Hi Jay. (Note to readers, his blog is here.
We could just as easily call human capital “skilled labor” and acknowledge that spending now can finance the acqusitions of skills that endure. And we could try to exploit a capital investment model to analyze individual spending to acquire skills. None of that would be objectionable in principle.
Some of us oddballs reject the term human capital (so-called “saltwater economists” are perfectly comfortable with it, by the way) because humans spending money to acquire skills are labor, and we think labor including skilled labor is fundamentally different from Capital in the traditional sense: the concentrated ownership of capital assets that afford its owners overweening control over investment, production, and the democratic process itself. By contrast, labor lacks any such control and must submit itself to capital for survival. We think the right foundational framework is to distinguish labor from capital. This would not necessarily change how one did a model of spending for higher education. What it goes to is the context for any such model. An excessively narrow model ignores that context, which in some cases makes for a bad model yielding junk results.
I think Nick’s reply at 1:02 pm illustrates the problem. He describes an exercise that tries to shed light on whether the market (sic) results in too much or too little human capital. But with some additional context, individuals’ demand for college education obviously depends on their income, as well as outside support. And their ability (or anybody’s) to estimated expected earnings is clearly limited. And signalling, though Nick condemns it to quotes, is relevant too. It is well understood by all semi-conscious economists that ‘endowments’ (wealth) influence demand, so efficiency results are contingent on an arbitrary footing.
The other huge gap is that the narrowness of skill and knowledge acquisition as an investment glosses over what economists recognize as externalities. Would you rather live in a nation of educated persons, or one where science and the arts are alien to the culture? Even if we set aside income distribution and uncertainty, a human capital context is anti-social. Everyone’s human capital is his or hers alone. It augments individual income but does nothing for society. In effect, there is no society.
In the final analysis, the human capital concept is prey to the weaknesses of the market, and by extension to models of the market, and by further extension to the micro-economic theory constructed to analyze that market. The problem comes if you think what human capital stands for is not well served by a context of individual outlays and discounted earnings — if you agree that it is fundamentally a non-market, social thing. In other words, the problem with human capital is the problem with mainstream micro-economics.
Nick’s comment at 8:19 provides further ammunition for my argument, wherein capital is reduced to inputs, outputs, and time. I think Capital is also about power, who has it and who doesn’t, and what this means for historical development. Marx called it a “social relation.” How could it not be?
Again, this is not a question of sentimentality. I don’t care if you want to call infants an investment, or a tax deduction. It’s about what you allow into your frame of analysis, and what you exclude.
Related, for a non-Marxist view, see “Power and the Useful Economist” herein.