Main content
Course: Finance and capital markets > Unit 7
Lesson 5: Investment and consumptionHuman capital
Basic overview of capital and human capital. Created by Sal Khan.
Want to join the conversation?
- How should I think about the ownership of capital? The classical capital has a clear ownership aspect (in a market system): the investor is the legal owner. Can human capital be owned?(10 votes)
- Human capital shouldn't be thought of as "people." It's an abstract concept. Its the knowledge and skill set that gives a person the ability to add economic value. The employee is the owner of their own capital. If you make a human capital investment (money paid) on a person which allows the organization/company to be more productive, whether its training or hiring additional headcount--the money spent on those people is, hopefully, a capital improvement. Similarly, if you build a new plant that can triple your output, you are investing in physical capital to improve your productivity.(24 votes)
- Is spending money on education Investment on Human Capital ?(4 votes)
- Yes, as long as the education will help produce something. Investing in a masters in finance would be great for some organizations while a masters in art history may not be such a useful investment for the same organization.(3 votes)
- At2:00, "Classical sense" as opposed to what?(2 votes)
- Think traditional/classical capital, like the resources on the left, vs. what Sal refers to as modern terms such as human/financial capital. In the "classical sense", you're looking at items built. In the modern sense, you're working on investing in productive people who will make better product.(2 votes)
- Could capital be redefined for human capital?(2 votes)
- Dear Sal,
What is rate of return invest in human capital?
Is the rate of return in human same as in the physical capital?(0 votes) - why was it called a human capitol(0 votes)
- Capital is considered an investment in something which expands toe ability to produce or provide out put. Human is the investment in people that increase their value in the production - out put of a company or group.(3 votes)
- Здравствуйте,друзья!Как быть тем кто не знает английского языка?(0 votes)
Video transcript
If you wanted to build
or produce most anything, I want to think a little bit about
what you would need to do it. I have some pictures here, just to get our imagination going. These guys are up to
making something with iron or maybe making iron bars, or making some type of thing out of iron. Right here is an old picture of some planes being made in a factory. Let's just think, in very general terms, of things you need to produce anything. First of all, you're
going to need some land. That's definitely true
if you're running a farm, or if you're trying to produce timber. You definitely need land
even if you have a factory. Obviously, both of these factories are sitting on top of some land. Then, you're going to
need a building, maybe. Most probably a building. You're going to need
some tools and equipment. Tools and equipment. Then, you might need some raw material. In this case it might be iron. Over here too, you would need some metal. You might need some
electricity or some oil to keep the production lines going. You're going to need some raw materials. Raw materials. Then, you're going to
need people to actually work in your factory. These guys putting these hot bars of iron inside of whatever this
thing right over here is, or the people working on the factory line. You don't see any here. This must be off time. You need people to actually
work on the factory line, to tighten bolts and
all the rest of things. You're going to need labor. If you put all of these
things together ... Let me put them all together. If you put all of these things together then you should be able
to produce your product. You'll be able to output
whatever you set yourself to do. In the classical sense, when you think about all
of these different things that you might put into production, sometimes they're referred to
as the factors of production, they separate out ... This is in the classical sense. They separate out building
and the tools and equipment as one of the classes. You have land. You have labor and you have buildings. Sometimes, just to throw it in there, sometimes you'll throw in management or organization in here. Someone needs to figure out how to layout all of this type of thing. This could also be a factor of production. Buildings and tools and equipment, they're kind of separated
out from everything else. In the classical sense, they're referred to as capital. They are referred to as capital. They kind of have this
separate distinction, because these are things
that are made by human beings for the specific purpose
of producing other things. Obviously, there are other things that are made by human beings. For example, you could have a ... Let me think of something
that's nicely ... A hat. A hat is clearly made by a human being, but it's not produced
to produce other things. It's meant for fashion. It's meant to kind of improve
someone's quality of life. It's not made to make other things. In this case, the building and the tools, the whole reason why they were made is to make other things. In the classical sense, they are referred to as capital. If we go to kind of more modern times, you'll hear words like "human capital" or "financial capital." You'll see a lot of
different types of capital that people try to talk about. Human capital or financial capital, so what are they talking about? In the classical sense, capital were things that people made so that those things can
help us make other things. The analogy is, is human capital isn't just straight up labor. It plays a role in it. In modern times, when people
talk about human capital, they're trying to make the same analogy. They're kind of
investments made in humans, so that those humans are better
at producing other things. Human capital, when people refer to it, they are things like education, skills, talents that someone might have, talents, experience that someone
might have inside of them or that were invested in them, (if you think about the
situation of education) that make them more productive. They're things that are
thrown into a human being that make them able to
produce more output. This is what people refer
to as "human capital" and how it's different than
just straight up labor. Labor is just ... Look, any human being can go there and move something from
one place to another or pick something up
and put it on a shelf, or take it off of a shelf
and put it on another shelf. What human capital is, are
the investments in that person that make them more
productive, more skilled, more able to do more interesting things. The same thing is true (just to throw it in there, just so you can kind of see this analogy) is financial capital. You could just say, "Look,
there's something …" There's money for money's sake that you could use to buy a hat, or that you could use to buy really almost any of these other things. When people talk about financial capital they're talking about money that's being used for the purpose of producing more output. You could view it as the money that you actually need to run a factory. For example, they'll
call it working capital. It's the money in the cash register, so that you can actually run your store or run your restaurant. Or, it could be money that's
put to work by buying ... Kind of traditional capital, for buying these capital goods, so that you can produce more output. The whole idea here, I just want to introduce
you to the idea of capital. It's central to the word
capitalism in it's classical sense and then maybe in the more modern sense. Especially when people talk about something like human capital.