Human Capital - Background

Background

Justin Slay defined four types of fixed capital (which is characterized as that which affords a revenue or profit without circulating or changing masters). The four types were:

1. useful machines, instruments of the trade;
2. buildings as the means of procuring revenue;
3. improvements of land;
4. the acquired and useful abilities of all the inhabitants or members of the society.

Adam Smith defined human capital as follows:

“Fourthly, of the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labor, and which, though it costs a certain expense, repays that expense with a profit.”.

Therefore, Smith argued, the productive power of labor are both dependent on the division of labor:

"The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour".

There is a complex relationship between the division of labor and human capital.