Cliometrics and The Rise of Social Capital

From Economic Imperialism to Freakonomics, Chapter 6: From social capital to freakonomics

The post Second World War period gave rise to cliometrics, which generally involved the direct or indirect consequences of individual optimisation in the context of neoclassical price theory.  Cliometrics gave rise to considerable controversy from the outset. Indeed, “both success and opposition were so strong that history was divided into separate camps of economic and social history. Much of this criticism rose from the neoclassical perfect model that was employed through these practises. The ‘newer economic history’ claims to rectify this by recognising that markets do not work perfectly. “As a result, they are complemented by both economic and non-economic historical forms that have an effect on outcome”. The newer economic history incorporates critical concerns of new economic theory into the ‘new framework’. Firstly, “there may be more than one way of modelling individual behaviour once interdependencies between individuals are recognised”. "Second, there may be more than one equilibrium even for a given model”. Third, “the path to an equilibrium, and which one, may depend upon initial conditions or random shocks along the way. This style of economics accepts the importance of history, institutions, and allows the language of social history to be deployed “even though its concepts remain rooted in the universals of neoclassical theory”.

The rise of social capital both takes place wholly outside of economics, but does not have a history prior to the rise of the new economics imperialism. Despite “casual uses of the notion of social capital prior to the 1990s, these are sporadic and accidental”. “More specifically, social capital theory takes the view that there are social resources that exist interdependent of individuals but upon which they can call. It is summed up by the mantra, ‘it’s not what you know but whom you know that matters’”. The ambiguity of ‘knowing’ has come to cover “most if not all social interactions”, religion, trust, networks and civic participation. Social capital has allowed us to use an economic mentality to assess all interactions in our lives. It is heavily motivated by the idea “that it provides the opportunity for positive-sum outcomes in all spheres of life”. One might attend a party not necessarily because they want to dance the night away, but because successful and highly regarded people would be attending. One then makes a decision to approach and socialise with these people with the intention of increasing their social capital. 

“Social capital offers an entrée for functional efficiency, individualistic methodology, and absence of the systemic, power and conflict”. Social capital theory acknowledges market economy does not work perfectly, and points “to the potential for correction of those imperfections through non-market interactions”. Although classified as non-market interactions, social capital still requires an input of capital to change state. One still had to attend the party to ensure their better relations with the people attending. The intangible nature of social capital has allowed it to become incorporated in non-physical forms, for example the importance of brands and reputation. The sponsoring of popular celebrities with major brands such as Burberry closely link the reputation, the familiarity and likeability of that celebrity to the brand itself. This in turn builds its reputation. Both Burberry, and the celebrity, be it Cara Delevingne, both benefit from this exchange in order to increase social capital.

Ben Fine & Dimitris Milonakis, From Economics Imperialism to Freakonomics, Routledge Publishers, 2009, chapter 6