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Human Features as Capital? A brief history
In 1776, Adam Smith wrote, in An inquiry into the nature and causes of the wealth of nations, that “The acquisition of talents during education, study, or apprenticeship, costs a real expense, which is capital in a person. Those talents are part of his fortune and likewise that of society”. This idea might seem quite intuitive for an inhabitant of the world in the 21st century, and even the greenest economist would associate these words with the foundation of Human Capital.
However, until the last century, this concept was actually quite unpopular. As Theodore Shultz points out in Investment in Human Capital (1961), investment in human is not devoid of moral and philosophical issues. His words, “It seems to reduce man once again to a mere material component, to something akin to property”, are especially evocative, considering the 13th Amendment to U.S. constitution, which abolished slavery, had entered into force not even one century before.
With the advent of statistics and nation-level measurements in the period of WW2, researchers started to observe that increases in national output could not be fully explained by increases in physical capital. It became possible to link the accumulation of skills, capabilities and knowledge humans with these unexplained variations in growth.
Today, the World Bank defines Human Capital as “The knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realize their potential as productive members of society.”
But what aspects of the multifaceted human being are included in this definition? Reading further, the WB specifies: “Investing in people through nutrition, health care, quality education, jobs and skills helps develop human capital, and this is key to ending extreme poverty and creating more inclusive societies.”
Human Relationships as Capital
After accepting the “capitalization” of individual’s traits, a more recent step has been recognizing that humans are social animals, and therefore, their relationships are a fortune too. The concept of Social Capital generally refers to social relationships between people that have productive outcomes. In a nutshell, Portes (1998) explains it as “whereas economic capital is in people’s bank accounts and human capital is inside their heads, social capital inheres in the structure of their relationships”.
Social capital is for sure a peculiar form of capital: it does not reside in any individual entity, but it’s embedded in society, it lies in relationships, it’s rooted in networks. However, just like any other type of capital, it requires investment and maintenance to yield returns.
If defining the determinants of human capital is not an obvious task, defining those of social capital is even more challenging. The Institute for Social Capital indicates a range of dimensions including trust, togetherness, volunteerism, generalized norms, everyday sociability, and neighborhood connections.
In essence, applying this theory, helping an old lady cross the street, having a neighbor who looks after your child when you’re sick, or trusting the police—all of these actions contribute to a web of reciprocity that will eventually benefit either the individual or the broader society.
Just as human capital was initially controversial, social capital was—and perhaps still is—a contested concept. For sure, its reputation increased after the publication of Making Democracy Work: Civic Traditions in Modern Italy by the political scientist Robert Putnam. Focusing on Italian regional governments, he found how government performance was strictly linked to traditions of civic engagement.
Friendship as Social Capital
Within this broader framework, friendship emerges as a particularly powerful and personal expression of social capital — one that not only supports emotional well-being but also shapes long-term economic and social outcomes.
If friendship is part of human capital, then it somehow has impacts that extend beyond the individual to society at large. And it might be more powerful than one can think. In a 2022 study on networks and friendships, Raj Chetty’s and colleagues found that education, racial segregation, education, and family structure were not as important as cross-class connections in determining upward social-mobility. In fact, among all observed components of social capital, friendship across socioeconomic lines was the only one driving mobility. Social cohesion and civic engagement, by contrast, did not seem to play a role.
The relationship between friends also shapes the social tissue of communities. In Bowling Alone, Putnam describes how American society, one strong and civic engaged, is now degrading through the whimsical metaphor of bowling. The evocation of many lonely bowlers, with a nostalgic comparison to bowling leagues playing together, reflects the individualist derive of society. From this point of view, friendship and social interactions are a sort of public good, and not just a private comfort. The weaking of these relationships has consequences that go beyond individual loneliness, but undermine the health of society.
Relationships and Policy Makers
Friendships, connections, networks, and trust — they all contribute to both individual well-being and a healthier, more cohesive society. Yet we rarely hear politicians or policymakers address these topics directly. In an era where society is becoming increasingly individualistic, the case for investing in social capital becomes even more urgent. Urban planning, for instance, can be intentionally designed to promote cross-class connections and neighborhood friendships. The creation of public and recreational spaces that facilitate meeting and incentive people to socialize, promotion of sports and community strengthening activities can be impactful policies for boosting social capital. Reinvesting in friendships and ways of making them happen it’s not just about enhancing well-being, it’s a necessary step to rebuild a strong social fabric, that can sometimes be as important as and educated or healthy community.
Sources:
Chetty, R., (2022). Social capital I: measurement and associations with economic mobility https://www.nature.com/articles/s41586-022-04996-4
Goldin, C. (2016). Human Capital. https://scholar.harvard.edu/files/goldin/files/goldin_human_capital.pdf
Institute for Social Capital. https://www.socialcapitalresearch.com/literature/evolution/
Putnam, R. D., Leonardi, R., & Nonetti, R. Y. (1993). Making Democracy Work: Civic Traditions in Modern Italy. Princeton University Press. https://doi.org/10.2307/j.ctt7s8r7
Putnam, R. D., “Bowling Alone: America’s Declining Social Capital” Journal of Democracy, January 1995, pp. 65-78.
Schultz, T. W. (1961). Investment in Human Capital. The American Economic Review, 51(1), 1–17. http://www.jstor.org/stable/1818907
World Bank: The Human Capital Project https://www.worldbank.org/en/publication/human-capital
Veronica Guerra
Research Editor & Writer
theawarenessnews.com 