Gary Becker
The principal you never counted
You are the asset, and its price is not the tuition
Human Capital, 1964 — chapter IV on the 1939 college cohort, chapter III on the incentive to invest
You keep looking for somewhere to put the money. The largest principal you hold has never been priced.
What actually happened?
In 1939 an urban white American man going to college paid about $112 a year in tuition and fees, and under $175 once books and extra living costs were added. Becker went after the other figure: what he would have earned between eighteen and twenty-two and a half, had he not been in a lecture hall. Put the two together and foregone earnings came to seventy-four per cent of the whole, tuition and fees to seventeen. Which is why, he wrote, free colleges are not really very free after all.
The objection was to the phrase, not the finding
Until 1964 capital meant plant, machinery and land. Counting a person's schooling as capital struck readers as treating people like machines or like slaves. He returned to the reception in a later introduction, by then mainly to note how completely the objection had faded.
Most people can list the projects they ran and not one of them can say what those projects made them worth.
The tuition line is the small line
He split the cost in two: money handed over, and money not earned because you were studying instead. On the 1939 accounts the second was almost three-quarters of the total. Abolishing tuition removes the smallest item on the bill.
A weekend course costs you the fee plus the two days of work that did not happen.
This asset cannot be sold or pledged
He is blunt about the defect. Human capital is extremely illiquid: it cannot be sold, and it makes poor collateral on a loan. You cannot slice off part of your future earnings and sell it, so there is one way to pay - earn less for a while.
What stops most career changes is not the fee, it is the six months of income nobody replaces.
Twenty-five and fifty differ in years, not in rate
He separates the two deliberately. The rate of return on the same outlay may be identical at every age; what differs is how many years you get to collect it. Younger people invest more not because they learn better or carry less, but because they collect longer.
Before deciding whether to learn something at forty, count the years you will use it, then look at the fee.
A footnote from a children's book
Making the point about remaining years, he adds a note from an animal book he read to his children: training a working elephant takes about ten years and nearly five thousand dollars, but the animal usually lives past sixty, so the outlay is not thought excessive.
A skill good for twenty more years and one obsolete in three are not the same purchase at the same price.
How do I use it today?
Where you are: you have some money set aside and are deciding where to put it, while privately feeling you have not got much better at anything lately.
Ask first: over the last twelve months, how much did I put into myself - not the fees, but the earnings I gave up to learn it, written down as a number and set beside what I invested.
Where it goes wrong: reading it as stop investing, take a course. He is computing a rate of return, not recommending an attitude. A course is worth it if what it adds to future earnings beats what you gave up, multiplied by the years you will still use it.
Lines to keep
Tuition was seventeen per cent. The four years were the rest.
This asset cannot be sold, and makes poor collateral.
The young invest more because they collect for longer.
Same situation, other people are asking
Cash sitting still makes me anxious.I'm busy and earning, and it all stops the day I stop.I spotted something before the professionals did. Is that enough?I can't tell whether now is the time to be careful or bold.Making money work · all 8 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.