Social Capital, Impact in Wealthy and Poor Communities

Use of Capital: Complementing or Substituting

Economic theory describes how multiple forms of capital are used to produce a good or service. A grocery store, for example, requires space (land and facilities, even simple ones, built on the land), labor, and inventory (goods for sale), some or all of which may be obtained with financial capital. While an owner may substitute a bit more labor for another form of capital in scarcer supply, say to sell goods faster when space is scarce, this substitution has limits. Taking the example to an extreme, even a well-staffed store will be unsuccessful without any goods for sale or space in which to conduct the transactions. (As a thought experiment, consider the example of an online grocery store. Even if it rents other stores' space to warehouse the goods it delivers, space is still required. Substitution is limited even in cyberspace.) So all three of these forms of capital—land, labor, and goods—are critical. The three complement one another in terms of what they contribute to the success of the business, though some substitution is possible.

These concepts have application in our daily lives as well. Faced with a variety of tasks—whether helping a friend to complete a government form, gathering with family for a meal, looking for a job, or seeking admission to an educational institution, for example—we make use of various forms of capital available to us. Short of capital in one area, such as money needed to make a purchase, we may ask for a favor to accomplish the same task. The favor may come from a friend, family member, acquaintance or other direct contact of ours, or it may come from a friend of a friend, that is, from a contact of one our contacts. Whatever the specific source, favor trading and favor banking (doing favors now with the expectation of receiving reciprocal favors at some later date) are textbook examples of social capital at work. Defined as mutual aid, these patterns are as old as society itself.

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