Social Exchange Rate | Frontier Economy

As economists have long known and the Internet shows, ’social capital’ is very real, and it doesn’t need to be based on any interaction in the offline world. We have seen geographically dispersed groups of people organize to help a friend they had never met in person, and useful professional introductions where some of the parties wouldn’t have recognized the other on the street. Neither of these is a new phenomenon, but the Internet has expanded and accelerated all forms of remote interaction, and thus put in sharper relief some of their particular dynamics.

Whether they know it or not, social networks are competing to become the central bank for this social currency. In the best case scenario for these companies, a large part of our interactions through the Internet would take place inside their platforms, and we would use their facilities to keep track of our social networks. We have used the term ’social network’ in two distinct senses here, and it’s important to keep them separated: there’s ’social network’ as a particular kind of web platform, and there’s ’social network’ as an abstract term for the collection of contacts, friends, family members, etc, we interact with. Web companies would like, of course, for us to think of the latter only in the context of, and tied to, the former. In this way, we would, for example, keep track of all of our friends as Facebook friends, use the website whenever we interact with them online, and so on.

There are clear advantages in being the central bank — or at least the official clearinghouse — for social capital, and they are similar to those of any central bank. You can print money (raise the reputation of certain people), enjoy certain particular sources of profit (perhaps the most obvious of them valuable ad space), and offer people an ‘interest rate’ in the form of suggestions for new contacts or other tools to find them. There’s also the risk of inflation: when everybody is connected with everybody, the social network loses its meaning, and the platform begins to falter. We can see this happening right now to MySpace.

Of course, ’social capital’ and ‘central bank’ are at best suggestive labels. Unlike currencies, social capital isn’t homogeneous. It makes sense to ask whether Warren Buffet is financially worth more than George Soros (although it must be noted that the precise valuation of complex portfolios can be a tricky accounting problem with more than one possible answer), but does Kobe Bryant has more social capital than Stephen Hawking? Bryant could probably enter any night club in the world, but he’s unlikely to get himself an invitation to give a physics conference in Cambridge.

In fact, it could be said that money is an incredibly clever and successful simplification of some sorts of social capital, ignoring many of the complexities of the original concept in exchange for superb practicality. As all simplifications, it can be used to represent the original concept, but not the other way around. Seen in this light, conceptualizing social capital as a sort of currency would be a logical contradiction.

There’s value in our social networks, but this value doesn’t behave like currencies do. It lies in relationships, which are essentially information residing both in the mind of individuals and as data traces in computer systems. None of the web platforms has any control over the information in the minds of their users, and whatever control they might have over the data in their servers, it’s quickly slipping. People have already shown that they are willing to migrate between web platforms whenever they become inconvenient. Trying to keep this information under control is as technically difficult, and ultimately pointless, as preventing the copying of any other sort of ‘proprietary’ or copyrighted information.

In the end, attempting to own people’s social networks will prove to be futile. It’s a very tempting vision, but the combination of personal computers and the Internet is simply too inherently flexible for this kind of control. This doesn’t preclude, and in fact strengths, the possibility of innovation in this area. Social networking platforms will rise and fall, some thriving for a long term, some for a few months, some, it will seem, forever. But they won’t be able to fully extract the potential value of the networks living on them.