Money and risk
Gary Becker
Human capital
Gary Becker (United States · 1930-2014) — Human capital.
What actually happened?
The dissertation he wrote in his twenties had an odd title for an economist: racial discrimination, costed. At the time this belonged to sociology and psychology and had nothing to do with prices. His move was to treat not wanting to deal with certain people as a preference like any other, then ask what the preference costs. An employer who passes over the cheaper and abler candidate has paid the difference for his own taste, and the competitor who does not share it collects. The book appeared in 1957 and was met with near silence for years. Everything afterwards was the same move again.
He prices the thing being argued about
Faced with a subject that looks unrelated to money, the usual approach is to discuss motives and attitudes. He asks instead what the person doing it gave up. Once the price is visible, an argument nobody could settle becomes an account somebody can check.
Rather than argue which plan is right, write down what each one requires you to give up.
The largest principal is people
His claim in 1964 was that most of the capital in a modern economy is not in buildings but in people - schooling, skills, health, habits. If you are trying to make money work, half your capital has never appeared on your balance sheet.
People who total their savings every December rarely total what they learned that year.
The real cost is what you did not earn
His accounts for the 1939 college cohort came out at seventy-four per cent foregone earnings, seventeen per cent tuition and fees, the rest books and extra living costs. Abolishing tuition removes the smallest item on the bill.
Before signing up for a course, price the hours it takes at what those hours currently earn.
What they fund and what you keep
He cuts on-the-job training in two. General training is worth the same at any employer, so a competitive firm will not fund it and you pay through lower wages while learning. Specific training the firm funds, and the premium it buys does not follow you out.
When an employer offers to pay for something, ask first whether it still counts somewhere else.
Worth depends on the years left to use it
The same outlay can carry the same rate of return at every age; what changes is how long you collect. The young invest more in themselves not because they learn faster or carry less, but because the collecting period is longer.
Deciding whether to learn something at forty, start by counting the years you will use it.
How do I use it today?
If you are working out where to put your savings, draw up the other statement as well: how much went into you over the last twelve months. Do not stop at fees - convert the earnings you gave up in order to learn it into a number, because that is usually the larger half. Then do the second thing: split your current pay into the part the market pays and the part only this employer pays. Most of what they have funded you to learn in the past two years sits in the second part. That is not a bad thing; it is the source of the premium you draw here. But it does not travel, so it belongs among your reasons to stay rather than in your market price. If you want the price itself to move, invest in the parts that still count elsewhere - and nobody funds those for you.
Deep read
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Further
Lines to keep
The real price is what you gave up earning for it.
What they fund you to learn is what you cannot carry out.
The years left to use it matter as much as the rate.
A taste for discrimination costs money, and rivals collect it.