The visible hand in economics

The curse of human capital

Posted on: April 10, 2008

Consider the ‘traditional’ capitalist (envisage the Monopoly™ man). This capitalist owns the means of production, such as a factory, or piece of machinery, a building, or piece of land. The capitalist uses their means of production to extract economic profit.

Times are changing. As we move towards a service based economy, like all other developed countries, increasingly the means of production take the form of human capital. Human capital is the capital that is built up within an individual, for example through education, on the job training and everyday work. The holder of human capital is herein referred to as the ‘modern’ capitalist (envisage a slimmer, more refined Monopoly™ person, possible black, possibly Asian, possibly a woman, possibly trans-gender – we don’t discriminate).

Human capital is the foundation of professional service firms, ranging from the glamorous, such as private sector economic consulting firms, to the pedestrian, such as lawyers and accountants.
But this trend towards human capital accumulation brings us to what I term the curse of human capital.
The traditional capitalist can employ others to operate their capital while still earning their rents. I’m referring to hiring Thai over-stayers to renovate and paint your housing stocks, or, for our sizeable USAmerican following (read sizable), paying illegal Mexican immigrants to pick your fruit. The modern capitalist has no such option. To extract rents from their capital they have one option: work. We know from our classical economic theory that providing labour (USAmericans, read labor) is an evil, albeit a necessary one, as it means we are trading off leisure time (a great source of utils).

We’re cursed, I tell you.



8 Responses to "The curse of human capital"

I’ve always wondered how much extra money you’d need to pump into Monopoly (at the GO square) to turn it from a game where the monopolist eventually drives all competitors to the poor-house, to one in which everyone gets richer and richer and stays in hotels all the time. Of course the game wouldn’t be as much fun, but the economics would be better (especially in these “lets print more money to fix stuff ” times).

“Of course the game wouldn’t be as much fun, but the economics would be better”

Have you ever played anti-monopoly. It is a game where you have half the players playing as monopolies and half as perfectly competitive firms. It is horrendous 😉

I acquired a copy of Poleconomy where you get to adjust the inflation rate to suit yourself if elected Prime Minister and, while that’s not quite right, you can also buy Air NZ which is more realistic.

“I acquired a copy of Poleconomy”

We had a copy of that at my school back in the day – I always wanted to buy a copy but I seem to constantly lose out on trademe 😉

OMG – you mean people will actually have to work for a living?

Unfortunately that appears to be the case dracotb.

One day the capital component of service sectors may be greater:

Or it may not happen at all:

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