Social values and economic dynamics

Abstract

Social values/belief systems can be viewed as a stock of non-productive ideas that are collectively shared in a non-rivalrous way and evolve through experience/participation at the aggregate social level. While they are separate from the stock of scientific ideas that are essential to production, history shows that social values and scientific ideas are interdependent. This paper explores the relationship between social values and long-run growth in an endogenous growth framework and highlights the underlying mechanism. We view both scientific ideas and social values as some sort of social capital that accumulates through a society׳s aggregate experience and also as goods that generate utility flows with “rational addiction” or “habit formation” at the social level when combined with individuals’ time investment (learning-by-doing). We demonstrate the mechanism through which social values affect long-run economic growth. In particular, (i) we derive the conditions under which either the economy grows with social values as in the usual modern economies or it is dominated by social values with economic distress; and (ii) finally we show the applicability of the model to some episodes.