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October 03, 2006



I don't get the analogy between dividends and income tax. Corporations pay tax too and that seems the appropriate counterpart.

Dividends are paid in return for investment in capital - the government doesn't directly invest in your human capital so shouldn't be entitled to a "dividend".

Tax on the other hand is a different issue. As I said - it's not as if corporations do not pay it.


I was merely thinking that the government owns a share of me, and takes a dividend thereon, just as shareholders own part of a company, and take a dividend.


I see where you're going with this but I agree with Piyush. The right analogy would be CT. Makes you think though.

I agree with the primitiveness of human capital financing vs corporate finance. I remember many years a go a news story about a female musician who essentially did an IPO of her future career and I thought, rather optimistically, ideas like that would take off. Sadly they haven't.

Re your other question about risk and reward I think this is taken care of: investment bankers vs civil servnats. It's crude and could be better, but it's there.

As for young people having lower payout ratios, surely the benefit should (partly) go to those parents who invested in their child's education? A sort of capital allowance, or R&D credit??

Piyush Pant

I hold a totally different view. I think human 'markets' are far more sophisticated than mere capital markets. They do a much better job of allowing people to value 'intagibles' that a human asset has. Human markets allow us to form social collaborations and benefit from attributes that cannot be easily monetised whereas as an investor in a company, one's predominant relationship with a company and its assets is based only on the cash flows exchanged between the two parties. As an example, the readers of our blog are investing their time in your human capital - your thoughts and ability to write - and getting a 'dividend' out of that. This is indeed a valuation of your capital. A similar argument can be constructed to show that social relationships and groups are complex ways of valuing the inherent human capital that individual members have.

Humans and businesses are both elaborate collections of tangible and intangible assets - human markets just make much richer ways of fully realising their inherent value.

angry economist

One of the main features of human capital is that control of it is with the individual, unless we reintroduce slavery.

Some features of labour - the individual can withdraw their labour at any time, human capital cannot be transferred from the individual to another entity, labour and human capital are deployed at a certain point in time, and can't be stored up.

The main barrier to what you suggest is that if you invest in human capital, you get no security or asset to remove to compensate your investment. If it fails, it fails. Its risky. And there's no threat of asset recovery/receivers to motivate performance. Someone could marry a wealthy partner and pack in work and then you're investment is knackered.

There might be more sophisticated methods of exchange of labour for other goods though, I'll be interested in that...


couple of answers:

[Of course, there are problems writing and enforcing such contracts. But are these really insuperable?]

yes. It would involve having a government today writing contracts on behalf of the government of tomorrow, something which is streng verboten as a fundamental principle of public finance. There's no basis for it in common law. Also, huge moral hazard.

[In principle, groups of workers in an occupation or industry could agree to sell shares in their human capital to others]

But they can already do this by forming a limited company and floating it. The fact is that people don't in general want to buy shares in human capital dependent industries other than at exorbitant cost.

The reason that government and human capital financing is more crude than corporate financing is that the legal basis is not there to provide a solution from outside the machine for the massive conflicts of interest and incentive compatiability problems that arise; and nor is there any way of getting it unless you are prepared to countenance a legal system that allows things like selling yourself into slavery or allows creditors to remove a democratically elected government.


as a recent arrival I haven't had the benefit of your opinions on pensions, but the drive to make young people "save for their pension" when young people are all in debt always strikes me as dishonest and wrong. They can only "borrow for their pension", and borrowing to invest in other people when they should be investing in themselves seems wrong.


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