Discussion of Educational/Human Capital Depreciation and Tax Treatment

... But unlike the wonderful “one-hoss shay,” the productive life of educational capital typically does not go to pieces all at once. It depreciates along the way, it becomes obsolete, it is altered by changes in retirement and by the state of employment ... ... As already noted, educational capital, like reproducible physical capital, is subject to depreciation and obsolescence. The established tax treatment takes account of both depreciation and obsolescence in the case of physical capital, but this accounting is not extended to education capital... In brief, our tax laws... appear to be all but blind to the fact that educational capital entrails maintenance and depreciation, becomes obsolete, and disappears at death... These excerpts clearly show Shultz’ meanings of pure and invested consumption, and of human deprecation. He says “pure investment” in place of my “invested consumption”, but I prefer to follow tradition by applying “invested” to physical capital alone. We also see his belief, with which | disagree, that substantial invested consumption continues after independence and physical maturity. For example, he writes “Direct expenditures on ... health and internal migration ... are clear examples.” I interpret these outlays, when applied to adult workers, as maintenance consumption preserving rather than adding skills, and enabling current pay rather than invested for higher pay later. | agree that self-invested work “to improve skills and knowledge ... accounts for most of the impressive rise in the real earnings per worker ...”. But | don’t share Schultz’ view that the “use of leisure time” accounts for much of this improvement. My years in plants and oilfields and offices have given me an impression of some study by workers during leisure time, but mostly passive accumulation of experience and insight while fully at work on the job. Practical Uses One obvious use of the human capital idea is to compare the factors (human and tradeable capital) in the same dimension. Capital and labor cannot be added, as Petty knew, since capital is measured in dollars where labor is measured in dollars Chapter 5 Bringing Human Capital In 1/13/16 4 HOUSE_OVERSIGHT_011023