Money capital and human capital

Capital is wealth that can be used to create more wealth.  Money is capital when it is invested in physical capital – machinery, buildings, vehicles, generators – that is used to produce more wealth.  Of late we have learned to speak of human capital – the investment in skills and know-how which makes a human being more economically productive.

Currently our government’s and our society’s priorities favor financial capital over physical capital, and utterly neglect human capital.  This priority is exactly backwards.  Financial capital has no value to society unless it is invested in physical and human capital.  This item from the Obsidian Wings web log expresses the problem well.

I’ve been working in the software industry for a little over 25 years.  Over that time, I’ve become competent in a handful of programming languages, and a handful of technology stacks, on a handful of platforms.  …

I’ve learned how to orient myself quickly in strange code bases numbering in the hundreds of thousands of lines.  I’ve learned how to spot the problems that are really going to kick your ass from a mile away, and I’ve learned how to know which ones you can kind of let go of.

I’ve learned how to lead people through the process of understanding what it is they’re trying to accomplish with the software they’re paying me to write.  I’ve learned how to translate that into a description of something you can actually go and build.

I’ve learned how to ship useful, practical product – product that people will pay money for – out the door in a timely and profitable way.

All of this is normal for somebody with my level of experience, in my profession.  Any script kiddy can write code, all of the above is what professional software engineers get paid for.

And this is not unique to software, every occupation and trade has its own unique and particular domain of knowledge and expertise.

All of this generally gets described as a “skill set”.  As a factor of production, since I don’t own the business I work in, it generally gets lumped, somehow, under the general heading of “labor”.  As “labor”, it’s a cost center.

But to me, personally, it’s hard to see it as anything other than capital.  It’s an asset that I bring to my work, that multiplies the value – the productive output – of my time, just as much as any other capital asset that is involved in what I do every working day.


Companies flirt around with this idea when they talk about “human capital”.  Corporate brochures and websites will talk about how the folks that work there are their most valuable asset.

But when push comes to shove, human capital will always take a back seat to the green kind.  Every legal obligation that binds the actions of fiduciaries, every management incentive, every common business practice and legal institution, privileges ownership – people whose stake in the business is a money investment – over labor – people whose stake is the investment of their expertise, personal knowledge and wisdom, level of commitment, and daily effort.

Money trumps everything else.

What brings this to mind, to me, is reflecting on the fact that the US unemployment level is still flirting with 10 percent.  That means there are about 15 million people in this country who are ready, able, and willing to work, but who can find no useful thing to do.

15 million.

That is a third the population of Spain.  It’s not quite half the population of Canada.  It’s half again the population of Greece, or Portugal, or the Czech Republic.

All standing around with not a damned thing to do.

And that’s the U3, the most conservative measure of unemployment.  Take the U6, and you can almost double that.

If there where that much green capital standing around idle, going to waste, you can bet your ass that somebody somewhere would be jumping through hoops of fire to change the situation.

Instead, it’s people’s very lives, and nobody can lift a damned finger.

via Obsidian Wings.

Actually, financial capital can earn interest even when, from a societal point of view, it is idle.  This is the current situation.  But idle human capital is a depreciating asset.  The longer workers are unemployed, the more their skills become obsolete.  Unemployment is a cost to society that greatly exceeds the cost of unemployment benefits and other governmental expenditures.

Click on this New York Times article for more about our depreciating human capital.

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