The measurement of human capital
By John F. Sase, Ph.D.
Gerard J. Senick, senior editor
Julie G. Sase, copyeditor
William A. Gross, researcher
“Morality is dictated by family, state, society, church, God, and conscience. Speculative Metaphysics imagines forces and adds them on to what is actually experienced. Materialism makes human beings into automatons whose conduct is the result of mechanical law. Spiritualism makes human beings into slaves of the Absolute.”
—Rudolf Steiner, “The Philosophy of Freedom: The Basis for a Modern World Conception” (Rudolf Steiner Press, 1893)
As a practicing Forensic Economist, my work includes the measurement and analysis of economic losses; preparing written determinations in respect to these losses; consulting with attorneys and their clients; participating in discovery depositions that are initiated by opposing counsel; and providing testimony of my findings, conclusions, and opinions in courts of law.
Throughout my career, the majority of the cases on which I have worked have involved the determination of economic losses accruing to human beings over time. These damages are due to severe injury or loss of employment as well as to the losses that beset the families of victims who have suffered wrongful death or permanent disability from their injuries or from medical malpractice. In order to perform such work, Forensic Economists must remain objective while relying upon data, theories, and literature from the subfield of Economics that is known as Human Capital Economics (HCE), the stock of competences, knowledge, and personality attributes embodied in the ability of a person to perform any kind of labor that produces an economic value. In order to maintain sufficient affluence in a sustainable economy, it is important to consider human beings in terms of their capabilities, regardless of their physical and mental abilities.
Human Capital
Roman writer and statesman Cicero (106-43 BCE) described a slave as an instrumentum vocale—a tool that talks. In this current millennium, enfranchised workers not only employ inanimate tools that talk but also use HCE as a language that speaks for us. Nevertheless, this body of theory and methodologies does not entail the reduction of human status to that of machinery, regardless of what Cicero suggests. Instead, HCE constitutes our science for measuring the economic outcome of independent human decisions. Furthermore, HCE helps us to document, to predict, and to support the value of forensic economic analysis scientifically to any legislative or judicial body.
In the field of Economics, the work of American Economists and authors Gary S. Becker, a Nobel Laureate in 1992, and Jacob Mincer form the cornerstone of the Theory of Human Capital. A half-century ago, Becker and Mincer developed modern Human Capital Theory (HCT), which emerged through the publication of Becker’s “Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education” (Chicago University Press, 1964) and Mincer’s “Schooling, Experience, and Earnings” (National Bureau of Economic Research, 1974).
The Theory of Human Capital encompasses many concepts and methods. We can summarize these as 1) mathematical formulae to provide cost/benefit analysis directed toward solving social problems, 2) methods of calculating the economic dividends derived from an investment in education or job training, and 3) formulae for determining the economic benefits of any activity, from reading a book to removing lead from our supply of gasoline to improve public health.
Metaphysical Economics?
Modern society holds the common, though albeit superficial, belief that the simple increase in our access and exposure to cable television, the Internet, and their myriad of permutations result in our current “Information Age.” In his book “The Medium Is the Massage” (Penguin Books, 1967), the Canadian author and philosopher Marshall McLuhan foresaw this phenomenon when he referred to television as a “cool media,” one that draws us into the medium itself and demands our involvement to compile the information that we assimilate.
However, writing at a more fundamental economic level in “Schooling, Experience, and Earnings,” Jacob Mincer describes technical “know-how” to which we will refer as a contrasting definition of the Information Age. He states, “The investment-earnings relation is a sense of describing equilibrium loci in the capital market as well as in the labor market in which Human Capital is supplied as a factor of production.”
In other words, technical know-how (information) has emerged as an element that has become as fundamental to economic success as those of raw materials, tools, or financial capital. In addressing this issue, Becker and Mincer both provide the methods for the calculation of the economic value of individual “Human Capital” through the analysis of factors that include formal education, on-the-job training, age, experience, and social background. Furthermore, we now use these methods to determine mathematical trajectories through the measurement of these combined factors, which vary over time. As a result, the tools developed by Becker and Mincer provide us with a motion picture of Human Capital rather than a still-life snapshot. Nonetheless, their economic models remain mechanistic ones.
On the base level, Human Capital reflects accumulated know-how, a point addressed by American author, architect, systems theorist, designer, and futurist R. Buckminster Fuller in his last book, “Critical Path” (St. Martin’s Griffin, 1982). “Bucky” explains “The large issue today is the technical know-how that governs the transformations of energy between its two states.
Know-how is metaphysics. Metaphysics now rules.” (Note: Metaphysics is concerned with explaining the fundamental nature of being and the world.) Furthermore, Fuller describes metaphysics as “consisting only of weightless, dimensionless, abstract thoughts and mathematical principles….” Therefore, in its essence, we can consider modern HCE to be “Metaphysical Economics.”
Fuller continues, “When the head of one of the USA’s largest banks was asked what ‘commodities’ were involved in that bank’s import-export dealings with the rest of the world on behalf of the Chinese government, he answered that know-how was the prime commodity being acquired by the Chinese through that bank.” Therefore, following this line of thought to its conclusion, we can say that Human Capital gains its value when know-how is translated into human action.
However, let us ratchet up our discussion to a higher notch through the paraphrasing of Rudolf Steiner’s explanation of the preceding phenomenon from his Anthroposophical point of view (Note: Anthroposophy postulates the existence of an objective, intellectually comprehensible spiritual world that is accessible to direct experience through inner development.) The individual, whose “I” manifests his/herself through the “Id,” in turn develops an “Idea” through the Human Mind. One transforms this Idea (i.e., the know-how) into action through the Human Heart. This postulation suggests that Human Capital must transcend the simple mechanics and metaphysics that cloud our perception, which contributes to our superficial vision in this Information Age. Instead, the concept of Human Capital must act through our individual and collective Human Hearts. Therefore, such action must remain true to stay a critical course that leads to positive long-run outcomes for humanity.
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