The CAPITAL in Social Capital: An Austrian Perspective ajes_742 1230..1250 By PAVEL CHALUPNICEK* ABSTRACT. In recent decades economists started discovering the importance of the social dimension of economic interactions. Contemporary economics has borrowed several sociological concepts for its own use, among the most important being the concept of social capital. However, this transfer within disciplines did not occur without a loss—the nature of social capital in economics remains confused and obscure. The purpose of this article is to clarify it, specify the possibilities for its use, and discuss their limits. It is argued that economics once also possessed a view of human beings that was more “socialized” than the modern neoclassical Homo oeconomicus, and that this more “socialized” view still exists in the Austrian school of economics. Because this tradition of economic thought has also developed an elaborate capital theory, it can serve as an ideal source where we can look for inspiration in the current social capital debate. First, social capital is (re)defined along these lines as an individual’s asset connected with recognized reciprocity (as opposed to interactions usually classified as “altruistic”). Then major critical claims about the relation between social and physical capital are answered and the connection between social capital, trust, and social norms is described. *The author is an Assistant Professor at the Department of Institutional Economics, University of Economics in Prague, Nam. W. Churchilla 4, 13067 Prague 3, Czech Republic. E-mail address: [email protected] Dr. Chalupnicek’s interests include the study of altruism in economics, economics of religion, and spontaneous social institutions based on trust. He has recently co-authored an article in the Independent Review (USA) on private provision of sick insurance by so-called Friendly Societies in 19th-century England. He would like to thank Prof. Peter J. Boettke (George Mason University, USA), David Lipka (University of Economics in Prague), Lukas Dvorak, participants of Association for Private Enterprise Education (USA) 2008 Annual Meeting, and two referees of this journal for their comments on earlier versions of this article. All the usual caveats apply. Financial support by the Grant Agency of the Czech Republic (grant no. GA402/07/0137) is also acknowledged. American Journal of Economics and Sociology, Vol. 69, No. 4 (October, 2010). © 2010 American Journal of Economics and Sociology, Inc. The CAPITAL in Social Capital: An Austrian Perspective 1231 Introduction Given the boom of literature on social capital in recent decades, it almost seems as if social capital was the solution to almost any social problem imaginable. But as it has been said in a similar context, “[t]his almost perfect generality should sound an alert” (Liebowitz and Margolis 1994: 134), if a concept starts to explain too much, it might not really explain anything. Indeed, “blurred” or “fuzzy” are some of the adjectives often associated with the concept of social capital (Ostrom and Ahn 2003). Its methodological and conceptual ambiguity became one of the main sources of criticism among sociologists (Sobel 2002). However, even perhaps its most widely quoted critics admit that there is something about social capital, once the content of this term becomes clearer, that gives it the potential to be a very useful tool even in economic analysis (Arrow 1999; Solow 1999). Our current situation seems to be very similar to that of 1950s and 1960s, when human capital was starting to make its way into economics and had to face similar objections (Schultz 1961). Furthermore, as noted by Theodore W. Schultz, one of the pioneers of human capital, without taking human capital into account public policies tend to be suboptimal, or in his words “so far from the mark” (Schultz 1961: 7). Similarly, today’s discussions about the nature of social capital have similar importance not only for academia, but also for policymakers. Nathan Glazer, one of the co-authors of American social policy in the second half of the 20th century, among others, claimed that the “breakdown of traditional ways of handling distress . . . located in the family primarily, but also in the ethnic group, the neighborhood, the church” (Glazer 1988: 3), meaning in the structures that are usually associated with the existence of social capital. That is one of the main reasons for active state social policy. But the active role of the state to the disappointment of many “seemed to be creating as many problems as we were solving” (1988: 2) and “efforts to deal with distress are themselves increasing distress” (1988: 3; see also Murray 1984). Important attempts to introduce social capital into economics have already been made. Most famously, Gary S. Becker (1996) used the 1232 The American Journal of Economics and Sociology term “social capital” to provide an explanation of social relations, mainly within a family. Some more recent contributions include works by Peter T. Leeson (2005, 2007) and Carilli et al. (2008), who provide original insights mainly regarding various public policies, but do not deal with social capital in depth. They rather accept ready-made definitions from sociology with all their lack of clarity, so they put their conclusions at risk because of this ambiguity. The problem of simply transferring concepts from sociology to economics is related to the different methodological foundations of the two disciplines. While most sociologists have no problem with approaching social capital from the perspective of methodological collectivism, leading to what became known as the “oversocialized” view of sociology (Granovetter 1985), for most economists this approach is unacceptable. This article argues that the concept of social capital has been present in economics for quite some time, though not under its current label, and that it was mainly the overly simplified Homo oeconomicus view of neoclassical economics that led to “undersocialization” of the discipline (Granovetter 1985) by pushing the individuals’ social environment into the background. This article looks at the often neglected works of the so-called Austrian school of economics thatflourished in the first half of the 20th century, and is apparently still gaining more importance in economics recently, together with other heterodox approaches.1 It is interesting to note that this tradition achieved its greatest recognition for its capital theory and monetary theory of business cycles. Also, it has never accepted the Homo oeconomicus perspective, and it has always stressed that human beings cannot be treated as atomized units (this emphasis is what Ludwig von Mises referred to as “praxeology,” a social science integrating partial findings of economics and sociology). Thus, it is argued in this article that if we take the capital part of social capital more seriously than just a mindless metaphor, then the Austrian tradition is a place where original insights enriching our contemporary debate can be found.2 The rest of the article is divided in four parts. The next section provides a (re)interpretation of the concept of social capital from the aforementioned perspective. The subsequent section answers the most important objection raised against social capital by several The CAPITAL in Social Capital: An Austrian Perspective 1233 economists. It is followed by a section dealing with social capital and its relation to trust and social norms. The final section concludes. The Nature of Social Capital French sociologist Pierre Bourdieu, who is usually credited with the early elaboration of the concept of social capital, defined it in 1986 as an attribute of an individual in a social context. One can acquire social capital through purposeful actions and can transform social capital into conventional economic gains. The ability to do so, however, depends on the nature of the social obligations, connections, and networks available to you (Bourdieu 1986, cited in Sobel 2002: 139). One can feel a certain tension already present in this early definition—a tension between social capital as an asset of an individual, and the importance of its social context. This tension later led to two different perspectives on social capital (Portes 1998). One group of sociologists views social capital from the perspective of an individual. This is an approach taken perhaps most prominently by James S. Coleman (1988, 1990) who treats social capital as the amount of an individual’s obligations and expectations that “can be conceived of as a ‘credit slip’ held by A to be redeemed by some performance by B.”3 So in his case, the parallel of social and other kinds of capital is clear and straightforward. The second group stresses the importance of “embeddedness” of an individual in his/her social environment. This group views social capital rather as “features of social organizations, such as networks, norms, and trust, that facilitate action and cooperation for mutual benefit“ (Portes 1998: 18). Perhaps the best known member of this group is Robert D. Putnam (1993, 2000). His approach was criticized by Portes because of its tautological character: “As a property of communities and nations rather than individuals, social capital is simultaneously a cause and an effect” (Portes 1998: 19). This transition from individual to collective (“embedded”) asset or resource was “never explicitly theorized, giving rise to the present state of confusion” (Portes 2000: 3).4 Some authors try to reconcile these two approaches by introducing an “all-inclusive” definition of social capital. For example, Ostrom and 1234 The American Journal of Economics and Sociology Ahn (2003: xvii) place individual properties such as “trustworthiness” in the same basket with “networks” and “institutions”—all these are viewed as “forms of social capital.” Still, it seems that this very broad definition does not add much to the clarity of the concept. The perception used in this article is similar to Coleman’s, but it goes even further in stressing the capital dimension of social capital. Social capital is an individual’s (or private) asset and, like other forms of capital, it is created by investing scarce resources in the present to obtain certain benefits in the future.5 An acting individual has a choice of achieving his/her goals—he/she can try to achieve them directly, he/she can try to accumulate some physical or human capital, or he/she can enter into a relationship with somebody else and achieve his/her ends through the accumulation of social capital.6 In order to be created, any capital requires the input of certain scarce (valuable) resources. This can include goods, money, one’s labor, or—perhaps more importantly in the case of human or social capital—time, or more precisely, the opportunity costs associated with time spent on the accumulation of capital (Becker 1993: 38). We should also distinguish between capital goods and capital, “the former refer to physical items. . . . Capital, by contrast, has no physical measure. It refers to the total value of all of the capital goods under consideration” (Lewin 1996: 8). While physical capital can be easily materialized in physical capital goods, human or social capital is usually not observable in such a direct way because it is embodied in persons themselves. Human capital investment changes the properties of one’s mind through newly acquired knowledge. Social capital investment changes the properties of minds of people in the social relation and their expectations of one’s future conduct. We also cannot say that social or human capital is homogeneous “as drops of water are in a lake” (Lachmann 1977: 198). Like physical capital goods, social and human capital has a certain structure that is use specific. Human and social capital is accumulated with some purpose in the actor’s (investor’s) mind. If his/her expectation about the future usability of his/her capital stock is wrong, then this capital needs to be converted for some other use. In some cases, capital is inconvertible and the investment is futile under the new circumstances. The CAPITAL in Social Capital: An Austrian Perspective 1235 “Once we abandon the notion of capital as homogeneous, we should therefore be prepared to find less substitutability and more complementarity.”7 Two different physical capital goods can be substitutes or complements. Similarly, investments in different people can be either substitutes (provided these persons can be substituted from the perspective of an existing plan, for example, achieving a certain goal with their help), or complements. The relations of substitutability or complementarity exist also across various kinds of capital. For example, it is a well established fact in the sociological literature that there is a positive correlation between the stock of social and human capital owned by a person. In other words, these two kinds of capital can be complementary (Coleman 1988; Lin 2001). At the same time, various kinds of capital can be substitutes—for example, individuals without physical and human capital can accumulate social capital to ensure their survival.8 Still, there is one fundamental difference between social and other kinds of capital. Physical or human capital can be accumulated by the investor personally, without any interaction with other people. Robinson Crusoe can make his own fishing-rod (accumulate physical capital) and learn how to use it by trial-and-error (accumulate human capital). The creation of social capital constitutes investment in other people and as such requires at least two interacting individuals.9 This is the social dimension of social capital. The reason for capital is accumulated is the expectation of a certain income yielded in the future. In general, this income can have two forms: a form of an increase in productivity of one’s efforts, or it can lead to the achievement of ends that would not be accessible otherwise. This is also true in the case of social capital.10 Person “A” may want to invest in person “B” in order to be able to use the resources that “B” owns—his/her physical, human, or social capital. In the latter case, “B” serves as a “stepping stone” to get to the resources available through “B”’s social network. Thus, the more resources “B” owns—either directly or indirectly (through “B”’s social capital)—the more interesting of an investment he/she will be for “A”. Social capital is an asset that is created by investing scarce resources. These resources are invested by person “A” in person “B” 1236 The American Journal of Economics and Sociology and constitute a claim of “A” on “B” that “B” will behave in a certain way in the future, and an obligation of “B” towards “A” to behave in this way. The sense of reciprocity and mutual recognition of this claim/obligation is crucial. Without them social capital does not emerge. We can draw a simple scheme of possible interactions between “A” and “B,” when “A” is doing a favor for “B” (providing some scarce resources to “B”), depending on whether “A” and/or “B” feel that a claim/obligation has been created by this action. Table A B: “I am obliged” (recognized reciprocity) B: “I am not obliged” (not recognized reciprocity) A: “B is obliged” Cell 1: creation of Cell 2: “malinvestment” (expected social capital by A reciprocity) A: “B is not obliged” Cell 3: refused Cell 4: accepted (altruism) altruism altruism Social capital is created only in one of the four cases—in the situation represented by Cell 1—if and only if both “A” and “B” recognize the action by “A” as “investment.” The terms of the “contract” can be specified at the moment of investment, or the tacit or explicit contract can be left open for future specification. If “B” recognizes this obligation, social capital owned by “A” is created and lasts as long as “B” recognizes “A”’s claim, or until this capital is exhausted by the reciprocal action of “B.” But is it possible to talk about “ownership” of social capital in this case? An argument has been made that “[n]o one player has exclusive ownership rights to social capital” (Burt 2003: 9). If person “A” invested resources in person “B” and person “B” refuses to return this favor in the future, then the claim of “A” is lost (situation in Cell 2). But it should not be forgotten that ownership even in the case of physical capital is only a social norm that can be broken. The only difference is that in the case of physical capital this ownership is usually recorded The CAPITAL in Social Capital: An Austrian Perspective 1237 in some register and can be enforced by formal institutions, such as laws or courts, whereas in the case of social capital the ownership is usually based on informal rules or customs, and its enforceability depends on a particular setting of the social environment of “A” and “B” (North 1990). If they belong to the same community, it can still be possible for “A” to require that “B” behaves in a certain way to meet his/her obligations, if there is, for example, some third-party enforcement (such as loss of reputation of “B” among other members of the community). The second row of situations represents cases in which “A” is doing a favor for “B,” but does not expect reciprocity. This situation can be called “altruistic,” if altruism is defined as an action by “A” (in this case not an investor, but rather a donor) that costs “A” some scarce resources, but “A” is expending them without the expectation of reciprocal action by “B” (a donee). Strictly speaking, these options are not directly relevant for social capital creation, but it is important to include the opportunity of altruistic behavior on “A”’s part in this scheme in order to explain some questions raised by the current social capital research.11 Again, there are two possible scenarios. “B” receives the gift and accepts it without any further conditions (Cell 4). The transaction is finished. “A” has received a direct satisfaction from this act, which is in this sense similar to consumption. Thus, we can say that the distinction between “social investment” and altruism is the one between saving and consumption. Once scarce resources are given away by “A” in an altruistic transaction, they cease to exist for “A” and are not transformed into any future benefits.12 So, two transactions that are seemingly identical for an external observer (“A” is doing a favor to “B”) can have utterly different meanings for the parties involved— what matters is the subjective perception of the action by the actors themselves. An interesting case happens in Cell 3, where “A” is doing a favor for “B” with altruistic motives, but “B” refuses to accept it, for example, because being a subject of somebody else’s altruism is associated with some costs (in the form of shame or humiliation). “B” might think that he/she is obliged to pay “A” back in the future, but his/her attempt to repay “A” will very likely be refused by “A” (if “A” acted from altruistic 1238 The American Journal of Economics and Sociology motives).13 We get a conflict similar to the one in Cell 2, where expectations of both parties diverge. And again, the solution is preventing this misunderstanding by proper signals, and if signaling fails, by renegotiating the terms of the contract. In the previous analysis the possible ways of conduct of both parties were treated as ideal types, or as purely analytical categories. In reality, a mixture of motives can make it difficult to categorize a particular action. Take, for example, a case where a parent is expending resources on his/her child’s education. Is the parent investing, or rather “consuming”? If it is the former, what kind of capital is created? The answer depends on the context. It seems probable that for a child a part of the resources creates human capital (acquiring new knowledge by the child); the rest goes to the child’s consumption (pleasure of going to school). From the perspective of the parent, social capital between the parent and his/her child is created only if the parent expects some reciprocal action by the child in the future (for example, that the child will provide him/her with an income when the parent grows old) and when it seems likely that this expectation will be fulfilled. If it is not fulfilled, the parent’s expectation is proved wrong and he/she was in fact “malinvesting.” If this expectation does not exist at all, then the parent is just altruistic and is deriving direct pleasure from this expenditure (and thus “consuming” it, viewed from this perspective). The last point of this section relates to Granovetter’s (1973) well known argument about the “strength of the weak ties.” The case he presents is compatible with the view taken here. The level of social capital can be perceived as a continuum, and it may well be true that in some cases people prefer to have “strong” (or “thick”) ties (such as among family members) and in other cases only “weak” ties (such as among people who know each other casually), depending on the kind of resource the investor wants to achieve. For example, strong ties will be better to achieve physical capital or to borrow money, but it is expensive to maintain them. Weak ties are, on the contrary, relatively cheap to maintain, but they can serve only as a source of a specific kind of “cheap” goods, such as information (Granovetter 1973: 1371), that have low diffusion cost(especially in today’s Internet era). The CAPITAL in Social Capital: An Austrian Perspective 1239 Is Social Capital Really Capital? As has been noted above, some economists remain unconvinced by the parallel between social and physical capital.14 Arrow (1999: 4) argued that the creation of any kind of capital requires, among other things, “deliberate sacrifice in the present for future benefits” and that this condition is not met in the case of social capital because people join social networks “for reasons other than their economic value to the participants,” because “much of the reward for social interactions is intrinsic” (emphasis added). Here the distinction between investment and consumption plays a role—if one is joining a network purely because he/she gets pleasure from interacting with its members, such as inviting them for a coffee, he/she is expending his/her resources and gets direct satisfaction, but nothing else. Arrow is right that in this case no social capital is created. However, this does not preclude that the same action in a different context can create some obligation and therefore also some social capital, or that these two events can happen simultaneously. For example, we might join a network because it makes us happy, but at the same time we might think “What if it is going to be useful at some point in the future?” Also note that Arrow does not claim that all reward from social interactions is intrinsic. Solow’s objection is related to the nonmaterial nature of social capital and the problem of expressing it in some common denominator, as well as computing its rate of investment.15 Here we face the deeper problem of the differences between neoclassical and Austrian capital theories.16 Austrians such as Mises, Lachmann, and Hayek stress the fact that the analysis of capital can, and in fact should, be made in real terms because it helps in understanding the heterogeneous nature of capital and prevents confusion caused by changes in the value of a monetary unit. According to them, it is a fallacy to think that there is a stable common denominator for all existing physical capital goods, such as money, because the value of this denominator is changing in the dynamic environment of the economy, and thus it is impossible to be summed up to derive any meaningful conclusions. Even if we tried to measure the value of social capital in monetary units, for example, as the monetary equivalent of time and other 1240 The American Journal of Economics and Sociology resources spent on our activities generating it (omitting the problems with expressing these things in money terms), all we will know is that the (subjective) present value of social capital that we created is higher than the (subjective) value of the resources we had to give up. Otherwise we would not accumulate this capital and would rather use the resources in an alternative way. Another point raised by Arrow (1999: 4) is the question of interpersonal transfer of social capital. We can imagine a situation where “B” owes “A” a favor, and “A” owes “C” a favor of a similar value (for all participants), “A” can ask “B” to repay the favor to “C.” In this case, we can say that social capital (i.e., the obligation) was transferred from “A” to “C.” In some cases, where the tie of social capital to a particular person is too strong, the capital transfer can be difficult or impossible (for example, a successful merchant can hardly transfer his network of personal customers to his successor, if his business is based on some genuine ability that this successor lacks). But this is not just a problem of some conceptual difficulty with transferring social capital, but also the issue that the members of the network do not necessarily consider their old obligations of equal value as the newly created one. The final objection comes from Ostrom (1999: 179). She claims that the difference (besides those mentioned above) between social and other kinds of capital lies in the fact that “[s]ocial capital does not wear out with use but rather with disuse.” In other words, the more you interact with your friends, the higher the level of social capital you have. In the case of physical capital, the situation is exactly the opposite. The problem is that this objection is based on blending together “creation” and “use” of social capital. We can imagine a situation of purely using our stock of social capital without creating any new one—try, for example, to keep asking your friend for favors. If the friend is not an altruist, after some time he/she will not feel obliged anymore and he/she might refuse. This shows that the social capital has been exhausted. In this sense, social capital behaves as physical capital; that is, it is “worn out” with use. But Ostrom is pointing to a different dimension of the problem. As noted earlier, her concept of social capital is broader than the one presented in this article and it includes “trustworthiness.” Interacting with others can increase their trustworthiness for us and if it is considered to be a part The CAPITAL in Social Capital: An Austrian Perspective 1241 of social capital, then she is correct that the stock of social capital can increase with use. The next section explains why it may be useful to keep social capital and trust separated. Social Capital, Trust, and Social Norms Gambetta (1988) defines trust as a particular level of the subjective probability with which an agent assesses that another agent or group of agents will perform a particular action, both before he can monitor such action (or independently of his capacity ever to be able to monitor it) and in a context in which it affects his own action (Gambetta 1988: 217; emphasis in original). Trust seems to be an important element of actions regarding other people under conditions of uncertainty. For example, in cases where there is a time difference between our present action and an expected action by our partner. An investor in social capital (“A”) is deciding by comparing the value of present costs versus the present value of future benefits (discounted by his/her subjective discount rate) multiplied by his estimation of the probability that the other party (“B”) will behave in a way to fulfill “B”’s obligations. The element of trust in the case of social capital is so important because “B” is usually facing only soft constraints (informal contracts and rules) and can relatively easily refuse to provide repayment. Trust decreases transaction costs, thus making a higher amount of transactions possible and more likely to take place. But trust is not an obligation (social capital) in and of itself, but rather a feature of this obligation, our estimation of the credibility of this obligation for us.17 Ostrom is correct in that the more we transact with a particular person, the higher the level of trust among us (provided the other party proves its trustworthiness). But this is related to the amount of information we have about the other party, about the party’s performance in the past, to our increasing ability to read and decode information signals sent by this person, and so on. Also, as we get closer to each other over time, we will probably tend to have more common friends that can serve as another source of information besides our partner himself/herself (Klein 1997). 1242 The American Journal of Economics and Sociology However, including more and better information under the common label “social capital” could be misleading. Trust creates the potential for social interactions, but not any kind of obligation. We can believe person “B” is trustworthy, and as a result we might be more likely to interact with such a person, but if we decide not to do so, then the potential of trust remains vain. Uslaner (2002) argues that there are different kinds of trust. We approach strangers with “moralistic” or “generalized” trust that we acquire during our socialization in childhood. But at the same time, this “generalized” trust is modified in our interactions with particular people (increased or lowered) by a “strategic” component of trust based on our experience with that person. Uslaner’s “moralistic” trust stems from moral foundations and trusting people will tend to get more involved in “altruistic” activities, with trust being “by far the strongest predictor of both volunteering and giving to charity”(Uslaner 2002: 136). Therefore, trust boosts not only the creation of social capital, but also altruism because altruistic transactions also depend on trust—for example, giving money to a beggar depends on whether we can consider this person to be really in need, in other words, if we trust that this person really needs our money. So, it seems that trust is an underlying phenomenon that is connected with a great number of social activities, not only with social capital accumulation, and its nature is related more to information and signaling than to social capital itself. What might be misleading is that (“strategic”) trust can partly exhibit capital-like features—as noted above, it can, for example, increase over time (be “accumulated”). But in this respect it is probably more related to human capital (person “A” increases his/her knowledge about the expected behavior of person “B”), than to social capital.18 Coleman (1987) opened another broad topic related to social capital, namely the relation between social capital and social norms. He regarded social capital as an important tool of internalization of externalities of one’s action. For example, if “A” invested in “B” (“B” owes him a favor) and “A” is a smoker and “B” is a nonsmoker (to borrow one of Coleman’s examples), “A” will be more likely to accept “B”’s request to avoid smoking in front of him/her because he/she knows that he/she could lose his/her investment. Social capital makes The CAPITAL in Social Capital: An Austrian Perspective 1243 him/her internalize the external costs of his/her action that affect “B.”19 According to Coleman, this internalization mechanism leads to the creation of norms in situations “when actions have external effects [and] in those cases in which markets cannot easily be established, or transaction costs are high” (Coleman 1987: 140). Later these norms became generalized and, he argued, in this sense norms can be seen as a form of social capital. In a subsequent paper, Coleman went further to assert that social capital itself has certain “public good aspects” and that it is connected with positive externalities that accrue to all members of a given community or social network, not only to the “person or persons whose efforts would be necessary to bring them about” (Coleman 1988: S116). As a result, the amount of investment in social capital will in many cases be “below optimum.” The problem of the emergence of social norms is too broad to be treated here. It is generally agreed that certain norms initially created among individuals can become “generalized” norms, accepted by the vast majority of the community or even become formalized in law (Benson 1993; Hayek 1973). It is a task for “norm entrepreneurs” (Sunstein 1995) to discover the potential benefits of new norms. Good ways of doing things tend to be imitated; bad ways tend to be abandoned. Social capital relying on the self-interest of both parties can certainly serve as a source of social norms. However, one should be careful when talking about externalities of social capital. It is true that social capital has wide “network effects” (Liebowitz and Margolis 1994). For example, the more members join a network, the better for the current members because the pool of resources that are available to them is much wider, even if they did not have to do anything to attract these new members. However, Liebowitz and Margolis (1994) call network externalities “an uncommon tragedy” and suggest several solutions to internalize them. One way is the ownership of this network. The private owner then will be able to internalize all these benefits and to optimize the size of the network.20 The second way of internalization is what they describe as “internalizing through transactions.” Let us illustrate this process by the following example. Coleman (1988: S116) argued that many school associations among parents in the United States depend on the involvement of mothers without full-time jobs who devote their free 1244 The American Journal of Economics and Sociology time not only to organizing such activities for the benefit of their children, but also for the benefit of children of parents who are not so involved. If such a mother decides to take a full-time job, the benefits might be high for her, but other parents will suffer a loss. This is certainly true, but the case does not have to end here. The mother who decided to take the full-time job will now probably have less time to work for the school association, but she might (if she wants to keep the association alive), for example, donate some money as a compensation for her withdrawal and some other parent can accept the position instead of her. This seems to be a Pareto optimal improvement, as the school association after the change will be led by the parent with lower opportunity costs to his/her time. Therefore, such a transaction can eliminate the negative externalities of the act of withdrawal on other parents and yet increase the efficiency through improved division of labor among the members of the community. Conclusions The main problem of the contemporary discussions about social capital is certain confusion that is preventing this concept from playing a greater role in economic analysis. This paper offered some thoughts on possible clarifications of the concept of social capital, taking into account the similarities between contemporary sociological research and economic capital theory. The analysis suggests that the main problem of integration of social capital into mainstream economics stems from the overly narrow view of human beings traditionally endorsed by the neoclassical tradition. It is only in recent decades that neoclassical economists began to discover what had been missing in their analysis. But there are some other traditions of economic thought, namely, the Austrian School, that did not accepted the view of Homo oeconomicus and therefore can serve as an inspiration for mainstream economists to rediscover the “social roots” of their discipline. This is not to claim that the process of integration will be a smooth one. There still remain deep shadows that need to be illuminated. First, is the problem of measuring the level of social capital among individuals. Although we argue that this obstacle is not a fundamental The CAPITAL in Social Capital: An Austrian Perspective 1245 or conceptual one, without a proper way of measuring it, it might be difficult to bring the concept of social capital down to field applications. Second, is the significance of social capital for the creation and acceptance of social norms. There is no doubt that social capital matters to economists in a wide variety of fields.21 The policymakers now have to decide how to react to it. It is precisely in this field of policy implications that further research is most urgently needed. Notes 1. See Mises ( 1996), especially the introduction, and ( 1985 for the main principles of this approach, and Boettke and Coyne (2005) or Boettke and Leeson (2003) for its integration into contemporary social research. 2. See also a special issue of the Review of Austrian Economics on economic sociology and social capital (Vol. 21, No. 2–3, September 2008). 3. Coleman (1990: 306). This is perhaps the most explicit formulation of what he means by social capital. Other definitions he provides at different places are much less clear. See Lin (2001, especially Chapter 1) for an analysis of Coleman’s various definitions. 4. However, I do acknowledge that this tension between individual and social asset might be unavoidable, given the social nature of social capital and that it may present the greatest strength of the concept. I owe this point to a referee of this journal. 5. See Lachmann’s definition of capital: “Something is capital because the market, the consensus of entrepreneurial minds, regards it as capable of yielding an income” (Lachmann  1978: xv). One should, however, not be misled by the words “entrepreneurs” and “income.” In Lachmann’s perspective, everyone who deals with uncertainty can be considered an entrepreneur, regardless of his social position or the formal laws of a country. Income can also be understood in a broader sense than just in monetary terms—as “psychic” or “subjective” income (Mises  1996: 289 ff). 6. See Lin’s definition: “[S] ocial capital is an investment in social relationships through which resources of other actors can be accessed and borrowed” (Lin 2001: 24). 7. Lachmann (1977: 198), complementarity meaning “a property of means employed for the same end, or a group of consistent ends,” and substitutability “indicates the ease with which a factor can be turned into an element of an existing plan” (1977: 200). 8. Portes (2000) uses the term “fungibility” of different kinds of capital. For practical examples of substitutability of various kinds of capital, see, for example, Fafchamps (1992) or Cordery (2003: 103). 1246 The American Journal of Economics and Sociology 9. This explicit definition could evoke doubts on whether it is “moral” to treat other people as subjects in which one can invest (and perhaps treat them as means to someone’s ends). But one could also argue that this investment is not different from any other kind of voluntary exchange. If both parties involved, i.e., the investor and the subject of the investment, agree with this exchange, no moral problem arises. See also similar discussion in Schultz (1961) in a section eloquently called “Shying Away from Investment in Man” or in Becker (1993: 16). 10. There is plenty of evidence that social capital (though defined in a way broader that in this article) matters for economic performance—see Putnam (1993, 2000), Knack and Keefer (1997), or Peters and Stringham (2006). 11. For example, the claims that not every relation among people has to be purely calculated—see Burt (2003: 24) who asserts that “[e] fficiency mixes poorly with friendship. Judging friends on the basis of efficiency is an interpersonal flatulence from which friends will flee.” 12. The fact that the resources are in fact really consumed by “B” does not play any role here. What matters is that they cease to exist for “A,” but “A” derives satisfaction from it (which is what distinguishes a gift from a theft or a natural disaster). 13. The reason “A” is likely to refuse repayment is that if “A” attaches high (moral) value to altruism and “B” tries to “degrade“ “A”’s action to “mere” investment, “A” can feel offended. Also for external observers the real motivations of “A” are hidden and can be guessed only indirectly—from “A”’s reaction to the behavior of “B.” If “A” accepted repayment of “B,” it would show that “A” was not giving, but rather investing. 14. The critical remarks in this section are based on Arrow (1999), Solow (1999), and Ostrom (1999). But the criticism of the first two authors should not be exaggerated. Their reflections are very brief (3 and 4 pages, respectively) and Solow (1999: 6), warns that his notes should be “taken more as suggesting an agenda for discussion and research than as finished thoughts.” 15. “Any stock of capital is an accumulation of past flows of investment, with past flows of depreciation netted out. What are those past investments in social capital? How could an accountant measure them and cumulate them in principle?” Solow (1999: 7). 16. See Hayek (1941: 49, points 10A and 10B). 17. See Coleman (1988: S119), who says that social capital is made up, among other things, of “obligations and expectations, which depend on trustworthiness of the social environment” (emphasis added). 18. This is certainly not the only possible perspective; see, for example, Nooteboom’s (2002, especially Chapter 2) various approaches to trust. I thank a referee of this journal for pointing me to this source. The CAPITAL in Social Capital: An Austrian Perspective 1247 19. Social capital is thus a kind of “collateral.” Altruism has the same “internalizing” result—if “A” were altruist, he/she would refrain from smoking in front of nonsmokers who asked him/her to do so. 20. As many social networks have some geographical dimension, for example, in the form of residential communities, such an owner can be, for example, a developer of this area. 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