Social Capital and Networks: A Proposal for Conceptual Integration

34 Pages Posted: 4 Dec 2006

See all articles by Carsten Herrmann-Pillath

Carsten Herrmann-Pillath

Max Weber Center for Advanced Cultural and Social Studies

Date Written: November 21, 2000


The concepts of "social capital" and "networks" gain increasing acceptance even in core branches of economics as growth theory and international trade. International organizations have begun to condition credit approval on the availability of social capital in lender communities. However, the disturbing fact is that both concepts are still used in a widely divergent way. This paper offers an proposal for conceptual clarification. "Social capital" is conceived of as common knowledge of agents that is created in the course of time, and that refers to positive externalities in networks. The minimum unit of a "network" is a triad, where one transaction lowers the costs of the other transaction. Social capital as common knowledge also serves to demarcate the boundaries between networks through a common identity, hence we can speak more exactly of "culture". Boundaries lead to the internalization of the externalities in networks ("club goods"). Based on these definitions, it is shown that social capital can only be properly under-stood within a multi-disciplinary approach, because cognitive processes are of primordial importance. Direct quantitative measurement and intentional creation by government intervention are hardly feasible. Accumulation of social capital takes place through the increase of cultural complexity with decreasing barriers to exit from existing networks. Network dynamics results from the interaction between "weak" and "strong" ties, the former contributing to individual social capital formation as distinguished from the common knowledge stock.

Keywords: social capital, networks, triads, club goods, positive externalities and cognition

JEL Classification: A13, O00, Z10

Suggested Citation

Herrmann-Pillath, Carsten, Social Capital and Networks: A Proposal for Conceptual Integration (November 21, 2000). Available at SSRN: or

Carsten Herrmann-Pillath (Contact Author)

Max Weber Center for Advanced Cultural and Social Studies ( email )

Nordhäuserstr. 74
Erfurt, 90228

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