Tuesday, November 25, 2003

Ross Mayfield writes on Many-to-Many: Social Capital as Credit

Interesting point at end :

The potential supply of social capital is abundant, only held back by search and transaction costs. Social software and social networking are rapidly driving these costs towards zero. The pace of capital formation is accelerating because of two additional factors.

In the parlance of network or systems thinking: in the absence of connections, nodes become state attractors. In other words, when the amount of connections is limited, the value of connections is high.

Economists have an applicable rule for this as well: Say’s Law, or “supply creates its own demand.” Now Say’s Law doesn’t work when there is money involved (creates an arbitrage opportunity, otherwise supply-side economics would make sense), but it does apply to barter, reputation and micro-markets. When money is involved, it provides a universal arbitrage path, causing a fight over equilibrium and discounting the impact of Say’s Law at a macro scale.

This is one reason why you can’t trade goods or cash for social capital. Or if you do, it disrupts equilibrium across markets. Now I am sure some elaborate schemes have allowed traders on eBay to assume others’ identities and some virtual world economies have crossed this boundary. But the point is you can’t monetize social capital in aggregate, because it operates at a micro-scale. You can foster social capital for the value of its emergent patterns and what it enables: the flow and production of other tangible and intangible assets. The value of social capital is local, but its impact is global.

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