What Kevin Hassett meant when he said “stock of human capital”.

The phrase “stock of human capital” is dry academic jargon that economists have relied on for decades, usually without generating much controversy. It is a faithful shorthand, used to describe the overall level of education and skills of a country’s workforce. But thanks to a clumsy televised error by White House economic adviser Kevin Hassett, the term unexpectedly became the subject of an online outcry this week, in which Rep. Alexandria Ocasio-Cortez claimed it was “racialized” and had its “roots in slavery”. .”

That’s not really the case. There are many legitimate reasons to complain about the concept of human capital, or at least the way it is sometimes deployed by economists. But a deep and significant historical connection to chattel slavery is not one of them.

This whole linguistic fracas started on Monday, when Hassett appeared for an interview on CNN and tried to explain why he thought the economy was on the verge of a rapid rebound from the coronavirus crisis. “Our stock of human capital is ready to get back to work,” he said, sounding a bit like an AI who has yet to learn idiomatic English. “There are therefore many reasons to believe that we can get back to work much more quickly than in previous crises.”

Hassett was quickly and roundly mocked for accidentally portraying Americans as a dehumanized mass of economic inputs, when he could have just said, you know, “people are ready to work.” The reckless fall in economic parlance made him look a bit like an insensitive fool, urging people to get back to work amid a plague so they can add a few basis points to the country’s GDP in time for the election season. Even his fellow economists, who understood exactly what Hassett was trying to communicate, had words:

Things could have ended in slight ribs on Twitter. But then, in a pair of tweets on Tuesday, Ocasio-Cortez suggested that the “stock of human capital” was not just clumsy, robotic verbal fumbling, but also kind of racist.

It’s unclear which roots Ocasio-Cortez is referring to (I asked his publicist, but was told the office wouldn’t be able to comment by my deadline). But his claim is exaggerated at best.

When economists talk about human capital, they usually refer to job skills that people acquire by going to school, taking on-the-job training, or studying a trade. The idea is that talent is actually a form of wealth, just like a factory or shares in a company, and that education should be seen as a type of investment in human potential that pays off over time, both for individuals and for entire countries. . (As to the addition of the word Stock to the phrase, again it’s just a way of saying the overall amount of human capital through the workforce. Economists like to talk about “stock” supply, even though that makes people sound like the flour that’s currently filling your cupboard. It’s like that.)

This line of thinking goes back to the earliest days of economics. Adam Smith, for example, has suggested that the “fixed capital of society” includes “talents and skills that certain members of the community have acquired over time and expense”. But the modern concept didn’t really take off until the 1950s and 1960s, when it was popularized by University of Chicago economists Theodore Schultz and Gary Becker, who argued that seeing the world in terms of capital Humanity could help explain everything from differences in economic development to income inequality.

At the time, the Chicago Schoolers realized that the phrase human capital could make some people uncomfortable because of its unfortunate historical echoes. “The mere thought of investing in human beings is offensive to some of us,” Schultz wrote in 1961. “Our values ​​and beliefs prevent us from viewing human beings as capital goods, except in slavery. “, and that we abhor. We are not spared the long struggle to rid society of indentured service and servitude. But Schultz argued that treating skills as a form of wealth does not actually diminish human beings; rather , he suggested, this should be seen as liberating. “By investing in themselves, people can expand the range of choices available to them. It is a way for free men to improve their well-being.

It is true that if you go back far enough in the early and premodern development of human capital theory, you can discover links with slavery. There were thinkers who used the price of slaves as a benchmark for calculating the financial value of human lives (see 17and century economist Sir William Petty) or cited slaves as proof that human skill was, in fact, a kind of wealth (thanks to the distinguished Mr. William Nassau). Irving Fisher, who in 1897 became the first economist to use the term “human capital” in a major economics journal, turned out to have a penchant for eugenics (unfortunately not uncommon at the time). There may also be literary connections: in his poem “The Bronze Age”, Lord Byron describes a horde of Russian serfs as “human capital / a living estate”.

But for the most part, the common thread between human capital as we understand it today and legal servitude is at best attenuated. When writers wanted to talk about the financial aspects of slavery, they had a specific term for it: slave capitalwhose use appears to have peaked first around the Civil War and then again in the 1970s.

These days, meanwhile, the idea of ​​education as an investment in human capital has become so deeply embedded in the way Americans talk about economics and the value of college that the most of the lousy associations that Schultz worried about melted away. Even AOC itself seemed comfortable using the phrase a year ago.

(Update, May 28, 9:35 p.m.: After this article was published, a spokeswoman for the MP emailed me to point out that the MP’s previous statement referred to “human capital” and not “stock of human capital”.)

That said, there are many good reasons to challenge the language of “human capital”. The big problem – at least in my opinion – is that, as Branko Milanović, a cantankerous economist at the City University of New York, has written, it “obscures the crucial difference between labor and capital by terminologically confusing the two.” Or, to put it another way, it totally erases the distinction between workers and owners of their business. In fact it is what it is designed to do. As Schultz wrote at the time: “Workers became capitalists not from the diffusion of ownership of corporate stock, as folklore would have it, but from the acquisition of knowledge and skills that have economic value.” It’s an idea that asks us to believe that a Facebook engineer’s ability to write Python scripts is more or less the same as the stock that Mark Zuckerberg holds in the company. I think most people would find this obviously absurd (you can’t make money from your coding skills without going to work), especially in a time of gross inequality when we’re literally waiting for the world’s first billionaire. Human capital theory has sometimes been treated as an all-purpose excuse to downplay concerns about income inequality, because, hey, people are just reaping the rewards of their education (although that’s happening less often now, because the value of a college degree doesn’t do a good job of explaining the existence of billionaires). And finally, looking at skills as literal wealth can also lead people to strange conclusions that simply don’t correlate with lived experience in any meaningful way; I can’t tell you how many hours of my life I’ve personally wasted arguing with people about whether millennials are actually wealthier than their net worth implies because they’re highly educated (try now to sell this diploma on eBay).

For these reasons (and others), recent years have seen a small rebellion against the left’s idea of ​​human capital. Thomas Piketty pointedly refused to include human capital in his measure of wealth in his book Capital in the 21st century, a decision for which he was in fact criticized by some fellow economists. Milanović suggested giving the whole sentence the chop and referring only to skills, as well as skills.

That probably won’t happen, because human capital is so deeply embedded in the economics literature at this point that someone like Hassett will rely on it, even if it makes them look like a ghoul. But if we’re going to hate this bit of unkind economic terminology, we should at least do so for the right reasons.

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Sallie R. Loera