In the long run, individual and aggregate well-being depend on both material growth and social and cultural development. Although this has, perhaps, always been true, systematic and sustained material growth has been absent for most of human history, with some positive and negative exceptions (see, for example, Goodfriend and McDermott, 1995). Instead, since the Industrial Revolution a significant fraction of the world has kept growing at a positive rate, accumulating physical capital, developing better and better technologies and accumulating human capital. Indeed, these processes have captured most economists' attention, whereas social and cultural dynamics have remained at the margin of economic analysis. In recent years, however, an increasing number of economists have begun to take into consideration the interplay between material growth and social development.
When material needs have been satisfied to a substantial degree, as is the case in advanced economies, well-being depends to an increasing extent upon social factors, such as the social environment, individual relative position and social status, and the ability to construct and enjoy meaningful and satisfactory relations with other people. Social status has already received a great deal of attention by economists. Here, instead, we focus on the social environment and the enjoyment of social relations, building on the notions of ‘social capital’ and ‘relational goods’.