{"id":93352,"date":"2025-01-05T05:00:56","date_gmt":"2025-01-05T10:00:56","guid":{"rendered":"https:\/\/quotulatiousness.ca\/blog\/?p=93352"},"modified":"2025-01-04T16:58:09","modified_gmt":"2025-01-04T21:58:09","slug":"everything-humans-build-starts-with-human-and-social-capital-this-includes-everything-economic","status":"publish","type":"post","link":"https:\/\/quotulatiousness.ca\/blog\/2025\/01\/05\/everything-humans-build-starts-with-human-and-social-capital-this-includes-everything-economic\/","title":{"rendered":"“Everything<\/em> humans build starts with human and social capital. This includes everything economic.”"},"content":{"rendered":"

Lorenzo Warby<\/a> explains why he has always disagreed with the “standard model” of economic growth, as it fails to include the biggest cultural<\/em> variables that matter enormously for economic development:<\/p>\n

\"\"<\/a>

“Hyderabad bazaar” by ruffin_ready<\/a> is licensed under CC BY 2.0 <\/a>.<\/p><\/div>\n

The seminal theory of economic growth is the Solow Growth Model (technically, the Solow-Swan model<\/a>). The model can be easily expressed mathematically<\/a>.<\/p>\n

I have never liked the model, nor its later variations<\/a>.1<\/sup> The intuition behind my dislike was that societies \u2014 and indeed different ethnic groups within societies \u2014 obviously varied enormously in their capacity to use, to “put together”, the factors of production. They also vary enormously in their capacity to generate<\/em> factors of production: specifically capital, the produced means of production. The model implies that there will be a general convergence between economies that has not happened<\/a>.<\/p>\n

Updating the model<\/a> by including human capital<\/a> was a gesture in that direction but did not fix the problem with the model, which is much more basic. The update attempted to grapple with the failure of investment to flow to poorer countries and, by implication, the long-term, systematic failures of foreign aid. The failures of foreign [aid] also supported my intuition.<\/p>\n

The most recent (2024) Nobel memorial<\/a> was for work that also directly supports my intuition \u2014 how much institutions matter for economic growth. The long-term economic growth literature \u2014 identifying culture as very much mattering for economic growth \u2014 also supports my intuition.<\/p>\n

Skills and knowledge (human capital) are basic<\/strong><\/p>\n

To explain why the entire approach \u2014 basically, fiddling with some version of the Cobb-Douglas production function<\/a> \u2014 is fundamentally mistaken, we need to go back to the origins of human economic growth. I mean, right back \u2014 all the way to foragers.<\/p>\n

What are the original forms of capital? Well, there are tools, which are the original form of physical capital. But without the skills to make and use the tools, they either do not exist, or they are useless.<\/p>\n

So, we start with skills and knowledge, with human capital<\/a>. It takes almost 20 years to train a young human forager to be a subsistence adult \u2014 that is, to forage as much nutrition as they consume. The need to stuff the human brain with skills and knowledge \u2014 and the need to grow a brain that can be so stuffed \u2014 is why we have the most biologically expensive children in the biosphere. The need to impart skills to biologically expensive children is fundamental to the dynamics of all<\/em> human societies.<\/p>\n

Human capital \u2014 skills and knowledge \u2014 is not an “add on”. It is basic.<\/p>\n

So are social connections (social capital)<\/strong><\/p>\n

Foragers do not live as atomistic individuals. They live in families and (fluid) foraging bands. Families and foraging bands are vehicles for our highly cooperative subsistence and reproduction strategies.<\/p>\n

That we are the tool-making and tool-using species lacking tearing teeth and claws with the most biologically expensive offspring is why we have highly cooperative subsistence and reproduction strategies. It is also why we are so much the normative species \u2014 enabling robust cooperation based on convergent expectations \u2014 and why we have prestige and propriety as forms of status.<\/p>\n

Both these forms of status represent currencies of cooperation<\/a>. Prestige<\/em> grants people status for doing things which are risky, clever, hard, entertaining. It is status by conspicuous competence. It provides a way to reward people for engaging in activities which generate wider social benefits \u2014 what economists call positive externalities<\/em>. It also encourages people to want to associate with you.2<\/sup><\/p>\n

The other form of status \u2014 propriety<\/em> \u2014 grants status to those who uphold the norms of the group. In particular, it wields stigma against those deemed to have violated those norms. It provides a way to punish people for engaging in activities which generate wider social costs \u2014 what economists call negative externalities<\/em>. It helps solve the free-rider problem<\/a> regarding the effort to enforce norms.<\/p>\n

Reversing (i.e. perverting) status patterns so that people get prestige from victimhood \u2014 extending to various forms of failures of competence or even wildly anti-social behaviour \u2014 while stigmatising people who conspicuously successful (as oppressors or exploiters) is deeply destructive of human flourishing.3<\/sup> We can see this pattern currently operating in “progressive” US states, and especially cities, but murderous versions of it operated in various Communist states. These things affect economic activity, but cannot be discerned by a Cobb-Douglas production function.<\/p>\n

It is not true that scientists have never discovered Homo economicus<\/em>. Unfortunately, Homo economicus<\/em> is not a member of genus Homo<\/em>. It is Pan troglodytes<\/em> (chimpanzees) playing strategy games in a lab<\/a>. It is precisely because we Homo sapiens<\/em> are more normative, allowing us to encapsulate the social conquest<\/a> of the Earth, that there are billions of us and only a few thousand of them.<\/p>\n

We \u2014 as a highly social, indeed ultra-social<\/a>, species \u2014 engage in both individual and social calculations. Different cultures notoriously generate different patterns for, and balances between, such calculations.<\/p>\n

\n