That's the motto of Carleton University, where I work. Carleton's task, and my task, and the students' task, is to produce educated students. It takes a lot of resources to do this: my time, the students' time, the support staff's time, plus the use of buildings and land, and hydro. All those resources could be doing other useful things. There's an opportunity cost to educating students. Why do we do this?

Because we think the world will be a better place in future if we do this. And it's not just that the more productive students will get higher-paying jobs and more enjoyable jobs, though that's part of it. We think that it's better to understand things better, whether that thing is economics, chemistry, or literature. My blogging is itself part of that task, and if you are reading this you are a Carleton student, and part of our common task, whether you have a student number or not.

What do economists call it, when you do something that is costly today, because you think it will produce future benefits? We call it "investment". Investment is the creation of capital. Our task is to create capital. And that capital, in our case, is embodied in humans. Which is why it makes sense to call it "human capital".

Calling something "capital" says absolutely nothing about the legal system, and who owns it, and who has the right to do what with it. A bunch of educated anarchists has more human capital than a bunch of uneducated anarchists. "Capital" means the time structure of production, and any society that has undertaken present costs for future benefits has created capital.

"Human capital" is not a synonym for "labour". An uneducated worker who works for 10 hours does exactly the same amount of labour as an educated worker who works 10 hours. And it is not a synonym for the "skills" of that labour. Some skills we are born with, some we learn, and with most it's a bit of both; if you take a 5 year old Wayne Gretzky and a 5 year old me and put us through the same hockey camp, Gretzky is going to learn more skills than me.

It's funny how the words "human capital" upset people from both sides of the political spectrum.

Here's Greg Cochran, who thinks that by talking about "human capital" economists are saying that all individuals are identical in their abilities except for differences in education and training. I tried to explain that economists aren't that stupid.

And here's Paul Krugman, who I'm going to have to Fisk:

"Branko says that the essential difference between skills and physical capital is that the former aren’t worth anything unless you work, and that is certainly an essential difference."

Yes, owning skills is like owning physical capital that only you can operate. In both cases your labour and your capital are joint inputs. But my truck is still capital even if I'm the only person in the world who knows how to drive it, so it's worthless to anyone else unless I rent out my labour along with my truck.

"I would, however, also emphasize the flip side: if you think of capital as something that rentiers can own, which is surely one of the important things we connote when we use the c-word, then labor force skills are not capital in that sense. Children of the wealthy can inherit or buy factories and buildings; absent indentured servitude or the coming of androids, they can’t buy worker skills."

Well no. We should not think of capital as something rentiers can own. Capital is something that can exist, or not exist, independently of the legal system of property rights. Communist societies can have capital too. So can anarchist societies. The set of things that are capital, and the set of things that rentiers can own, are overlapping, but distinct. The "c-word" might as well be "canoes". Canoes are (usually) something that people can own; but that's not what makes them canoes.

And rentiers can and do own labour force skills, their own, and do collect rents from those skills. That's what my salary is (OK, plus a rent from my insider monopoly power). And if I lend someone money against his future earnings, I can earn rents from someone else's labour force skills. And if he promises to pay me a percentage of his future salary, I own a share in someone else's labour force skills. But it's a non-voting share, because I can't force him to work.

And the children of the wealthy can and do both inherit and buy labour force skills. Their own. Their parents pay for their education, which starts at birth. It's a costly investment in human capital to develop the potential skills they have inherited.

The concept of "human capital" is itself an investment in our human capital. It took an investment by economists from Adam Smith to Gary Becker to create that concept, and it helps us understand the world better. I am trying to prevent the depreciation of "human capital". Rust never sleeps. Ours the task eternal.

[Update: Noah Smith has a good metaphor for human capital, and a lovely(?) picture to illustrate that metaphor. I think he should have titled his post: "Humans aren't androids; we're cyborgs".]