…why is “human capital” such a disastrous turn of phrase? There are two reasons. First, it obfuscates the crucial difference between labor and capital by terminologically conflating the two. Labor now seems to be just a subspecies of capital. Second and more important, it leads to a perception — and sometimes to the argument used by insufficiently careful economists — that all individuals, whether owners of real capital or not, are basically capitalists. Even if you have human capital and I have financial capital, we are fundamentally the same. Entirely lost is the key distinction that for you to get an income from your human capital, you have to work. For me to get an income from my financial capital, I do not.Right. And that is the intention.
If we are all capitalists now, then no one is.
Similar situation with folding land in with capital.
Why not conflate them? They are separate and different factors of production, and economic theory is about factors. Distribution is to these factors based on their contribution to production, and to the degree that distribution to a factor exceeds productive contribution, it constitutes economic rent. A key focus of neoliberal economics is to conceal rent-seeking and rent extraction, or to justify it as the result of "just deserts" based on specious assumptions.
Global Inequality
Global Inequality
The misleading terminology of "human capital"
Branco Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace
Branco Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace
2 comments:
The usefulness of the terms seems merely to depend on one's accounting stance. If you are an investor, a business man (or woman), then labour is an input, and for you the term human capital is quite accurate and almost value free. Does not, to quote Varoufakis, the phrase "produced means of production" apply? Varoufakis, in discussing his marxism, talks of labour’s two natures: i) labour as a value-creating activity that can never be quantified in advance (and is therefore impossible to commodify), and ii) labour as a quantity (eg, numbers of hours worked) that is for sale and comes at a price. As regards i), just because it cannot be fully quantified, it does not hold that one should eschew use of the term. Varoufakis acknowledges as much:
"Both electricity and labour can be thought of as commodities. Indeed, both employers and workers struggle to commodify labour. Employers use all their ingenuity, and that of their HR management minions, to quantify, measure and homogenise labour. Meanwhile, prospective employees go through the wringer in an anxious attempt to commodify their labour power, to write and rewrite their CVs in order to portray themselves as purveyors of quantifiable labour units. And there’s the rub. If workers and employers ever succeed in commodifying labour fully, capitalism will perish. This is an insight without which capitalism’s tendency to generate crises can never be fully grasped and, also, an insight that no one has access to without some exposure to Marx’s thought."
I accept that the term "human capital" serves little purpose as sign for the role of labour in a macroeconomy. But the term still has analytical uses from a micro standpoint.
I accept that the term "human capital" serves little purpose as sign for the role of labour in a macroeconomy. But the term still has analytical uses from a micro standpoint.
Branco accepts that "capital" is just a term, and terms can be put to many uses.
It is this combination of education, experience and knowledge that economists Jacob Mincer and Gary Becker decided in the early 1960s to term “human capital.” There is nothing new in the phrase nor anything harmful as such. We can call a more skilled person a person with greater human capital or use any other term, as long as we know and agree on what we mean. Calling it “human capital” appears a mere terminological quirk: We could just as well say that a more skilled person has greater “skilz” or whatever we decide to call it.
So if the name that we give to more skilled labor, whether “human capital” or “skilz,” does not matter, why is “human capital” such a disastrous turn of phrase? There are two reasons. First, it obfuscates the crucial difference between labor and capital by terminologically conflating the two.…
Second and more important, it leads to a perception — and sometimes to the argument used by insufficiently careful economists — that all individuals, whether owners of real capital or not, are basically capitalists. Even if you have human capital and I have financial capital, we are fundamentally the same. Entirely lost is the key distinction that for you to get an income from your human capital, you have to work. For me to get an income from my financial capital, I do not.
Who cares what a business person thinks in making accounting entries. What we are up against is Gary Becker's normative economics and this use of "capital" to cover labor and land obscures economic rent. That might be just a coincidence but I don't think so.
One of the chief aims of conventional macro is to elimination consideration of economic rent in favor of distribution being based on just deserts as a natural consequence of market forces at work if they are left free of (government) intrusion.
So what's the beef with using "human capital" in micro? For conventional economists that assume microfoundations, macro is scaled up micro. Through this route it enters policy formulation.
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