Chapter 6 moves from combatting capability shortfalls to expanding people’s capability development through capability gains. In addition to promoting people’s basic capabilities for what they can be and do, we can also promote their potential enhanced capabilities when societies are democratic and reduce social inequality. I argue this calls for envisioning the economy as a capability generation process rather than as income generation process (or preference satisfaction process) as the mainstream sees it. I address the relationship between democracy and capabilities, explain democracy in the social contract tradition as a system of public reason, discuss the nature of collective capabilities in terms of the idea of people forming collective intentions, and argue that this all entails seeing democratic societies as “open political systems” that allow for constant innovation and evolution in how diverse kinds of people settle upon and consent to rules that govern the decision-making practices they find functional to living together. Finally, I close by arguing that this is all inconsistent with the mainstream conception of private subjectivity. I return to the idea of a person’s self-narratives as a personal identity capability and suggest understanding it requires we rethink how subjectivity is socially embodied and socially situated – a topic taken up in Part III.

Chapter 3 links context-dependent choice with what has recently been called in economics the “reconciliation problem” between positive and normative economics, and argues that efforts to solve that problem have led to a number of different strategies for reconstructing economics’ individual conception. It first reviews the mainstream’s “inner rational agent” attempt to preserve Homo economicus and then contrasts two broad strategies for reconstructing economics’ individual conception based on opposing views of individual autonomy: an “internalist” view that makes it depend on private subjectivity, and an “externalist” view that makes it depend on economic and social institutions. The chapter reviews four, recent strategies in the literature which take the “externalist” view and move toward a socially embedded individual conception. All four make ability to adjust part of what people are, but all four remain attached to the idea that individuals are only made up of preferences. Thus, I argue they fail to explain how people are autonomous individuals able to choose and act freely.

The book’s closing Chapter 9 on change in economics begins with an examination of the methodological problem of explaining what counts as change, and argues change in economics needs to be explained in terms of economics’ relationships to other disciplines. It argues that economics’ core–periphery structure works to insulate its core from other disciplines’ influences upon it, minimizing their influences. This raises the question: Can other disciplines influence economics’ core and potentially produce change in economics? To investigate this question, the chapter develops an open–closed systems model of disciplinary boundary crossings and argues that economics’ core is only incompletely closed and consequently its adopting other disciplines’ contents can change its interpretation. Using the different forms of relationships between disciplines distinguished in Chapter 7, mainstream economics’ relations to other disciplines are argued to currently be interdisciplinarity, but may also be unstable and can break down. When and under what circumstances? Moving from what happens within social science, two sets of external forces influencing change in economics – change in how research is done and historical changes in social values and social expectations regarding what economics is and should be about – are argued likely to increase boundary crossings between economics and other disciplines, undermine the insularity of its core, and move economics toward being a multidisciplinary, more pluralistic discipline. What would then be especially different about economics would be that individuals are seen as socially embedded and an objective economics is seen as a normative, value-entangled science.

Chapter 4 lays out the book’s adaptive, reflexive capability view of socially embedded individuals. An important reason we ought to see people as adaptive is that this provides a basis for explaining how they make choices and act in changing, often highly uncertain environments – large worlds rather than small Bayesian ones. When we accept that choice is context-dependent, we need to be able to explain individuals’ behavior in the most demanding circumstances they can face. An implication of this framing is that, as in Simon’s procedural rationality view, behaviorally speaking there is really no maximization – only continual adjustment over time. To capture all this, I use a stock flow, state description/process description characterization of adaptive individuals, and then model their behavior more specifically as a capability choice/action capability pattern of behavioral adjustment that works via a reflexive feedback loop. Given that this individual conception also needs to satisfy the two identity criteria I used in Part I to evaluate the standard Homo economicus individual conception, I then show how an adaptive, capability individual conception successfully individuates people as distinct and independent. In light of how undemocratic economic and social institutions limit people’s capability development, I also discuss the circumstances under which they can be reidentified as the same individuals over time.

Chapter 1 provides philosophical foundations for the arguments of this book in discussing the issue of scientific objectivity in economics. It criticizes a closed science, “view from nowhere” conception of economics, and defends an open science, “view from somewhere” conception of economics as an objective science. The first conception is ascribed to current mainstream economics, is associated with its principle practices – reductionist modeling, formalization, limited interdisciplinarity, and value neutrality – and has as its foundation the abstract Homo economicus conception. Two problematic consequences of these practices are value blindness regarding the range and complexity of human values; fatalism regarding human behavior in employing a tenseless rather than tensed representation of time. In contrast, the principle practices of an open science, “view from somewhere” conception of economics as a science – complexity modeling, mixed methods, strong relationships to other disciplines, and value diversity – provide the foundations of a socially and historically embedded individual conception. The chapter closes with discussion of the question: Might mainstream economics be a science bubble?

Chapter 8 takes up what the subjectivity of socially embedded individuals involves. On the externalist view of individual autonomy, subjectivity is an embodied subjectivity because institutions and social relationships affect people’s choices and actions. To explain this idea, the chapter reviews the situated cognition and the embodied and distributed cognition literatures in cognitive science and psychology to explain the connection between social embeddedness and subjectivity. It then returns to the capability conception of individuals and what individual and personal identity involves. Using a two-level view of people’s capabilities, it argues that socially embedded individuals develop first-order capabilities regarding specific kinds of things that they can be and do and also a second-order self-concept or self-narrative capabilities in conjunction with one another, and rely on the latter to evaluate themselves in relation to their capability development. This discussion draws on the thinking of developmental psychologist Carl Rogers. How, and the extent to which, this understanding of individuals allows us to explain them as distinct and re-identifiable individuals closes the chapter.

Drawing on Putnam’s famous fact–value entanglement argument, Chapter 7 shows how economics is inescapably value-entangled, and argues that while economics is an inherently value-laden discipline it may still be an objective one. It describes economics’ value structure as being anchored by its main normative ideal shared across different approaches, individual realization – what most people in the discipline believe is most valuable and good about human society and characteristic of human nature. It compares two competing interpretations of what that ideal involves – one in mainstream economics and one in capability economics – distinguishing them according to the different additional values regarding what well-being involves, they adopt to give content to the individual realization ideal. It then evaluates these two approaches according to whether their different value structures are consistent – an analysis I characterize as value disentanglement. After this, the chapter turns to a general framework for ethics and economics – or ethics in economics – distinguishes four different forms of disciplinary relationships between economics and ethics, and argues that while cross-disciplinarity best describes the current status of economics and ethics, transdisciplinarity represents an aspirational conception of what an objective, value-laden economics ultimately requires.

Chapter 5 turns to social embeddedness, describes this in terms of two kinds of social identities people have, and explains how a world stratified by social groups produces two kinds of shortfalls in the capability development of people in disadvantaged social groups. First, a microlevel mechanism, social group stigmatization, or social identity stereotyping operates in relational social identity settings, limits stigmatized individuals’ ability to develop their capabilities, and results in what I call capability devaluations. Second, a macro-level process, sorting people over club goods and common pool goods types of social economic locations, produces social group inequalities especially by race/ethnicity and gender, limits lower ranked groups’ capability development, and results in what I call capability deficits. How these two kinds of capability shortfalls combine and reinforce a hierarchical ordering of social groups is explained using a basic complexity theory analysis from Simon. Combatting these two capability shortfalls – motivated by the goal of creating nonhierarchical, democratic societies that promote individuals’ capability development irrespective of social identity – is associated with policies to eliminate social discrimination in the case of capability devaluations and to advance social group reparations in the case of capability deficits.