed i s o iginal disciplina y ision and excluded e hical elem-
en s (Sen 1987: 2). His o ically, economics was o iginally supposed o e ol e
as a ibu a y (o shoo ) o e hics (ibid.: x), as indica ed by he ac ha Adam
Smi h, he ounde o economics, was a p o esso o ‘mo al philosophy’ a he
Uni e si y o Glasgow (Sco land).14 Howe e , mode n economics has con-
sciously ied o be a discipline o an ‘une hical’ cha ac e , which has esul ed
in a majo disc epancy wi h i s his o ical e olu ion (ibid.).
In ligh o hese c i icisms, a call o a ‘ e u n o Adam Smi h’ may be exac ly
wha is needed o con empo a y economics. In he ollowing Chap e s 6, 7
and 8, he au ho will p esen his own esea ch endea ou owa d ‘economics
o humani y’, in his spi i .

102 O e iew o economics o humani y
No es
1 This chap e is based on Okabe (2022a: chap e 8; 2016a, 2017b).
2 A e m in economic sociology, c ea ed by economic his o ian Ka l Polanyi. I
e e s o he deg ee o which economic ac i i y is cons ained by such non-
economic ins i u ions as kinship, eligious, and poli ical ins i u ions (Wikipedia
‘Embeddedness’).
3 Homo socialis iew is sugges ed also in Bowles (2016), as al eady discussed in
Sec ion 2.1. Mo e b oadly, i has also been sugges ed ha he o ma ion o g oups
and shaping o socie y by humans has i s o igins in he human e olu iona y p o-
cess, and hus all humans ha e an e olu iona y bluep in in hei genes o building
a good socie y wi hin hemsel es (Ch is akis 2019: xxi).
4 Fo speci ic mani es a ions o his, see Chap e 1, Sec ion 2- 2. See also Okabe
(2017a: 44– 48) o he easons o hese ends.
5 Inciden ally, al hough he e a e a conside able numbe o Japanese Nobel P ize
winne s in i e ields o he han economics (28 in o al, including a Japanese- bo n
Ame ican), economics is he only ield whe e he e a e cu en ly no winne s.
6 Fo example, Japan As Numbe One: Lessons o Ame ica (1979) by Ha a d p o -
esso Ez a F. Vogel is a classic example.
7 Fo e e ence, a look a he p og amme o he Ame ican Economic Associa ion’s
2020 annual con e ence shows ha , in addi ion o a numbe o sessions on ad-
i ional hemes, he e a e also sessions om mul iple pe spec i es no easily seen
a he Japanese Economic Associa ion’ mee ings. Fo example, ‘Beyond GDP’,
‘Dea hs o Despai and he Fu u e o Capi alism’, ‘Cul u e and No ms’, and
‘Economics o Inclusi e P ospe i y’ (each o hese sessions will ea u e a ound
i e Nobel P ize winne s o simila leading esea che s, in addi ion o a numbe o
Eu opean pa icipan s).
8 Fo mo e de ails on he speci ic selec ion c i e ia, as well as some de ails on each
o he ou books, see Okabe (2022a: chap e 4).
9 See Chap e 1, Sec ion 2.
10 See Chap e 1, Sec ion 1.
11 Howe e , he e a e also s udies in beha iou al economics ha a emp o include
cul u e and al uism in hei scope (Kubo a e al. 2012; Lee e al. 2013), and
u u e de elopmen s a e expec ed.
12 In he pu sui o happiness, main aining a i ue e hic becomes impo an
(Sachs 2013).
13 Exp essed in wel a e economics e ms, judgmen s should be made acco ding
o whe he o no hey esul in a Pa e o imp o emen (Pa e o imp o emen ).
Howe e , i should be no ed ha he Pa e o app oach places oo much emphasis
on indi idual wel a e, and social decisions may ou weigh indi idual wel a e (e.g.
alue goods may gene a e posi i e ex e nali ies) (A kinson 2009: 797).
14 The middle doo o The Weal h o Na ions lis s, he au ho ’s (Adam Smi h’s) i le
is p in ed as ‘P o esso o Mo al Philosophy in he Uni e si y o Glasgow’.
DOI: 10.4324/9781003478447-9
6 Th ee- sec o model o he economy
In he p e ious chap e , we poin ed ou ha cu en mains eam economics
lacks in conside ing impo an human na u e (in pa icula , a sense o social
connec edness and al uism), and a gued om a ious pe spec i es ha new
economics inco po a ing hese elemen s is equi ed o economics o become
a ui ul science. This chap e hen discusses ha di ec ion in some de ail.
B oadly speaking, he basic social iew o mains eam economics can be
unde s ood as u ilising a amewo k o ‘ma ke and go e nmen ’ ( wo- sec o
model), so ha we will discuss he necessi y o expanding i o a social iew o
‘ma ke , go e nmen , and communi y’ ( h ee- sec o model).
In Sec ion 6.1, he basic elemen s o he wo- sec o model as well as o
he h ee- sec o model a e ou lined; in Sec ion 6.2, we show ha he idea o
he h ee- sec o model p o ides a basic pe spec i e o unde s anding human
socie y, since i has an economic an h opological basis; and in Sec ion 6.3,
we explain he cha ac e is ics o he hi d sec o (communi y o non- p o i
sec o ). In Sec ion 6.4, we ocus speci ically on non- p o i o ganisa ions and
cla i y hei equi emen s and easons o exis ence.1
6.1 Expanding o a h ee- sec o model
When socie y is unde s ood as an economic sys em, he dicho omy o ‘ma ke
o go e nmen ’ has adi ionally been adop ed. In o he wo ds, in ma ke s,
people, and companies ope a e based on sel ish mo i es and p o i maxi-
misa ion, espec i ely, while go e nmen s ac o compensa e o he ‘ma ke
ailu es’2 ha occu in such cases.
This pe spec i e, which sees socie y as being cons i u ed by ma ke s and
go e nmen , can be called he ‘ wo- sec o model’, al hough i is a ely da ed
o be called by such a name. This is a clea bu ob iously o e simpli ied pic u e.
I is because, as we ha e al eady seen in Chap e 3, he e a e imes when he
pu sui o al uis ic as well as sel ish mo i es o o he alues (such as happiness,
which is, gene ally speaking, a eal alue o human beings) is a majo con-
ce n o human beings, and he e a e many di e en en i ies and ins i u ions
in socie y ha a e based on hese mo i es. Examples include amilies, a ious
104 O e iew o economics o humani y
p i a e g oups, non- p o i p i a e en i ies, non- go e nmen al o ganisa ions,
and in e media y en i ies ha a e nei he go e nmen no business (e.g.
o ganisa ions classi ied in he a ea o he hi d sec o ). These can be b oadly
unde s ood o be he a ious ‘communi ies’ o which humans a e a pa .
In mains eam economics, hese ha e been excluded om iew o ana-
ly ical con enience. Howe e , i socie y is unde s ood by igno ing hem, his
na u ally en ails signi ican cos s in e ms o unde s anding he ac ual socie y
and o academic s udy.
6.1.1 Ex ension om wo- sec o model o h ee- sec o model
I he abo e- men ioned eali ies a e aken in o accoun , a new amewo k is
needed when unde s anding socioeconomic sys ems. Socie y should no be
unde s ood me ely in e ms o a ma ke (p i a e sec o ) and go e nmen
(non- p i a e sec o ) con igu a ion, bu should ac i ely include no only
ma ke - ela ed ac o s (indi iduals and companies) in he p i a e sec o , bu
also communi ies o he a ious NPOs. In o he wo ds, i is essen ial o unde -
s and he na u e o socie y o ac i ely posi ion he communi y sec o as a hi d
sec o , which is nei he he ma ke sec o no he go e nmen sec o . Thus,
socie y should be unde s ood o be composed o hese wo p i a e sec o s
(ma ke and communi y) plus go e nmen , namely by ‘ h ee- sec o model’
which we p opose in his book.3 4 The h ee- sec o model he e e e s o a
iew o socie y ha sees socie y as consis ing o h ee sec o s (ma ke and
go e nmen plus communi y), as opposed o he wo- sec o model, which
unde s ands socie y as consis ing o wo sec o s (ma ke and go e nmen ).
Pu simply, he au ho belie es ha he h ee- sec o model is a pe spec i e
om which socie y can be be e unde s ood, and ha i is one o he mos
in ui i e and ela i ely easy di ec ions in which o in eg a e exis ing social
sciences. This is illus a ed in Figu e 6.1.
Fi s , Figu e 6.1A is he adi ional unde s anding o socie y in economics
and can be desc ibed as he ‘ wo- sec o model’. Unde his iew o socie y,
households and companies a e unde s ood o ac sel ishly and decen alised
in he ma ke , which is a mechanism o pu suing ‘e iciency’. On he o he
hand, he go e nmen is ecognised as ha ing a cen alised au ho i y o deal
wi h a ious p oblems associa ed wi h such p i a e sec o ac i i ies (such as he
p o ision o public goods ha canno be sol ed by he ma ke unc ion) and as
ac ing as a compensa o o such p oblems wi h coe ci e powe . Go e nmen s
ha e he e o e been unde s ood as ac o s wi h a ole in pu sui o ‘equi y’.5
In con as , his book a gues ha Figu e 6.1B is a mo e alid way o
unde s andingsocie y. In o he wo ds, i emphasises ha in e media e g oups
and o ganisa ions (collec i ely called ‘communi ies’) ha do no all unde
ei he o he adi ional dicho omies (ma ke and go e nmen ) exis in eali y
in a di e si y and scale ha canno be igno ed, and ha he ac o s ha make
up hese sec o s and hei mo i es o ac ion a e also e y di e en om
hose o ma ke s and go e nmen s. In o he wo ds, in con as o he ma ke ,
whe e indi idual sel ishness is mani es ed, he communi y, when iewed in
Th ee-sec o model o he economy 105
pe spec i e, is cha ac e ised by ‘al uism’ as i s p inciple o ac ion, and by ‘ ol-
un a ism’ as i s beha iou al ea u e, a he han by he use o coe ci e o ce,
as in go e nmen . In hese ‘communi ies’, he basic p inciple is ha people
ac au onomously o al uis ically, and he mo i a ion o ac ion di e s signi i-
can ly om he o he wo sec o s in ha human alue, such as sel - ealisa ion
o happiness, a e impo an . The e o e, his sec o can be posi ioned as a ‘new
p i a e sec o wi h a public cha ac e ’, ha is di e en om bo h he ad-
i ional p i a e sec o o public (go e nmen ) sec o .6
6.1.2 O e iew o he h ee- sec o model
The h ee- sec o model p esen ed as abo e ce ainly gi es mo e conc e e
image o he na u e o human socie y. To make i su e, le us hink in u n
abou wha kind o cha ac e is ics and ai s each sec o (see Table 6-1).
Figu e 6.1 Unde s anding human socie y: (A) con en ional and (B) desi able pe spec i es.
Souce: Figu e 4- 3 in Okabe (2017a: 99); o iginal igu e is igu e 3 in Okabe (2009b:38).
112 O e iew o economics o humani y
ha a ious ‘ h ee- di ision’ unde s andings o socie y had been p esen ed in
social sciences.15 Wha was e en mo e encou aging was ha he h ee- sec o
model ( h ee- sec o unde s anding o socioeconomic sys ems) p esen ed by
he au ho u ned ou o ha e a ounda ion ha was di ec ly suppo ed by he
pe spec i e o economic an h opology. Mo e speci ically, his was because he
social model p esen ed by he au ho in his chap e (Figu e 6.1) u ned ou
o be no hing mo e han a mode n de elopmen o he ‘ h ee- unc ion model’
by economic an h opologis Ka l Polanyi (Okabe 2018d).
6.2.1 Polanyi’s h ee- unc ion model
The au ho subsequen ly lea ned ha a ious h ee- sec o models had in
ac al eady been p esen ed by some Eu opean esea che s. They a e usually
based on an economic o sociological pe spec i e (see Chap e 7, Sec ion 7.4).
Howe e , somewha di e en ly, an economic an h opologis Ka l Polanyi
(Polanyi 1944: chap e 3; Polanyi 1977: chap e 3) p oposed a ‘ h ee- sec o
model’16 om a social o economic an h opological pe spec i e a a ela i ely
ea ly s age. He e, we e iew he Polanyi model i s .
Many esea che s ha e adi ionally conside ed he mo i a ions and
mechanisms o p imi i e socie ies o be o no use in explaining he mechanisms
o ci ilised socie ies. Howe e , he economic his o ian Max Webe emphasised
ha man is in a ian in ha he o she is a social being h oughou he ages,
and his idea was p o ed o be en i ely co ec by subsequen esea ch in social
an h opology (Polanyi 1944: 45– 46). Polanyi, who insis ed on he impo -
ance o his pe spec i e, also no ed ha he inna e quali ies o human beings
appea epea edly in all socie ies wi h a ce ain pa e n, ega dless o ime and
place, and judged ha he p econdi ions necessa y o he su i al o human
socie ies appea o be always he same (ibid.).
Polanyi de eloped he idea ha human socie y is suppo ed and unc ions
by h ee p inciples o ac ion. These h ee a e ecip oci y, edis ibu ion, and
exchange (Figu e 6.2). Recip oci y means gi ing and mu ual assis ance (whe e
ma ke unc ions a e no in ol ed). Redis ibu ion is cen ed on powe and i s
obliga o y collec ion and dis ibu ion o collec ions. And, exchange means he
mo emen o ade o goods based on sel - in e es in he ma ke .
He poin ed ou ha he e is a dis inc i e pa e n in he unc ioning o each
o he h ee. In ecip oci y, he e is symme y because gi ing and ecei ing
ha e he same cha ac e . Redis ibu ion is cha ac e ised by cen ici y because
powe is cen al. In he ma ke , he mo emen o goods is aimed a gains o
each indi idual, so exchanges become he unc ional pa e n.
Polanyi emphasised ha hese h ee beha iou al p inciples (o a combin-
a ion o hem) enabled human socie ies and hei ans o ma ions o be
unde s ood. Fo example, in he case o ibal socie ies, he wo beha iou al
p inciples o ecip oci y and edis ibu ion ensu ed he unc ioning o hei
economic sys ems (Polanyi 1944: 48). And, he p esen ed he unde s anding

Th ee-sec o model o he economy 113
ha , un il he end o eudalism in Wes e n Eu ope, any economic sys em
could be unde s ood as o ganised on he p inciples o ecip oci y, edis ibu-
ion, o he ma ke (o a combina ion o hese h ee p inciples each wi h some
impo ance), and ha he ins i u ionalisa ion o hese p inciples as he o gan-
isa ion o socie y ensu ed o de ly p oduc ion, dis ibu ion, and consump ion
(ibid.: 55). In his pe iod, he analysed, p o i ( he ma ke ) was no he mos
impo an o hese mo i es o ac ion, bu cus om, law, wi chc a , and eligion
wo ked oge he o subjec indi iduals o app op ia e p inciples o beha iou ,
esul ing in a sys em whe eby indi iduals ul ima ely ul illed hei unc ion in
he economic sys em (ibid.).
I hen p esen s an unde s anding ha om he 16 h cen u y onwa ds,
he numbe o ma ke s inc eased signi ican ly and hei impo ance g ew, and
om he 19 h cen u y onwa ds, he e was a apid ans o ma ion o a new
economy due o he s eng hening in luence o he sel - egula ing ma ke
sec o (ibid.: 55).
Gi en his unde s anding o Polanyi, i is clea ly a majo law ha mode n
mains eam economics does no ake ecip oci y (whe e he pa e n is sym-
me y) which is uni e sally obse ed in human socie ies in o accoun a all
(o a he ac i ely excludes i om conside a ion). This is because he e y
idea o ma ke exchange, which is only one o he h ee unc ions, is cu en ly
sweeping he wo ld (Takahashi and Tsuji 2018: 99). The wa chwo ds he e
a e a ionalism, u ili a ianism, compe i ion, e iciency, and he ongoing hom-
ogenisa ion o he wo ld in he name o global s anda ds (ibid.). This is why
gi - gi ing and ecip oci y (i.e. he ole o communi ies) a e now a ac ing
a en ion (ibid.).
Figu e 6.2 Polanyi’s unde s anding o human socie y: a h ee- unc ion model.
No e: A diag am by he au ho (Okabe) based on Polanyi (1944: chap e 3; 1980: chap e 4).
Sou ce: Okabe (2018d) cha 10.
114 O e iew o economics o humani y
Polanyi’s h ee sec o s can be pa aph ased as: exchange → ‘ma ke ’, edis-
ibu ion → ‘go e nmen ’, and ecip oci y → ‘communi y’. This co esponds
p ecisely he exp ession o each sec o (ma ke , go e nmen , and communi y)
in he h ee- sec o model p esen ed by he au ho (Figu e 6.1). In his sense,
i can be seen ha he la e model has gene al na u e om he pe spec i e o
economic an h opology.
He e, i would be app op ia e o poin ou ha Raghu am Rajan,17 a
leading igu e in he global economic discou se, ecen ly w o e a book, The
Thi d Pilla : How Ma ke s and he S a e Lea e he Communi y Behind, which
claims ha his o ically human socie ies e en ually adap ed, so ha he h ee
pilla s es o ed balance and ha he es o a ion o ha balance is now called
o (Rajan 2019: 25). This is no hing mo e han an applica ion o he e y idea
o Polanyi’s h ee- unc ion model (al hough he au ho Rajan does no expli-
ci ly s a e ha i is an applica ion o he Polanyi model).18
The h ee- sec o model in his book is a mode n e sion o he Polanyi model.
Focusing on he h ee unc ions desc ibed abo e by Polanyi (Figu e 6.2), i
is clea ha each can be exp essed in conc e e e ms as ‘exchange’ → ma ke ,
‘ edis ibu ion’ → go e nmen , and ‘ ecip oci y’ → communi y. Based on his
unde s anding, he ollowing wo poin s can be de i ed.
Fi s , he e is he p oblem ha in cu en mains eam economics, ‘ eci-
p oci y’ (communi y), one o he h ee uni e sally obse ed sec o s o human
socie y, is comple ely igno ed (o a he ac i ely excluded om conside -
a ion19). Secondly, he e o e, om he pe spec i e o he uni e sal na u e o
socioeconomic sys ems, i is necessa y o include communi y explici ly when
examining con empo a y socie y.
Gi en his, he au ho ’s ep esen a ion o he h ee sec o s (ma ke , go e n-
men , and communi y espec i ely) and he esul ing unde s anding o socie y
can be a ibu ed o he ‘ h ee- unc ion model’ (Table 6.1). And, his way o
unde s anding has wo impo an cha ac e is ics.
Fi s , i is clea om he abo e de i a ion p ocess ha he model we
p esen ed is a model ha ing gene ali y, suppo ed by an economic an h opo-
logical g ound. In his espec , i has impo an ly a heo e ical basis. Secondly,
when sol ing p oblems in mode n socie y, a h ee- sec o model can be used
mo e e ec i ely han in he case o wo- sec o model (mo e desi able and
e ec i e esul s can be ob ained). This second p oposi ion is e i ied o some
ex en by Polanyi’s asse ion ha he h ee- unc ion model can explain he
his o ical ansi ion o he human socioeconomic sys em. The au ho (Okabe
2017b: 35– 37) has p o ided a con empo a y and heo e ical explana ion o
his, which will be p esen ed la e in Chap e 7 (Sec ions 7.2 and 7.3).
6.3 Concep ual cla i ica ions: communi y and non- p o i sec o
In mains eam economics, as has been epea edly men ioned, a ‘dicho omy’ o
‘ wo- sec o model’ o ma ke and go e nmen has adi ionally been adop ed
as a amewo k o unde s anding socie y. Howe e , his unde s anding o
Th ee-sec o model o he economy 115
socie y, despi e being an o e simpli ied iew, is no only ound in US eco-
nomics, bu is pa icula ly p ominen in Japanese economics, whe e economic
esea ch has been ‘ins i u ionalised’.20
In eal socie y, he communi y o NPO becomes an impo an independen
sec o , because i s cha ac e is ics a e di e en om households, businesses,
and go e nmen . The e o e, in o de o p ope ly unde s and social sys ems,
app op ia e posi ioning o his sec o is impo an and indispensable. And, he
addi ion o he communi y sec o o he hi d sec o ( he h ee- sec o model)
p o ides a mo e app op ia e amewo k o unde s anding socie y (OECD
2003; Os owe and S one 2006; Okabe 2009b, 2016a, 2017a, 2017b).
In his sec ion, he signi icance o ‘communi y’ is i s b ie ly summa ised.
I hen ocuses on he wo exp essions ‘ hi d sec o ’ and ‘non- p o i sec o ’,
which a e ela i ely commonly used as speci ic designa ions o communi ies
om he pe spec i e o socioeconomic sys ems, and so s ou he di e ences
be ween hem. I will hen be a gued ha communi ies need o be posi ioned
as an independen ‘ hi d sec o ’, a he han as a sec o si ua ed be ween go -
e nmen and he ma ke .
6.3.1 Signi icance o he communi y
When looking a human socie y, he e a e human mo i a ions o o ming
human g oups ha canno be cap u ed by he ‘ma ke and go e nmen ’
dicho omy, and he impo ance o i has inc eased in ecen yea s. Fo his
eason, he e is a g owing need o explici ly eposi ion he p i a e sec o ,
which is nei he go e nmen no ma ke , i.e. communi ies o a ious kinds
(connec ions be ween independen indi iduals). These communi ies a e
‘public’, as dis inc om he adi ional ‘p i a e’, and ‘go e nmen ’ sec o s,
and a e cha ac e ised by he ac ha human beings a e o en in ol ed ol-
un a ily a he han unde compulsion, wi h an added al uis ic a he han
me ely sel ish mo i a ion.21
Since he beginning o he 20 h cen u y, communi y has been de ined as
‘an a ea o li ing space in which people li e oge he in a ce ain egion, and
he equi emen is ha common in e es s and social consciousness be ound
among each o he ’ (Socie y o Economic Sociology 2015: 115). In o he
wo ds, he concep used o e e o a g oup o people (local communi y) who
li ed in he same a ea, sha ed in e es s and we e deeply connec ed in e ms
o cus oms, belie s, objec i es, and esou ces, whe e geog aphical condi ions
we e impo an .
Howe e , he de elopmen o he in e ne has made geog aphical condi ions
less es ic i e han in he pas , and an inc easing numbe o communi ies
(online communi ies) ha e he cha ac e o spa ially di use unc ional g oups
ha a e no limi ed by egional cha ac e is ics. Fo his eason, in ecen yea s,
b oad de ini ions ha do no include geog aphical condi ions ha e come in o
use. Tha is, o example ecen esea ch de ines a communi y as ‘a g oup o
people o a ne wo k o people who a e linked by social ela ionships ha a e
116 O e iew o economics o humani y
du able beyond blood and geog aphical ies and which a e mu ually ega ded
as impo an o hei social iden i y and social ac i i ies’.22
In o he wo ds, i can be unde s ood ha e ec i e communica ion is a
p e equisi e o he o ma ion o a communi y, which in u n c ea es a social
ne wo k o social capi al ha enables a g oup o people o ul il a unc ion.
This is also connec ed o he ac ha o a ma ke o unc ion smoo hly, i is
no enough o ha e neu al ules and p ocedu es, bu ha he sha ing o social
no ms and mo als, which a e he elemen s ha main ain a communi y, is also
an essen ial condi ion o socie y as a whole (Okabe 2018a).
6.3.2 Thi d sec o o non- p o i sec o ?
The abo e- men ioned ‘communi ies’ come in a a ie y o o ms, bu when
ocusing on hem, he e a e wo adi ional exp essions o desc ibing hem.
One is he ‘ hi d sec o ’, which is posi ioned in ela ion o he ma ke and
go e nmen , and he o he is he ‘non- p o i sec o ’. The wo a e some imes
used almos synonymously, bu o en e e o somewha di e en hings in
Eu opean coun ies and he USA (Table 6.2).
Fi s , he exp ession ‘ hi d sec o ’ is o en used exclusi ely o desc ibe social
eali y and policy in Eu ope. In o he wo ds, i is o en posi ioned as a sec o
wi h an eclec ic cha ac e (social mid ield; hyb id) be ween he ma ke and
go e nmen , and is no seen as an independen sec o on an equal oo ing
wi h he o he wo sec o s (ma ke and go e nmen ). The eason o his is
ha he a ious o ganisa ions included in his sec o ha e been ounded and
de eloped his o ically in di e se ways, and he e is a s ong endency o unde -
s and hem as a sec o wi h signi ican socioeconomic and sociopoli ical sig-
ni icance, a he han one ha should be unde s ood solely om an economic
pe spec i e. In addi ion, i is no simply he ‘non- dis ibu ion cons ain ’ (as
in he case o he USA) ha cha ac e ises o ganisa ions in he hi d sec o , bu
a he whe he o no p o i s a e used o achie e o ganisa ional objec i es, and
i is said o be oo mechanical o ocus simply on he non- dis ibu ion con-
s ain o p o i s.23
In Eu ope, he ‘ hi d sec o ’ is used in his sense la gely because o he
idea o a mixed sys em (wel a e mix) as a means o ealise a wel a e socie y. In
o he wo ds, he concep was bo n om he pe spec i e o policy heo y in he
sea ch o a way o socie y (a desi able social image) ha achie es wel a e. I is
also unique in ha i s esea ch was conduc ed exclusi ely om he pe spec i e
o sociology o poli ical science, and was p oduced as a esul ( o his eason,
i is some imes e e ed o as he Eu opean app oach).24
In con as o he abo e, he exp ession and concep o he non- p o i sec o
is o en used o desc ibe he eali y in he USA, as i was in oduced in he
USA and esea ch in o he ac ual si ua ion in he coun y has become ac i e as
a esul . In he US school o economics, socie y has adi ionally been unde -
s ood as consis ing o wo sec o s (ma ke and go e nmen ) wi h comple ely
Th ee-sec o model o he economy 117
di e en cha ac e is ics, and he non- p o i sec o is posi ioned as an inde-
penden sec o wi h di e en mo i es and modes o ac ion om hese wo.
The concep eme ged in he USA because, wi h he g owing discussion o
‘ma ke ailu e’ and ‘go e nmen ailu e’, i was a na u al mo e o explici ly
in oduce a new sec o wi h a unc ion o add ess hese issues. In his case,
he mos impo an condi ion is ha NPOs mus no dis ibu e p o i s o
Table 6.2 A compa ison o wo simila exp essions
Thi d sec o Non- p o i sec o
E ymology
and p ima y
a ge
The e m was in oduced wi h he
mo i a ion o unde s anding
he eali y in Eu ope. The main
ocus o he esea ch is mainly
on Eu ope.
The e m was in oduced as
ac ual esea ch in he USA
became mo e ac i e. The
main ocus o esea ch is
mainly in he USA.
Ta ge
posi ioning
The sec o is posi ioned as a social
mid ield (hyb id) be ween he
ma ke and he go e nmen .
I is no seen as an independen
sec o on an equal oo ing wi h
he o he wo sec o s (ma ke
and go e nmen ).
Posi ioned as an independen
sec o wi h di e en
mo i es and modes o
ac ion om he o he
wo sec o s (ma ke and
go e nmen ).
Posi ioning
pe spec i e
Emphasis on he socioeconomic
and sociopoli ical sec o as a
di e se, socioeconomic and
sociopoli ical sec o ounded in
eali y and his o ically de eloped.
Emphasis on whe he p o i is
used o achie e o ganisa ional
objec i es, a he han seeing
i as cha ac e ised by non-
dis ibu i e cons ain s on p o i .
The concep eme ged om he
pe spec i e o a mixed sys em
(wel a e mix) as a means o
ealise a wel a e socie y.
Se up as a sec o wi h
unc ions o add ess
‘ma ke ailu es’ and
‘go e nmen ailu es’.
Non- dis ibu ional cons ain s
on p o i s a e he mos
impo an condi ion
cha ac e ising NPOs.
I can be posi ioned as an
independen sec o om
he pe spec i e o a ious
human beha iou al mo i es
(sel - ul ilmen mo i es,
al uis ic mo i es, e c.),
he locus o au ho i y in
socie y, he in o ma ion
p ocessing sys em as
a socie y, e c. (au ho
Okabe’s unde s anding).
Resea ch
Pe spec i es
Mainly sociological and poli ical
science pe spec i es (Eu opean
app oach).
Pes o wel a e iangle, social
en e p ise, e c.
Mainly om an economic
pe spec i e (US app oach
o in e na ional model).
A h ee- sec o model o he
economic sys em (p esen
au ho ’s unde s anding).
Sou ce: Au ho s’ compila ion based on E e s and La ille (2004a,2004b), P es o
(1998: Chap e 2), K ame (2004), La ille, Young and Eynaud (2015), Anheie (2012),
Wikipedia "Sel - ac ualisa ion" and Okabe (2017a: chap e 10).

118 O e iew o economics o humani y
s akeholde s (non- dis ibu ion cons ain o p o i s), unlike in he case o join
s ock companies (whe e su plus p o i s a e dis ibu ed o sha eholde s). The
US NPO is hus posi ioned as an independen sec o alongside he ma ke
and go e nmen , and i s esea ch is cha ac e ised by i s ocus on economic
pe spec i es (hence he e m ‘US app oach’ o ‘in e na ional model’).
6.3.3 Pe spec i e o his publica ion: he hi d sec o a he han he
in e media e sec o
When unde s anding NPOs o new sec o s ha include NPOs, as discussed
abo e, esea ch in Eu ope has ocused exclusi ely on sociological and poli ical
science pe spec i es, whe eas in he USA, he emphasis has been on he eco-
nomic pe spec i e. In ecen yea s, howe e , esea ch con ac s appea o be
g adually being es ablished be ween he wo disciplines, o example h ough
he publica ion o books ha include esea ch om bo h ields simul aneously
(E e s and La ille 2004b).
In Japan, howe e , he majo i y o esea ch on NPOs and he non- p o i
sec o appea s o be om a sociological o p ac ical pe spec i e, and a p e-
sen has li le con ac wi h economics.25 So, how should NPOs (o he non-
p o i sec o ) be posi ioned in u u e esea ch on NPOs (o he non- p o i
sec o )?
The au ho conside s i app op ia e o cap u e he social sys em by in o-
ducing NPOs as a hi d independen sec o ha should be placed on he same
le el as he exis ing wo sec o s (ma ke and go e nmen ). In o he wo ds,
i is p e e able o swi ch om he s anda d wo- sec o model o socie y in
economics o a h ee- sec o model, and o unde s and socie y and de elop
policies wi hin ha amewo k ( he h ee- sec o model o he economic
sys em). In his sense, his publica ion adop s he US app oach as i s gene al
amewo k.26
This is because, i s ly, he heo e ical model o analysis mus be a clea
and unde s andable amewo k. In o he wo ds, i is only by es ablishing h ee
independen axes o coo dina es (di isions) ha in e media e and eclec ic
ypes can be accu a ely loca ed.27 In he case o he Eu opean app oach, whe e
he ‘sec o ’ is conside ed o be in e media e o eclec ic om he ou se , i is
necessa y o cla i y wha is mean by in e media e o eclec ic, bu he meaning
o con en (e.g. he speci ic con en in he case o in e media e o eclec ic
be ween he ma ke and go e nmen sec o s) is no always clea . The non-
p o i sec o is quali a i ely di e en om he ma ke and go e nmen in many
aspec s in e ms o i s basic cha ac e (e.g. mo i a ions and s anda ds o beha -
iou o pa icipan s and o ganisa ions), which makes i necessa y o es ablish
he sec o as an independen sec o .
Secondly, o unde s and social sys ems, i is necessa y o cons uc sec o s
wi h an unde s anding ha goes back o he mo i a ions o human ac ion and
he unc ions o he cons i uen elemen s (sec o s). In o he wo ds, he co ec
Th ee-sec o model o he economy 119
way o app oach social science is o cons uc a amewo k o unde s anding
based on he idea o i s accu a ely unde s anding eali y (issue- d i en
app oach), a he han suddenly s a ing om he idea o policy heo y (policy-
d i en app oach) as in he Eu opean app oach.28 Policy heo y can na u ally be
de eloped on he basis o his unde s anding o he na u e o socie y.
Fo example, he mo i es and beha iou pa e ns o a pe son ac ing in he
ma ke place (usually based on sel ish mo i es) a e clea ly di e en om hose
o ha same pe son engaging in he ac i i ies o a NPO (al uis ic mo i es,
sel - ealisa ion, e c.). I is also necessa y o look a how he a ious powe s
ha un socie y a e dis ibu ed, and u he mo e, wha kind o p ocessing
sys ems he a ious ypes o in o ma ion in socie y comp ise. Taking hese
hings29 in o accoun , a mo e ui ul app oach is o posi ion he non- p o i
sec o as an independen sec o . This is he pe spec i e o his publica ion (see
explana ion in he second box om he bo om in he igh - hand column o
Table 6.2).
6.3.4 A poin o emembe
One impo an poin o he abo e wo unde s andings needs o be emphasised.
Tha is, he exis ence o he hi d sec o mus no be unde s ood me ely om
he economic dimension o being a supplie o goods and se ices, as is he
case when unde s anding comme cial en e p ises, bu i mus be unde s ood as
a ‘mo ally and poli ically alued sec o ’ (E e s and La ille 2004a: 6).30 In his
espec , his publica ion goes beyond a simple US app oach; i inco po a es an
impo an aspec o a Eu opean app oach.
Speci ically, i is necessa y o unde s and ha human beha iou is no only
mo i a ed by sel ishness and a ionalism, bu ha he e a e o he mo i es,
such as hose ound in his sec o , which a e based on human na u e, and ha
hese aspec s make people in ol ed in he non- p o i sec o . The e o e, i such
aspec s o human beings (di e si y o mo i es o ac ion) a e also aken in o
accoun , he a ionale o he non- p o i sec o o be a sepa a e independen
sec o becomes e en s onge .
6.4 Requi emen s and aisons d’e e o non- p o i o ganisa ions
The mos ob ious example o an o ganisa ion belonging o he hi d sec o is
he non- p o i o ganisa ion (he ea e , e e ed o as NPO).31 NPOs gene ally
e e o all o ganisa ions o he han o - p o i o ganisa ions (p i a e o - p o i
companies such as co po a ions). Fo his eason, he mo i es o es ablishing
NPOs, hei o ganisa ional o ms and ac i i ies a e ex emely di e se, bu hey
a e now de eloping dynamically as an in e disciplina y esea ch a ea in he
social sciences, keeping pace wi h hei g ow h.32 In his sec ion, we will sum-
ma ise he condi ions o hei es ablishmen and easons o hei exis ence,
elying hea ily on Anheie (2005).
120 O e iew o economics o humani y
6.4.1 Fou condi ions o he o ma ion o an NPO
As he name sugges s, NPOs a e o ganisa ions es ablished o achie e some
social pu pose wi hou p o i - making objec i es. The e o e, hei basic cha -
ac e lies in he ac ha hey do no ope a e o inc ease he p o i s o hei
owne s o ope a o s, and in o m hey a e an ins i u ional o m ha is in e -
media e be ween comme cial en e p ises and go e nmen o ganisa ions
(S einbe g and Weisb od 2008: 118– 120).
The mos gene al and app op ia e de ini ion o wha cons i u es an NPO is
ha o he Handbook on Nonp o i O ganiza ions, in oduced by he Uni ed
Na ions in 2002 (Anheie 2005: 53– 54). Ra he han emphasising he objec -
i es and sou ces o income o NPOs, i ocuses on he o ganisa ional s uc u e
and ope a ional aspec s and de ines an NPO as an o ganisa ion ha has he
ollowing ou cha ac e is ics (Table 6.3, op ow). Namely, (1) sel - go e ned,
(2)non- p o i and non- p o i - sha ing, (3) ins i u ionally sepa a e om go -
e nmen , and (4) non- compulso y pa icipa ion in i s ac i i ies.
Table 6.3 Condi ions o non- p o i o ganisa ions (NPOs), main subjec a eas, and
o ganisa ional o ms
Speci ic i ems
Fou condi ions o
non- p o i o ganisa ions
(UN s anda ds)
1. A sel - go e ning o ganisa ion.
2. A non- p o i and non- p o i - sha ing policy mus
be adop ed.
3. The o ganisa ion mus be ins i u ionally sepa a e
om he go e nmen .
4. Pa icipa ion in he ac i i y is non- compulso y.
P ima y a ge a ea Heal h (hospi als, nu sing homes, blood dona ion)
Educa ion (p ima y, seconda y, uni e si y)
Cul u e, spo , and he a s (museums, e c.)
Public sale o local p oduc s
Social se ices (wel a e o ganisa ions, e c.)
En i onmen al p o ec ion ( ecycling)
Resea ch (policy ad ocacy)
Law (p o ec ion o human igh s)
Poli ics (poli ical pa ies)
Founda ions
Religion
O ganisa ional s uc u e 1. Fo ms wi h ela i ely high
en ep eneu ship: social en e p ises (social
businesses), inco po a ed associa ions,
coope a i es, e c.
2. Fo ms ha a e ela i ely mo e ocused on
achie ing social objec i es: aid o ganisa ions,
g an - making ounda ions, poli ical pa ies, e c.
Sou ce: Okabe (2017a) igu e 10- 1. Uppe ow based on Anheie (2005: 54), Middle and lowe
ows a e based on Anheie (2005: 55: able 3- 2), Yamauchi (2004: Chap e 3), Bo zaga and
To ia (2007: igu e 1- 1).
Th ee-sec o model o he economy 121
While he signi icance o hese can be easily unde s ood, only (2) equi es
some explana ion. In o he wo ds, equi emen (2) no only s ipula es ha he
o ganisa ion is no ope a ing o p o i , i also means ha any p o i s gene a ed
a e es ic ed om being dis ibu ed o he owne s and manage s o he o gan-
isa ion. This means ha p o i s can accumula e wi hin he o ganisa ion in
o de o achie e i s objec i es (public bene i ), bu mus no be dis ibu ed
o he owne s, membe s, ounde s, o managing di ec o s o he o ganisa ion.
In his espec , i ollows ha NPOs do no exis o make a p o i and a e no
o ganisa ions ha ac p ima ily o he p o i mo i e. Fo his eason, he ‘non-
dis ibu ion cons ain ’ has become a cen al ea u e when de ining NPOs in
law and in he social science li e a u e.33
These NPOs ope a e in a wide a ie y o a eas and ha e di e se o ganisa-
ional s uc u es (middle and bo om ows o Table 6.3). And, hei man-
agemen also has many cha ac e is ics no ound in comme cial o ganisa ions
(D ucke 1990).
6.4.2 Signi icance o NPOs in he o e all economy
When NPOs a e conside ed as an o ganisa ional en i y, hey come in a wide
a ie y o o ms and names.34 Bu , how impo an a e NPOs in e ms o a
coun y’s economic ac i i y?
In e ms o a coun y’s o e all economic ac i i y, he non- p o i sec o is a
much la ge economic o ce han is commonly hough (OECD 2003: 11–
12). In a su ey o 35 coun ies a ound he wo ld, some 40 million o he
o al numbe o pe manen employees a e employed in he non- p o i sec o
(excluding adi ional coope a i es). Tha employmen ep esen s 3.6% o
he wo king- age popula ion, which co esponds o 7.3% o non- ag icul u al
employmen , and he non- p o i sec o has also shown ema kable g ow h as
a social and economic o ce in ecen yea s (ibid.).
Nex , le us compa e he size o NPOs by coun y. Figu e 6.3 shows an
in e na ional compa ison o he non- p o i sec o wo k o ce as a pe cen age
o he economically ac i e popula ion. F om his, he ollowing poin s can
be no ed.
6.4.2.1 De eloped coun ies ha e la ge non- p o i sec o s
Fi s , de eloped coun ies ha e ela i ely la ge non- p o i sec o s han
de eloping and ansi ional coun ies. On a e age, he size o he o me is
abou h ee imes la ge han ha o he la e . The easons o his a e: (1) he
low pe capi a income in de eloping coun ies ( ela i ely small u ban middle-
income g oups), which means ha NPOs canno a o d o de elop; (2) he
deg ee o de elopmen as ci il socie y and skills in o ganisa ional managemen
a e s ill limi ed in Cen al and Eas e n Eu ope, as hese coun ies emain col-
ou ed by cen alised poli ical sys ems; and (3) he e is insu icien ins i u ional
de elopmen o NPO ac i i ies (Anheie 2005: 82).
128 O e iew o economics o humani y
Ma ke s ail o p o ide public goods, while he go e nmen ’s esponse is o
p io i ise poli ical decisions and espond i a ionally (ma ke ailu e and go -
e nmen ailu e, espec i ely). And, in he case o NPOs, i should be no ed
ha he human and inancial cons ain s a e much g ea e han in he case o
he ma ke o go e nmen , and he scale o ac i i ies may no be eached as
equi ed ( ailu e o olun a y sec o ).
6.5 Conclusion o his chap e
In summa y, wha has been discussed in his chap e is as ollows.
(1) In economics, i has adi ionally been assumed ha socie y basically
consis s o wo sec o s (ma ke and go e nmen ). Howe e , in eal socie y,
in addi ion o he ma ke (households and companies) and go e nmen ,
he ‘communi y’, which is di e en in cha ac e om hese wo sec o s,
also plays an impo an ole. Fo his eason, i is ealis ic and e ec i e o
unde s and socie y h ough he h ee sec o s (ma ke , go e nmen , and
communi y) and o discuss solu ions o p oblems.
(2) The eason why i is desi able o iew socie y in e ms o h ee sec o s (o
h ee unc ions) in his way is ha , al hough he e a e di e ences in he
impo ance o each sec o a any gi en ime in human his o y, such h ee
unc ions a e he unde lying s uc u e o human socie y (i has an eco-
nomic an h opological basis).
(3) The ‘communi y sec o ’ is o en e e ed o as he ‘non- p o i sec o ’
(mo e speci ically, NPOs) in he USA and he ‘ hi d sec o ’ in Eu ope.
Howe e , ega dless o he name, his sec o (o o ganisa ions such as
NPOs) has he unc ion o p o iding quasi- public goods o quasi- public
se ices, om which socie y can bene i g ea ly.
The abo e pe cep ions can be shown mo e igo ously. Le us he e o e mo e
on o he nex chap e , which p o ides an economic- heo e ical explana ion
o hese.
No es
1 This chap e is based on Okabe (2022a: chap e s 8 and 11; 2016a, 2016b, 2017d).
2 Ma ke ailu e e e s o: (1) he occu ence o monopolies o oligopolies ha p e-
en he op imum alloca ion o esou ces, (2) he ailu e o achie e an adequa e
supply o public goods, and (3) he widening o income and asse dis ibu ion (i.e.
he ailu e o gua an ee equi y), among o he s. See Table 6.1.
3 When unde s anding socie y, wo dis inc ly di e en ypologies hus eme ge: he
‘ wo- sec o model’ and he ‘ h ee- sec o model’. The espec i e ou lines o bo h
can be exp essed in agg ega e as in Figu es 6.1 and 6.2.
4 In he ollowing, he e ms communi y sec o , hi d sec o , and non- p o i sec o
will be used in e changeably o con enience (unless a pa icula dis inc ion needs

Th ee-sec o model o he economy 129
o be made). Fo he di e ences be ween he hi d and non- p o i sec o s, see
Table 6.2.
5 Fo example, in he s anda d in oduc o y ex book o economics, K ugman and
Wells (2018: igu e 7- 1), only households and i ms a e depic ed as domes ic
sec o s o he economic and social sys em.
6 The easons o his unde s anding, i s signi icance and i s academic his o y will be
explained in de ail in Chap e 7.
7 Re e s o social ela ions ha in i e people owa ds coope a ion, such as ne wo ks,
no ms, and us . Fo mo e in o ma ion, see Okabe (2017a: 322– 327).
8 Ine iciencies ha a ise when someone hi es a ep esen a i e (agen ) o do a ce -
ain job ( his is called an agency ela ionship) a he han doing i hemsel es.
This ine iciency is e e ed o as agency cos s, as he in e es s o he clien a e
comp omised because he agen may ac in a ou o he agen ’s own in e es s
o e hose o he clien .
9 See oo no e 2 o his chap e .
10 Fo mo e in o ma ion, see Okabe (2017a: 310– 316).
11 Ogaki (2022) conside s a social model simila o ha desc ibed in his book.
Howe e , i is e e ed o as a ‘ h ee- mechanism’ (ma ke mechanism, powe
mechanism, and communi y mechanism) model a he han a ‘ h ee- sec o ’
model, and a gues ha i ue e hics is an essen ial elemen o he communi y
mechanism o unc ion.
12 One episode ha sugges s his is wo h men ioning. A e being diagnosed wi h
a a al o m o cance and old he had only 6 mon hs o li e, enowned com-
pu e scien is P o esso Randy Pausch (Ca negie Mellon Uni e si y, USA) said
in his inal lec u e. ‘The Uni ed S a es o Ame ica is a coun y ha places con-
side able emphasis on igh s. I should be, bu i makes no sense o alk abou
igh s wi hou alking abou esponsibili ies. Righ s come om he communi y
and in e u n we all ha e a esponsibili y o he communi y. Some people call his
“communi a ianism”, bu I would call i common sense. (omi ed). By engaging
wi h o he s, we can become be e people’ (Pausch and Zaslow: 175– 176). No e
ha his inal lec u e (li e) is a ailable on YouTube and has al eady been iewed
21 million imes (h ps:// www.you ube.com/ wa ch? = ji5_ Mqic xSo).
13 Inciden ally, looking a he con e ence p og amme o esea ch p esen a ions a he
2016 Sp ing Con e ence ( o al o 210 esea ch pape s we e p esen ed) and a i s
Au umn Con e ence (143 pape s) o he Japan Economic Associa ion, he e was
no p esen a ions a all ha included he wo d ‘non- p o i o ganisa ion’ o ‘NPO’
in hei i les. Al hough he e is a sepa a e Japanese NPO Socie y and ano he
socie y called he Socie y o In eg a ed Human S udies, he membe ship and
esea ch in e es s o hese h ee socie ies appea o be mu ually seg ega ed (The
au ho p esen ed his esea ch a hese h ee con e ences in 2016 and also e iewed
he esea ch p esen a ion p og ammes o each con e ence a ha ime, and his is
his imp ession).
14 See oo no e 42 in Chap e 1.
15 Fo example, he ‘Pes o wel a e iangle’ (Pes o 1992, 1998). Fo he de ail o
a ious h ee sec o models, see Sec ion 7.4.
16 Polanyi himsel desc ibed i as ‘p inciples o beha iou in p oduc ion and dis ibu-
ion’ (Polanyi 1944: 47) and did no use such exp essions as ‘ h ee- sec o model’
o ‘ h ee- unc ion model’. In his publica ion, howe e , we use exp essions such as
130 O e iew o economics o humani y
‘ h ee- sec o model’ and ‘ h ee mo phology’ o cla i y he con en and acili a e
compa isons wi h o he esea che s.
17 P o esso a he Uni e si y o Chicago, USA, since 1995. He specialises in
mone a y and banking heo y. He once se ed as Di ec o o Resea ch a he
In e na ional Mone a y Fund (2003– 2006) and Go e no o he Rese e Bank o
India (Cen al Bank) (2013– 2016). He is cu en ly ega ded as one o he mos
in luen ial economis s wo ldwide.
18 I should be no ed ha Rajan conside s a communi y (p oxima e communi y)
o be a g oup o people li ing adjacen o each o he , and as such, i includes
a ai ly b oad ange o people, including amilies, neighbou hood associa ions,
school boa ds, as well as mayo s and local councils. Na ional o ganisa ions, on
he o he hand, a e excluded om i , e en i hey a e no - o - p o i o ganisa ions
(Rajan 2019: p e ace xi ). In con as , he au ho ’s (Okabe’s) de ini ion o he
hi d sec o (communi y) akes he posi ion ha i is no de ined solely on he
basis o neighbou hood esidence, bu ecognise he impo ance o he beha -
iou al mo i es o i s membe s. Fo his eason, he la e includes no only amilies,
neighbou hood associa ions, school boa ds, e c. (communi ies ha ul il esiden-
ial adjacency and whose mo i es o ac ion a e also non- sel ish), bu also na ion-
wide non- p o i o ganisa ions. In his espec , i di e s sligh ly om Rajan. The
Rajan’s concep o communi y is somewha weake om he pe spec i e o an
economic heo e ical amewo k, as i emphasises he poli ical powe o he hi d
pilla (and hus includes a conside able di e si y in he beha iou al mo i es o i s
membe s).
19 See oo no e 42 in Chap e 1.
20 On he ‘ins i u ionalisa ion’ o economics esea ch in Japan, see Okabe (2017a: 47–
48). Fu he mo e, Japanese economics has in some espec s inhe i ed (o a he
ein o ced) dis o ions o US economics. Inciden ally, i has been poin ed ou ha
he US economics esea ch communi y lacks di e si y, which has led o ce ain
dis o ions in he di ec ion o esea ch. This is because: (1) US economis s a e
mo e likely o be male and Whi e han esea che s in o he ields (e.g. sociology),
(2) su ey esea ch shows ha male economis s end o a ou ma ke solu ions
o e go e nmen in e en ion ( emale economis s a e mo e in e es ed in a eas
such as income dis ibu ion and en i onmen al p o ec ion egula ions), (3) he e-
o e, he e is a lack o di e si y in he US economics communi y, which has led o
ce ain dis o ions in esea ch di ec ions, (4) ma ke solu ions he e o e o m he
mains eam in US economics academia (‘Ba ie s o en y’, The Economis , 12 May
2018: 65). Consequen ly, in he Japanese economics communi y, which consis s
o a e y la ge numbe o esea che s wi h deg ees om US uni e si ies, he abo e
endencies in US economics add o he ma ke - o ien ed endencies e en mo e
s ongly.
21 A ca e ul explana ion o he communi y concep can be ound in Maeyama
(2009: pa 2, chap e 1).
22 h ps:// en.wikipe dia.o g/ wiki/ Commun i y.
23 In Eu ope, coope a i es and mu ual socie ies cu en ly dis ibu e pa o hei
p o i s o s akeholde s (Pes o 1998: 43).
24 The e a e a ious a ia ions o his ‘Eu opean- s yle h ee- sec o al unde s anding’,
including he Pes o wel a e iangle (see Sec ion 7.3).
25 See oo no es 3 and 4.
Th ee-sec o model o he economy 131
26 The au ho is no pa icula abou whe he he sec o in oduced he e is called
he non- p o i sec o o he hi d sec o . This sec o is unique in ha i has aspec s
ha a e in e media e be ween he wo exis ing sec o s (ma ke and go e nmen ;
e.g. e iciency o ac i i ies, amoun o in o ma ion held, e c.), while also ha ing i s
own aspec s (e.g. al uis ic and sel - ul ilmen mo i es).
27 E en i he Eu opean p oximi y (hyb id) desc ibed abo e is close o eali y, he e
a e di icul ies in his sense in using i as a single independen axis o coo dina es.
I should be no ed ha in Eu opean esea ch in (o abou ) Eu ope, he hi d
sec o is no so much an independen sec o as ‘an en i y wi h an in e media y
na u e o he hi d sec o ’ (E e s and La ille 2004a: 5), ‘a social mid ield, a mixed
a ea’ (social mid ield, hyb id; K ame 2004: 229).
28 In Sweden, he 1990s saw an inc easing emphasis on he idea o a ‘wel a e socie y’
o ‘s akeholde democ acy’ a he han he idea o a ‘wel a e s a e’. This was he
idea o ‘in eg a ing igh s and du ies’, i.e. ‘p o iding wo k o hose who can wo k
and a secu e li e (secu i y) o hose who canno wo k’, which led o he p esen a-
ion o he idea o he ‘ hi d sec o ’ (Pes o 1998: 1).
29 De ails a e discussed in Sec ion 6.4.
30 In he Eu opean app oach, he hi d sec o is also discussed mo e b oadly, linking
i o social economy heo y, ci il socie y heo y, democ a ic alues, e c. (E e s
and La ille 2004a: 2– 3, La ille, Young and Eynaud 2015: in oduc ion), bu his
publica ion will no go in o poli ical aspec s bu limi i sel o he aspec o human
well- being.
31 In addi ion o NPOs, ano he o ganisa ional en i y belonging o he hi d sec o
is ‘social business’, which has a ac ed a lo o a en ion in ecen yea s. This was
p oposed by Muhammad Yunus (Nobel Peace P ize winne ) and has aspec s close
o p i a e en e p ise a he han o he communi y in gene al. Fo mo e in o ma-
ion, see Okabe (2017a: chap e 4, 104– 110; Okabe 2012b). Social o ganisa ions
wi h simila unc ions a e inc easingly discussed in Eu ope unde he e m ‘social
en e p ise’ (La ille, Young and Eynaud 2015).
32 In he USA, he Socie y o Non- P o i O ganisa ions was es ablished in 1971. In
Japan, he ole o NPOs a ac ed a en ion ollowing he G ea Hanshin- Awaji
Ea hquake (1995), and he Japan NPO Socie y (h p:// www.janp o a.o g/ ) was
es ablished in 1999.
33 Because o hese non- dis ibu ional cons ain s, he moni o ing o o ganisa-
ional ope a ions by unde s (e.g. dono s) does no wo k so well as in he case
o o - p o i companies, which in u n educes he e iciency o ac i i ies and he
incen i es o espond quickly o changes in demand (S einbe g and Weisb od
2008). This is an impo an u u e esea ch ques ion o NPO esea ch.
34 Fo ins ance, coope a i e, co po a ion agg ega e, social business, ad ocacy o gan-
isa ion, g an - making ounda ion.
35 See oo no e 2 o his chap e .
36 In Japan, blood o ans usion used o be secu ed h ough blood sales, bu in
1964, he Go e nmen o Japan passed a Cabine decision on he p omo ion o
blood dona ion, and oday 100% o blood o ans usion is secu ed h ough blood
dona ions (Websi e o he Osaka Red C oss Blood Cen e, Japanese Red C oss
Socie y, ‘His o y o Blood Business’). In ac , a wide ange o pa ies a e in ol ed
in blood se ices, including he na ional, p e ec u al, and municipal go e nmen s,
he Japanese Red C oss Socie y, manu ac u e s and dis ibu o s o blood p oduc s,
medical ins i u ions ha ac ually use he p oduc s, and o he non- p o i - making
132 O e iew o economics o humani y
en i ies (Websi e o he Japanese Red C oss Socie y: h ps:// www.j c.o .jp/ engl
ish/ ).
37 See Chap e 2, Sec ion 2.3.
38 See oo no e 36 in Chap e 8.
39 See Table 6.4, o isual economic analy ical explana ion o his.
DOI: 10.4324/9781003478447-10
7 Theo e ical bases o he
h ee- sec o model
In he p e ious chap e , i we concluded ha a mo e accu a e unde s anding o
human socie y and he economy needs o be based on a h ee- sec o (ma ke ,
go e nmen , and communi y) model ins ead o he adi ional wo- sec o
(ma ke and go e nmen ) model, and explained he na u e o he hi d sec o
was explained in de ail. This chap e a gues ha such a pa adigm shi can be
g ounded in mul iple pe spec i es o economic heo y.
In Sec ion 7.1, we poin ou ha he e a e ine i ably majo dis o ions in
mains eam economics policy heo y and show ha he h ee- sec o model
co ec s hem; in Sec ion 7.2, we show ha he h ee- sec o model is alid in
ha i sa is ies se e al basic p inciples o economic policy; in Sec ion 7.3, we
use a heo e ical amewo k o show ha public policy u ilising he h ee- sec o
model can enhance he wel a e o socie y as a whole. And, Sec ion 7.3 uses a
heo e ical amewo k o illus a e ha public policies ha u ilise he h ee-
sec o model can enhance he wel a e o socie y as a whole. Finally in Sec ion
7.4, we lis a ious simila h ee- sec o models ha ha e been p oposed so a ,
and show ha he model in his publica ion has high gene ali y and alidi y
among hem.1
7.1 Rec i ying policy dis o ions o mains eam economics
Mains eam economics, as we ha e poin ed ou epea edly, has a s eng h o
‘b igh ’ side, bu also a weakness o ‘shadow’ behind i .2 One such ‘shadow’
is ha he assump ion ha humans a e sel ish and a ional ac o s (homo
economicus, o economic man) is oo one- sided and simplis ic (Sen 1987: 1).
The second is ha he iew o socie y buil on such assump ions places oo
much emphasis on he impo ance o he ma ke , esul ing in he dis o ion
o economics in o a discipline wi h an emphasis on e iciency and an une hical
cha ac e ha excludes e hical ac o s (ibid.: 2).

134 O e iew o economics o humani y
7.1.1 E iciency- o ien ed dis o ions
Mains eam economics has he dange o dis o ing public policy h ough
he misuse o abuse o economic logic when i comes o policy discussions.
Speci ically, mains eam economics’ policy ecommenda ions o e whelm-
ingly p io i ise he pu sui o e iciency, and he e o e end o be inclined
owa ds he simple ecommenda ion ha ‘any ac o s ha hinde he
unc ioning o any ma ke should be emo ed and a compe i i e en i on-
men p omo ed’.
Table 7.1 con as s he public policy ecommenda ions o mains eam eco-
nomics and hose ha ake a b oade pe spec i e (i.e. hose ha conside
policy objec i es o he han e iciency), aking up ag icul u al policy, en e -
p ise policy and employmen and wage policy, as examples. Al hough he
de ails o wha is p esen ed in he cha a e omi ed, mains eam economics
policy unde s ands ci izens only om he pe spec i e o consume s and p o-
duce s, and no only unde s ands ma ke s as places whe e goods and se -
ices a e aded, bu e en ‘business en i ies’ a e ega ded as objec s o ma ke
ansac ions. Indeed, he e may be a poin o such simpli ica ion and model-
ling in unde s anding socie y.
Howe e , in he managemen o ac ual public policy, i is necessa y o con-
side no only such simple logic, bu also mo e di e se aspec s o human beings
and socie y, such as he uniqueness o ag icul u e as a li e- gi ing indus y wi h
mul i ace ed unc ions and ex ensi e use o land (see Table 7.1). Such a la ge
pe spec i e, o conside a ion o humili y owa ds humani y, is essen ial in
policy managemen (Sen 1987: 2). Ne e heless, he policy ecommenda ions
o mains eam economics a e o en ema kably simplis ic, lacking such
awa eness.
Japanese socie y has seen many impo an p oblems in ecen yea s (e.g.
widening income inequali y, he end o inc easing non- egula employ-
men , he decline o local communi ies, e c.), bu i canno be denied ha one
impo an cause has been he neolibe al (compe i ion- o ien ed) policies ha
we e pushed in he pas du ing he Jun- ichi o Koizumi adminis a ion (2001–
2006) and pe sis ed he ea e in a ious o ms.
The iew o socie y ha does no lead o hese policy ‘ ailu es’ is he social
model ( h ee- sec o model) de ailed in he p e ious chap e . We will now
show in u n ha he h ee- sec o model, as an al e na i e iew o socie y o
mains eam economics and policy heo y, has a s ong and clea basis in e ms
o some o he basic p inciples o es ablished economic policy.
7.2 Suppo by basic p inciples o economic policy
In his sec ion, we shall ocus on a a he igo ous (bu as in ui i e as possible)
discussion o he heo e ical basis o unde s anding he economy by h ee
sec o s.3
Theo e ical bases o he h ee-sec o model 135
Table 7.1 Con as ing public policy: mains eam economics s. b oade pe spec i es
Public policy o mains eam
economics (p e ailing
a gumen s)
C i icism o he mains eam
economics policy and he desi able
public policy based on a b oade
pe spec i e
Ag icul u al
policy
・ Japanese ood p ices
a e signi ican ly high by
in e na ional s anda ds
( ice is mo e han h ee
imes highe han in he
USA).
・ The elimina ion o high
a i s on Japanese ice
impo s would imp o e
he li es o he Japanese
people.
・ Economis s unde s and
ci izens only in e ms o
consume s and p oduce s
(e iciency) hus igno ing o he
measu es ( ai ness, ood sa e y,
cul u e, e c.).
・ The non- plas ici y o
ag icul u al land, he pe spec i e
o ood secu i y, and he cul u e
o ice paddy cul i a ion need o
be aken in o accoun .
En e p ise
policy
・ The ul ima e holde s
o a company a e i s
sha eholde s and he e o e
he alue o he company
can be measu ed by he
o al alue o i s sha es.
・ S ock ading should be
ully libe alised, ega dless
o he holde , selle , o
ading mo i es.
・ The company’s employees a e
ega ded as me e ac o s o
p oduc ion and no as human
beings wi h pe sonali ies.
・ O ganisa ional bodies and
goods canno be equa ed. I is
necessa y o unde s and ha
a company is a place also o
he de elopmen and g ow h
o human capaci y and an
o ganisa ion ha con ibu es
b oadly o socie y.
Employmen
and wage
policy
・ In companies, he amoun
o emune a ion ecei ed,
whe he by di ec o s
o o dina y employees,
is decisi e o hei
willingness o wo k.
・ The company should
in oduce a p o i -
linked sys em o
execu i e emune a ion
and a me i oc a ic/
pe o mance- based
wage sys em o gene al
employees, as well as a
labou ma ke in which
employees can change
jobs a any ime.
・ Igno es he condi ions o uni y
and s eng h as an o ganisa ion.
Leads o dispa i ies in he
wo kplace, an inc ease in he
numbe o non- pe manen
employees, a e ea om a
sense o uni y and a loss o
psychological s abili y.
・ The meaning o wo king in
an o ganisa ion should ake
in o accoun no only money
and p omo ion, bu also he
blossoming o abili ies, a sense
o achie emen , a sense o uni y,
and a sense o con ibu ion o
socie y.
No e: The con en o he p e ailing a gumen s is based on Noguchi (2007) o ag icul u e, A ai
(2007) o en e p ises, and Naka ani (2000) o employmen and wages, espec i ely.
Sou ce: Okabe (2011a) able 3.
136 O e iew o economics o humani y
7.2.1 Ra ionale o a h ee- sec o iew: an explana ion by combining
he h ee p inciples o economic policy
The heo e ical basis o a h ee- sec o al iew o socie y can be shown om
h ee heo e ical p oposi ions in economic policy heo y. They a e: (a)
Tinbe gen p inciple, (b) Mundell’s heo em, and (c) Poole’s p oposi ion.4
As an ini ial and in ui i e explana ion, i is possible o explain he alidi y o
he h ee- sec o al model by simul aneously applying wo impo an p inciples
(Tinbe gen’s p inciple and Mundell’s heo em) conce ning policy goals and
policy ins umen s (Okabe 2017a: 103– 104).
In o he wo ds, hese wo p inciples can be used oge he o explain ha : (1)
e en i one policy ins umen (o policy ac o ) is he mos e ec i e (absolu e
ad an age) o any o se e al policy goals, i is no possible o achie e all (se -
e al) goals by i sel (Tinbe gen’s p inciple) and ha o he policy ins umen s
(o policy ac o s) need o be in oduced addi ionally. I can hen be de i ed
ha : (2) in such cases, i is necessa y o alloca e policy ins umen s (o in ol e
he mos sui able implemen ing ac o s o achie e he goals) based on he p in-
ciple o compa a i e ad an age o achie ing he goals (Mundell’s heo em).
In o he wo ds, hese wo policy p inciples show ha socie y will be be e
and mo e e icien a sol ing some p oblem i h ee sec o s a e in ol ed in
he esponse han i wo sec o s a e in ol ed. Le us now go in o his a li le
u he .
7.2.1.1 Tinbe gen p inciple
The Tinbe gen5 p inciple can be shown as ollows (Tinbe gen 1956: 53– 55).
Tha is, an economic sys em can gene ally be unde s ood o con ain ou ypes
o a iables
xi: economic a iables ha a e no a ge s (i ele an a iables)
yj: a ge economic a iables
zk: policy ins umen a iables (which can be manipula ed by he policy
au ho i y)
ul: exogenous a iables ha canno be manipula ed by he policy au ho i y.
The numbe o hese ou ypes o a iables, in o de (i each is deno ed by a
capi al le e ), is I o i ele an a iables, J o a ge a iables, K o policy
ins umen s, and L o exogenous a iables ha canno be manipula ed by
he policy au ho i ies. The s uc u e o he economy is also assumed o be
ep esen ed by N equa ions as ollows:
φn (xi, yj, zk, ul) = 0, n = 1, 2, ..., N.
I he model is consis en , hen he numbe o equa ions equals he numbe o
economic a iables. In o he wo ds, I + J = N (i his we e no he case, hen
Theo e ical bases o he h ee-sec o model 137
his economic sys em would ha e no solu ion). The economic policy p oblem
in his simples model is no hing mo e han inding he alue o he policy
ins umen a iable zk (bu xi is an unknown, while yj is a gi en alue a his
s age). The e o e, he e a e (I + K) unknowns.
Now, i he numbe o means equals he numbe o goals, hen K = J.
Since i can be assumed ha he numbe o unknown economic a iables (I)
equals he numbe o equa ions (N), his economic sys em will ha e a solu-
ion. In o he wo ds, ‘in achie ing a policy goal, he same numbe o policy
ins umen s co espond o he goal’. This is one o he basic p oposi ions o
economic policy, which in la e yea s came o be known as Tinbe gen p inciple.
7.2.1.2 Mundell’s heo em
While he abo e Tinbe gen p inciple is he mos undamen al p inciple o
economic policy, he e is one p inciple ha is complemen a y o i . Tha is he
p inciple known as he Mundell’s6 heo em. This is a p inciple ha was ini ially
se ou in Mundell (1962), which discussed he na u e o economic policy
unde a ixed exchange a e sys em,7 bu was es ablished as a mo e gene alised
policy p oposi ion in a subsequen pape (Mundell 1963).
I is he p inciple ha i a policy objec i e is o be achie ed, e en i i can
be done by se e al di e en policy ins umen s, ‘policy ins umen s should
be used in combina ion wi h he policy objec i e on which hey ha e he
s onges impac ’ (Mundell 1962: 76). Mundell used o call his he ‘p inciple
o e ec i e ma ke classi ica ion’. I his p inciple is no ollowed, he economy
will end ei he o each equilib ium wi h oscilla ions o o des abilise (ibid.).
A e p esen ing his p inciple, in he same pape Mundell poin s ou ha
‘ he e a e wo impo an p inciples in economic policy’ (ibid.: 76– 77) and
ha a mo e gene al p inciple is Tinbe gen’s p inciple because ‘ o achie e a
ce ain numbe o independen policy objec i es, he e mus be a leas he
same numbe o policy ins umen s’.8 Tha is, Mundell loca es Tinbe gen’s
p inciple i s (ibid.: 77), because he ecognised he Tinbe gen p inciple as a
p oposi ion abou whe he an equilib ium solu ion exis s o he economic
sys em when implemen ing a policy, and whe he i s alue can be de e mined.
Howe e , he con inues, whe he o no we can ul ima ely ge he e is ano he
ma e , and o his, he poin ed ou ha i is necessa y o cla i y he dynamic
pa h o he economic sys em, and a gued ha he p inciple o e ec i e ma ke
segmen a ion (Mundell’s heo em) p o ides p ecisely his answe . Thus, he
concludes ha Tinbe gen’s p inciple and Mundell’s heo em a e ‘a necessa y
companion’ (ibid.: 77).
7.2.1.3 Poole’s p oposi ion
The abo e wo p oposi ions on policy heo y implici ly assume ha he e is a
eliable ela ionship (leading o eliable ou comes) especially be ween public
policy and i s ou comes. Bu Poole (1970) d ew a en ion o he exis ence