Link to article about article:

How the social network shapes the economy 

By Ross Gittins

http://www.theage.com.au/news/Ross-Gittins/How-the-social-network-shapes-the-economy/2005/04/22/1114152322760.html

Link to actual 35 page academic article:

The Impact of Social Structure on Economic Outcomes

By Mark Granovetter
http://www.stanford.edu/dept/soc/newsite/people/faculty/granovetter/documents/JEPGranovetterMay2004version.doc

In his academic article, Granovetter presents an interdisciplinary approach to economic theory, focusing on the contribution of sociologists to the field of economics. He argues that the economic events do not happen in a vacuum, separate from social influence. (Which is basically the idea this whole course is founded on!). If an applicable, reliant theory is to be made, then sociology must be factored in.

Social networks affect the economy for three reasons. Firstly, humans rely more on information from people they know rather than impersonal sources. Second, as social animals, humans reap a system of reward and punishment from others around them. Third, social networks cultivate a system of trust that produces actions contradictory to what would be predicted by a purely economic model.

The article also presents four core principles that tie economy and sociology together. First, is the principle that the denser a network, the more likely it is to develop and internalize trust and a set of social norms. This is relevant to the free-rider problem of economics, as such a problem is more likely to arise the larger, and thus less dense, a network gets. Second, is the idea of the strength of weak ties (that we’ve all read about). Related to this principle is the significance of structural holes, in which individuals with ties that bridge otherwise separate networks are able to exploit structural holes. Lastly, is the social embeddedness of an economy, which is the extent to which economic actions are intertwined by non-economic actions. Social embeddedness can express itself in many ways. For example, social networks produce an economic byproduct when relatives and friends help one another find employment for non-economic motives.

Thus, Granovetter proves that social networks and economy are inextricably tied. This makes sense, because even the biggest theory extrapolates from the individual level. And an economic theory that extrapolates from an isolated individual that only considers personal economic payoffs is built on an inaccurate base. Humans are fundamentally social animals, and thus, this aspect of our lives will affect what we do economically. Social networks can help streamline the economy, cutting costs for advertising by replacing it with word of mouth and recommending new employees.