// what do you think?


The Relationship Between Social, Human and Financial Capital

Maybe I’ve been reading too much Physics and their quest for the Grand Unifying Theory or maybe I’m suffering from a little bit of delusion and grandeur but I’m calling this the Grand Unifying Theory of Economics (cue Econ PhD’s the World over to rip it apart).

The Grand Unifying Theory of Economics

By looking at Capital and Capitalism more broadly than we do today I think we can explain the changes in the World around us and more to the point what’s happening with social media.

If we look at all three types of Capital; Social Capital, Human Capital and Financial Capital all as real Capital then we should be able to apply the theory of Capitalism to them. But if we take one more step back then it stands to reason that all of these types of capital should already be effected by the forces of Capitalism.

Instead of just hypothesizing about how we could use them better, shouldn’t we first be able to see their effects by looking at what has already happened historically? I think so. Let’s give it a try shall we? Let’s start by breaking down the markets cycles of boom, bust and recovery.

What drives a market boom? It’s typically some sort of advancement in technology or process innovation. These advances typically replace some of the costs associated with Human capital. From the assembly line to the IT revolution to the Internet, these advancements allow us to “do more with less.” (A favorite phrase in corporate America meaning, do more work with less people.)

This automation of human output allows us to focus on higher function outputs. Meaning we do more white collar jobs and less blue collar jobs. The rise of knowledge workers has required us to specialize. We are no longer generalists with a lot of experience an a specific industry, we have become experts in a type of job and can apply it across almost any industry.

This specialization fragments our interests. We start going to specific universities with even more specialized programs. Even as professionals we attend specialized workshops and highly specialized professional organizations. These more costly universities and specialized trainings allow us to earn a higher income but it also costs more to maintain which causes us to work harder to maintain.

These advances in technology create new products which stimulates demand in the market. As the financial markets grow corporations require more Human Capital, usually in the form of knowledge, to keep up with demand. Remember when we previously discussed the issue of scale in corporations? The only way large companies currently have to “efficiently” extract knowledge from its workforce is through email and meetings. We have created a system that extracts Human Capital without creating any Social Capital. This may be efficient for the corporation but it’s exhausting for the individual.

We have been producing workers who are financially better off than they were but emotionally and mentally drained. With their increase in finances (and usually with credit against that increase) they move further out of the city and buy houses where they don’t know their neighbors. Because they come home from work taxed of their Social Capital yet too tired to invest in more they have increasingly been indulging in the social equivalent of high fructose corn syrup laden candy; broadcast media, namely television.

TV gives the illusion of interaction and entertains us without taxing us. Along with the brain candy we get commercials which continues to spur our spending habits. All of this increased spending pushes us to work harder for that next raise or promotion.

Living in the suburbs and only interacting with people who share our now highly specialized interests our Social Capital now lacks diversity. It turns out that diversity in Social Capital is incredibly important to the quality of our Human Capital as we’ll see.  With depleted Social Capital and lower quality Human Capital workers produce lower quality output, forcing us to work longer hours, increasing our dissatisfaction at work furthering our lack of Social Capital creating a vicious cycle that increases the odds we will change jobs or the strain on our family lives also increases our chance of divorce or other disruptive ends.

With a market now severely depleted of Social Capital and a significantly lower quality of Human Capital the market continues to desperately push forward which usually results in poor financial decisions across the entire market. Just look at the insane dotcom IPO investments or the more recent bloated housing market loans. Eventually this vicious cycle always ends in a “market adjustment.” Sometimes very drastically.

These adjustments release huge amounts of Human Capital onto the market. This now unemployed workforce turns to fill the void of Social Capital in the market. People begin networking again, spending more time with family and catching up with friends. It is any surprise that the largest growth in online social networking activities like Facebook and Twitter happened during the period of the largest unemployment in over a decade?

Along with an investment in Social Capital comes a diversification of Social Capital. People move to new locations for new jobs or old locations, like back home because of a loss of job. People start going back to school and making new relationships. Even in the extreme case of divorce, people are often forced to make new friends.

This increase and diversity in Social Capital starts to create an increase in the amount and quality of Human Capital. People learn new things and are exposed to new ideas. This creates a virtuous cycle that eventually leads to new advancements in technology.

Wash. Rinse. Repeat.

Photo credit By ntr23

Here is part one of these two posts. Please see this post for more context.

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About Tac

Social media anthropologist. Communications strategist. Business model junkie. Chief blogger here at New Comm Biz.

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  • Dan


    An excellent and timely inquiry on your part.

    A good way to think about this is to go deep in history. Each economic era was derived from the prior economic era by integrating the tools of the prior era. For example; hunter-gatherer's chipping stone could be adapted to plow a field which led to the agrarian era. The agrarian era led to the division of labor that created the city-state form of social organization. By the same process of integration of tools came the scientific, industrial, manufacturing, information, and knowledge economies. Much of what we see today is the integration of tools developed in the knowledge economy trying to evolve to an innovation economy.

    Things get strange when the integration process is diverted. For example; outsourcing the knowledge economy is failing the innovation economy. Corrupting the financial system fails the integration of the tools. Debt goes to infinity but austerity can only go to zero, etc., fails the social structures required to disseminate ideas.

    On the other hand, if you can identify the anomaly of integration and correct it, the integration process can accelerate at an astonishing rate.

  • http://www.newcommbiz.com tacanderson

    I like the point about the advances based on prior tech. To your last point, I think identifying the anomaly is challenging, esp when we only look at Capital as one dimensional.

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