« Bugger Baghdad | Main | Life expectancy and over-confidence »

July 25, 2005



£18.8 trillion? Quick, sell it.


Last year wages were £648.7bn. We can think of this as the income yielded by our asset, human capital. If we assume, heroically, that the yield is 5 per cent, then our human capital stands at £13 trillion.

How are you factoring in the people (by which I largely mean women) who are not economically active because they are caring for small/ill/older people? They are unwaged but are quite literally productive, given that they can make new wage slaves with their own bodies.

john b

You could try adding a company's human capital into an estimate of its book value, but (even though I'm not an accountant) I'm reasonably certain you'd end up accused of more-than-slightly sharp practice...

Angry Economist

What about factoring in the depreciation of human capital?

Rob Read

How about looking at how much it costs to buy a gilt that pays the average wage?

SlaveCost * 4.2/100 = 25,000 GBP.

So each UK slave costs 595 Thousand GBP!


Lots of confusion here ....

If our total capital assets are just £5.8 trillion, this means we'll earn a return on them of over 20 per cent. That's absurdly high

No it isn't or at least not in principle. It would be high for a company operating in a competitive industry but there is no very strong competitive force bidding down returns on the whole UK economy to a model-derived cost of capital. Also note that a company would not count wages paid as part of the return on its capital but the GDP concept you are using here does.

, especially considering that £3.4 trillion of this £5.8 trillion consists of a consumer good, housing, most of which yields little direct income

But it does. It's an important factor of production in producing labour-power. How much of that stock of "human capital" you're keen on capitalising here is attributable to people who don't live in a house?

In any case, you can't describe this as "plain wrong". It's the value of the UK stock of capital assets (including housing) at replacement cost. Human beings don't have a replacement cost (or a market value) so they're not included. It's a perfectly sensible basis on which to draw up a balance sheet.


Emma, cut the feminist nonsense - specifically raising the issue of women as if they are somehow discriminated against... well they are POSITIVELY by our society.
Unpaid people have a wage of £0. Anyway wages just describe movement of money not wealth. Hence we can have people not on wages getting money - pensions, benefits, pocket-money, etc. But if I move one £10 note between 100 people, the total income may be £1000, but there's still only one £10 note.

This is intrinsically why the US GDP can be so high, but I would favour Europeans and Japanese have more assets (wealth), since our savings are about 3-5 times higher.

john b

Monjo - I strongly advise you to not say anything again until you've read up on a) discrimination b) economics.

Paddy Carter

fair point that GDP is not the return to capital though - more like revenue than profits.


John B: You're right. A company would be accused of sharp practice if it tried to include human capital in its balance sheet. But this is because, in the absence of slavery, it lacks ownership of those assets. It's not because human capital is a meaningless concept. I own my human capital. And it's worth a few bob. Why count the vaule of my house as wealth but not the value of the asset that generates most of my income?
D-squared: An aggregate return on assets of 20 per cent is surely high, given that companies only earn 12.2 per cent on their assets:
And people do have a replacement cost, if we consider them as factors of production. If I leave my job, I'll have to be replaced. That's a cost to my employers.
Angry Economist: There are too many conceptual problems with depreciation. And human capital often appreciates. Why do experienced workers earn more?
Emma: I - like the GDP figures - was ignoring unpaid caring activity, and indeed, all other unpaid activity. GDP isn't intended to measure everything, only incomes; it excludes countless valuable things from love to a pretty view. By all means, argue that women's activities are under-valued by men and society. But GDP figures are a red herring here.
Everyone: my idea here was really very simple. It's that income can only come from an asset. And our labour power is a huge asset. So why not regard it as such?


Chris: that 12.2 per cent:

1) doesn't include "UK Continental Shelf Companies" ie the oil sector which has a much higher rate of return on assets and is not an insignificant part of the economy
2) is net of depreciation, which the *Gross* Domestic Product isn't.

In the circumstances, I think 12.2% for corporate RoA is remarkably consistent with the 20% figure.

If you leave your job, your employers do not replace you with a newly created person. In fact they don't "replace" you at all because they never owned you. They just rented you and they will rent someone else in your place. If you die then the economy as a whole will have to replace you (in a statistical sense; the economy doesn't really own you either) but it will replace you with a new person created at zero cost through the miracle of childbirth. Despite what Dilbert's boss thinks, people aren't assets, which is why they don't fit into a balance sheet framework.

David Gillies

So, interviewing a set of applicants for a vacant position is a zero-cost activity, eh? Try telling that to my boss. He lost four man-days of productivity (by my estimate) just in the interview process the last time we hired a new software engineer as a replacement for my deputy who got lured away to another firm. Then factor in the learning curve the new hire had to experience before he was working at full steam.

If I die, it will be zero cost to my employer to replace me, because at the moment of my death, some squalling infant with twenty years' experience in the field and an encyclopeadic knowledge of the system I've been working on for four years is being pinched out God knows where? Tell it to the Marines.

Not everybody works in a factory screwing the caps on toothpaste tubes. People are not fungible. My productivity comes about as a result of the very large amount of capital that has been expended on my education and training (by comparison, the physical capital inherent in the computer equipment I require to do my job is nugatory).

The comments to this entry are closed.

blogs I like

Blog powered by Typepad