The Capital in Social Capital: An Austrian Perspective

By Chalupnicek, Pavel | The American Journal of Economics and Sociology, October 2010 | Go to article overview

The Capital in Social Capital: An Austrian Perspective


Chalupnicek, Pavel, The American Journal of Economics and Sociology


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 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. …

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