Human Capital for Humans: An Accessible Introduction to the Economic Science of People

By Pablo A. Peña

An accessible introduction to the most consequential science of modern life.

University of Chicago economist Gary Becker won the Nobel Prize largely for his advancement of human capital theory—the idea that investing in a person’s knowledge and skills has a wide range of economic effects. Becker’s writing on the subject was technical, but his teaching, especially in his famous doctoral course at Chicago, remains legendary for its accessibility, brilliance, and applications to everyday life.

In Human Capital for Humans, economist and former Becker student Pablo A. Peña channels this classroom approach to produce an accessible, essential guide to understanding the science that has become synonymous with modern life and the economy. With an illustrative and immersive style, Peña unpacks the human capital approach to domains such as parenting, aging, marriage, health, and household labor. The result is not only intellectually elevated, but an essential introduction for learners and teachers of this subject across business, management, economics, policy, and beyond.
 

• Language: English
• Publisher: University of Chicago Press
• Release date: Aug 26, 2025
• ISBN: 9780226841458

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Advance Praise for Human Capital for Humans

What do economists know about human capital, namely the productive use of our talents and training? Pablo A. Peña has produced a fun and easy to read guide on this topic, the best treatment we have.

Tyler Cowen, George Mason University, host of the Marginal Revolution blog and the Conversations with Tyler podcast

"You don’t need a PhD from the University of Chicago to appreciate Human Capital for Humans—but you might want to pursue one after you finish! A rollicking ride through basic questions concerning the human condition, as seen through the lens of economics. I guarantee that you’ll viscerally disagree with at least one proposition herein, and that alone should be worth the cost of the book itself."

Angela Duckworth, author of Grit: The Power of Passion and Perseverance

"With a lively narrative, Human Capital for Humans explains in an accessible way some of the most remarkable contributions of one of the most influential economists in recent memory, Gary Becker. It is a great introduction to human capital theory and even to economics in general, placing human beings and their most consequential decisions front and center. The book is a terrific reminder that economics is ultimately about people, and that it can be absolutely fun."

Michael Kremer, corecipient of the 2019 Nobel Memorial Prize in Economics

"In Human Capital for Humans, Pablo A. Peña brilliantly captures the essence of what makes economics not just about markets or money, but about people. Drawing on the revolutionary insights of Nobel laureate Gary Becker, Peña takes readers on an eye-opening journey, exploring how our everyday decisions shape who we become and what we achieve."

Steven Levitt, coauthor of Freakonomics: A Rogue Economist Explores the Hidden Side of Everything

A thorough and engaging introduction to the ideas that made Gary Becker one of the most influential economists in modern times.

Kevin Murphy, coeditor of The Economic Approach: Unpublished Writings of Gary S. Becker

"Human Capital for Humans offers a captivating exploration of the economics of human capital, injecting a fresh perspective into the field. Through accessible and engaging narratives, it underscores the significance of human capital in a manner that resonates with readers. Drawing inspiration from the groundbreaking work of Gary Becker, this book breathes new life into his teachings with compelling stories. The book makes human capital theory accessible and appealing. So, as the preface suggests, sit back, relax, and prepare to be enthralled by the economics of human stories."

Harry Patrinos, Department of Education Reform, University of Arkansas and Senior Advisor on Education, World Bank

This very fine book achieves the dual purpose of making human capital theory more engaging for seasoned experts while remaining accessible to a broader audience. It also serves as a fitting tribute to Professor Gary Becker, a towering figure in this field of economic analysis. His insights have been instrumental in understanding human behavior and formulating key strategies for development, which can now be further disseminated thanks to Pablo A. Peña.

Ernesto Zedillo Ponce de León, Yale University and former President of Mexico

Human Capital for Humans

Human Capital for Humans

An Accessible Introduction to the Economic Science of People

Pablo A. Peña

The University of Chicago Press    Chicago and London

The University of Chicago Press, Chicago 60637

The University of Chicago Press, Ltd., London

© 2025 by The University of Chicago

All rights reserved. No part of this book may be used or reproduced in any manner whatsoever without written permission, except in the case of brief quotations in critical articles and reviews. For more information, contact the University of Chicago Press, 1427 E. 60th St., Chicago, IL 60637.

Published 2025

Printed in the United States of America

34 33 32 31 30 29 28 27 26 25     1 2 3 4 5

ISBN-13: 978-0-226-84144-1 (cloth)

ISBN-13: 978-0-226-84143-4 (paper)

ISBN-13: 978-0-226-84145-8 (e-book)

DOI: https://doi.org/10.7208/chicago/9780226841458.001.0001

Library of Congress Cataloging-in-Publication Data

Names: Peña, Pablo (Pablo A.), author.

Title: Human capital for humans : an accessible introduction to the economic science of people / Pablo A. Peña.

Description: Chicago : The University of Chicago Press, 2025. | Includes bibliographical references and index.

Identifiers: LCCN 2024054362 (print) | LCCN 2024054363 (ebook) | ISBN 9780226841441 (cloth) | ISBN 9780226841434 (paperback) | ISBN 9780226841458 (ebook)

Subjects: LCSH: Becker, Gary S. (Gary Stanley), 1930–2014—Influence. | Human capital—Economic aspects. | Development economics. | Families—Economic aspects. | Labor economics.

Classification: LCC HD4904.7 .P3653 2025 (print) | LCC HD4904.7 (ebook) | DDC 658.3—dc23/eng/20250205

LC record available at https://lccn.loc.gov/2024054362

LC ebook record available at https://lccn.loc.gov/2024054363

This paper meets the requirements of ANSI/NISO Z39.48-1992 (Permanence of Paper).

To my parents. This is part of the returns on your parental investment.

To my assortative match. May our household production continue getting better and better.

To my sons. It’s wonderful to be part of your journey of human capital accumulation.

Contents

Preface

Introduction

1  Defining Human Capital

2  Parental Investment

3  Family Technology

4  Nature and Nurture

5  Parents in Old Age

6  Adulthood

7  Health

8  Marriage

9  Fertility

10  Tastes

11  Division of Labor

12  Economic Growth

13  What’s Next?

Acknowledgments

Notes

References

Index

Preface

As an economics instructor, my daytime nightmare is being like Ben Stein’s character in the film Ferris Bueller’s Day Off. Stein plays a teacher monotonously explaining economic policies to a bored-to-death audience, asking unresponsive students to complete his sentences: Anyone? Anyone? That’s not how I want my lectures to go. And that’s not how lectures went when I was a student in courses related to the subject of this book. Human capital is fun. Since human capital is at the center of economics, by extension economics should be fun. Yet more often than not, that seems like a wrong assessment.

If you open an academic journal of economics, you are not going to have fun reading it. In fact, you probably won’t be able to comprehend much. The articles you’ll find are far too technical, and making sense of them requires heavy intellectual baggage. Of course, those types of publications are not meant for a general audience. But even people with decent economic training often feel intimidated and, even worse, turned off by the arid view of economics those publications usually offer. The purpose of this book is to help change that by focusing on some of the most important topics in economics and explaining them as plainly as possible.

Be they a Greek tragedy, a Shakespearean drama, Star Wars, or Breaking Bad, the tales that move us usually have stories about love at their core. Anakin turned to the dark side to save his beloved Padme. Walter White became a criminal to secure money for his children’s future. These are stories about people making choices—sometimes poor—led by love or the desire to be loved. War, murder, and spaceships are just bells and whistles. In this book, I will try to convince you that economics is fun because it fundamentally is about the same types of decisions that are the cornerstone of your favorite dramas and, actually, your own life. Human capital is about humans, their loved ones, and their life stories.

If there is an economist who can claim the title of the anti–Ben Stein for making economics fun and engaging, that’s Gary Becker (1930–2014). It’s not that he was a fantastic entertainer. He was all business, but the hook was in the subjects he analyzed. The essence of this book is inspired by and adapted from the doctorate-level course on human capital Becker taught for years at the University of Chicago. Its contents are too good to not share with everyone interested in, well, humans. My hope is that acquainting yourself with human capital theory will make you excited about economics (if you aren’t yet). But even more importantly, this theory will help you grasp where humanity is coming from and where it is headed, all in plain language, without equations or complicated graphs. Please relax and enjoy.

Economists . . . deal with man as he is: not with an abstract or economic man; but a man of flesh and blood. They deal with a man who is largely influenced by egoistic motives in his business life to a great extent with reference to them; but who is also neither above vanity and recklessness, nor below delight in doing his work well for its own sake, or in sacrificing himself for the good of his family, his neighbours, or his country; a man who is not below the love of a virtuous life for its own sake. They deal with man as he is: but being concerned chiefly with those aspects of life in which the action of motive is so regular that it can be predicted, and the estimate of the motor-forces can be verified by results, they have established their work on a scientific basis.

Alfred Marshall (1842–1924), Principles of Economics

Teachers or students who attempt to act upon the theory that the most recent treatise is all they need will soon discover that they are making things unnecessarily difficult for themselves. Unless that recent treatise itself presents a minimum of historical aspects, no amount of correctness, originality, rigor, or elegance will prevent a sense of lacking direction and meaning from spreading among the students or at least the majority of students. This is because, whatever the field, the problems and methods that are in use at any given time embody the achievements and carry the scars of work that has been done in the past under entirely different conditions. The significance and validity of both problems and methods cannot be fully grasped without a knowledge of the previous problems and methods to which they are the (tentative) response.

Joseph A. Schumpeter (1883–1950), History of Economic Analysis

Introduction

Imagine that thousands of years from now—long after we are gone—a spaceship lands on our planet. The ship carries a team of alien archaeologists ready to dig around looking for clues about how humans lived, what we did, and how we organized ourselves. Their digging would produce one unquestionable finding: Somewhere around what we called the eighteenth century of the Common Era, humanity experienced a seismic change. Human bodies started to change. They became taller and heavier, and their lifespan grew dramatically. Since such drastic changes took place suddenly, the extraterrestrial researchers would conclude they couldn’t have been the result of evolution. As it turns out, those aren’t the only massive changes the aliens would uncover.

In the span of only a few generations, the human species has experienced a dramatic drop in its number of offspring. Prior to the eighteenth century, women had more babies than they do today. Seen from the outside, this is quite a surprising change. It’s not like humans became biologically less fertile or less able to care for their cubs. Quite the opposite. In comparison to the preceding millennia, in the last couple of centuries mothers became much less likely to die in childbirth, and parents were better positioned to guarantee the survival of their offspring. They gained access to technologies to assist them in the process of having and raising babies, from in vitro fertilization and incubators for premature infants to vaccines and fancy baby monitors. As having children became easier and less risky, the number of babies per woman plummeted.

Just as puzzling as the changes in fertility would be the transformation in where and how humans dwelled. We went from living scattered here and there to living on top of each other—literally—in urban centers. In a short span, we went from small rural communities to megacities with densities that would blow the minds of our ancestors. To gauge how shocking this actually is, picture an ornithologist studying where birds dwell. Wouldn’t that scientist freak out if, in a matter of just a few bird generations, an entire species went from dwelling in one nest per tree to one hundred nests per tree, all while leaving other perfectly fine trees empty? You bet she would.

Our bodies changed, our reproductive patterns changed, and where and how we lived also changed. And our activities changed just as dramatically. Let’s think for a second. A few generations ago, humans were consumed by the physical work needed to survive—hunting, gathering, or working the fields. Now, most of us have sedentary jobs that impose few physical demands except for the occasional trip to the printer. Put more poetically, we used to eat our bread by the sweat of our brow. Now we eat our bread by the click of our mouse. To drive this point home, think about fitness and gyms. Not long ago, we used to be paid for our physical labor, to lift and carry stuff. Now, many of us pay to lift weights and ride stationary bikes. That would definitely get the attention of our imaginary extraterrestrial observers.

Another monumental change that occurred in the blink of an archaeologist’s eye is that, relative to our ancestors, we started outsourcing everything. Take a minute to count how many of the clothes you are wearing were made by you or a next of kin. How many of the things in your home did you or anyone in your family make? Should I even ask whether you grow your own food or built your own house? Unlike our ancestors, we get all that from other people. Of course, we don’t get it for free. We pay for it. Still, pretty much everything we consume is made by someone else. An alien with a sense of humor would say Homo sapiens rapidly morphed into Homo outsourcerus.

Other concurrent patterns would be apparent after digging and looking more carefully. One of them is the unevenness of the changes across groups of people. The alien archaeologists would find large disparities both between and within nations. They would see that not all groups of people experienced those radical changes at the same pace or to the same extent. Some went faster than others, creating inequality and stark contrasts between haves and have-nots. Prior to those changes, most humans were in rather similar conditions—all barely making it. Even the rich and the powerful led lives that, by twenty-first-century standards, were precarious. Painting with a broad brush, we would say life used to be very modest for everyone. As the change happened, the living standards of some groups took off faster than others. The alien archaeologists would notice this process when looking at the differences in the quantity and quality of artifacts and amenities found in shantytowns and gated communities.

Based on the abrupt change in how humans looked, how they reproduced, where they lived, and what they did, the imaginary alien Commission for the Archaeological Study of Humanity would conclude that something big definitely happened around the eighteenth century. The natural question would be, what was it? What gave rise to such tremendous changes in so many dimensions? Perhaps some readers are thinking it was the Industrial Revolution or the Enlightenment. Let me put those ideas to rest. Those concepts are part of the process described above, but not its cause. The inevitable question to anyone pitching those answers is, And what triggered them? Our aim here is to get to the bottom of the matter. To understand what caused the break in planetary trends (including the Enlightenment and the Industrial Revolution), we first need to think small. To explain macrotrends, we must first look at micropatterns.

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*

If you ever watched nature shows produced by the BBC, you probably heard the voice of David Attenborough. His way of narrating makes anything sound scientific and dramatic. What if we could have him describe one day in your life the same way he describes a family of cheetahs in the savanna? What would he say about a parent feeding broccoli to a reluctant child? What would he say of people marrying or buying a house? What of an adult man feeling guilty for not calling his mother more frequently?

The thought experiment above, which we could dub the Attenborough exercise, is not only amusing but also illuminating. It helps us pay attention to the animal essence of what we do and why we do it, putting us on par with other species and highlighting the differences. We tend to see ourselves as so far removed from other primates, mammals, and the rest of the animal kingdom that we lose sight of what makes us unique. Think, for instance, of altruism. Humans are highly altruistic. We are willing to sacrifice time, money, and happiness to help other humans, particularly our own children, including those not related by blood. That’s true even when our children are adults and their survival is not at risk. Most other species don’t even come close in those types of bonds. If you feel pain, you are alive, Leo Tolstoy said. If you feel other people’s pain, you are human.

We could add to altruism another element that distinguishes humans from other animals: the desire for transcendence. Many people make large sacrifices—family time, sleep, a relaxed lifestyle—to make a difference in the world, to be someone worth remembering. We dream of rising to the occasion and helping solve the big problems faced by our community, our country, or humanity. Animals don’t ask what their legacy will be. They don’t want to leave the world a better place when they are gone. Humans do. We want to be liked, but we also want to be remembered positively. In consequence, we get a kick out of helping solve big problems. We could say that we are microaltruistic toward our family and macroaltruistic when it comes to our legacy to society.

Another unique feature of humans is the deliberate acquisition of skills. Of course, one could argue that animals can and do acquire skills. After all, dogs can be trained. But from the viewpoint of the dog, this is not a conscious and deliberate process. The dogs that played Lassie in the popular television show didn’t know they were being trained or why. For all we know, they didn’t realize they were getting better at what their trainers wanted. For us humans, this is different. We figure out early on in our lives that we can get good at different activities. We also learn that being good at something may be useful later. We choose to explore, experiment, practice, and so on. In all this, there is a crucial ingredient: a sense of anticipation. We believe exploration, experimentation, and practice will bear fruits in the future. Animals don’t make that sort of calculation. They act instinctually. They may hone or grow their skills, but not in the same conscious way as a person who thinks getting a law degree will improve her ability to earn a good salary.

At first glance, some of the issues brought up here—altruism, desire for transcendence, deliberate learning—may not sound like part of the field of economics. All this sounds far from fiscal deficits, trade balances, or monetary policy. It is therefore totally fair to ask, what do economists have to say about all this? Economics is one of multiple ways to approach the essential question why do humans do what they do? Different disciplines offer different kinds of answers.

In theology, the ultimate answer may be because a divine being wants it that way. In psychology, it could be argued that one’s behavior is the result of pathologies stemming from childhood trauma. In biology, we could explain behavior with evolutionary reasoning. Our responses to different stimuli are the ones that turn out to be evolutionarily successful. In physics or chemistry, the focus is on cause and effect between neurotransmitters. We do what we do because of the flow of substances and electric currents in our brain. Economists take a different route and therefore have something different to say.

The economic approach to human behavior is all about incentives and markets. It’s about what people like and can afford. Among the things you can afford, you go for what you prefer the most. Such a simple principle can be extended to a wide range of behaviors, including marriage, fertility, and health. It may sound weird, even distasteful, to talk about the price of a child, a spouse, or one’s health. Of course, such things don’t have a price the same way a carton of milk at the grocery store does. They aren’t even sold on shelves or racks. But choosing whom to marry, how many children to have, or how much to exercise involves the interaction between tastes and affordability. Children may not have a price tag, but they require time, effort, and money. Some couples may not be able to afford two children or even one. In marriage, a woman chooses a spouse not among all possible spouses she likes but only among those willing to marry her. The rest aren’t feasible options. Working out is always affordable (one can do sit-ups pretty much anywhere). The issue is having the time and the desire to do it. Economics brings to the table the analysis of incentives to understand why people do what they do and how that behavior in turn affects markets and prices.

The premise of this book is that one single concept can help us make sense of many of the patterns observed in human behavior and living standards across centuries, as well as within and between countries. That concept is human capital. Its definition is a bit general and fluid, but in the proper context it would certainly help our alien archaeologists make sense of all the evidence from planet Earth. The purpose of this book is to explain the theory of human capital in an accessible way. Anyone interested in understanding the big changes humanity has experienced in the last few centuries as well as the disparities in wealth between and within nations will find in this book a simple framework to do it.

Here we should sound a note of caution. Human capital offers a perspective for understanding historical patterns as well as contemporaneous contrasts. Its utility lies not in the description of specific facts but on the interpretation of general forces. The human capital view is not about when one invention occurred or when a law was passed but on how the incentives people face evolved. Of course, the opening of the first school in the US and the enactment of child labor laws are important historical facts. But from the perspective of human capital theory, the ultimate prize is to understand the general forces that pushed for or were reinforced by those historic events. After all, the opening of the first school and the enactment of child labor laws responded to supply and demand forces. Without children willing and able to attend and teachers ready to teach, opening a school would have made no sense. Without a significant number of children working or without an alternative activity for them to engage in, child labor laws would have been pointless.

In a way, the theory of human capital provides a form of historical materialism, a bit like that of Karl Marx. The focus is not on the names of important people and the dates of notable events but on how regular folks made a livelihood. However, there is an enormous difference. Marx’s Das Kapital is about class struggles, be it between freeman and slave, patrician and plebeian, lord and serf, guild-master and journeyman, or bourgeois and proletarian—the same conflict recycled over and over. Human capital is not about the antagonism between oppressor and oppressed. It is about the trade-offs between parents and children and between our younger and older selves. The family and the person are at the center, not an anonymous mass. In that sense, human capital is a very personal notion. Anyone can see themselves reflected in the mirror of human capital, be it as a parent, a child, or an elder. There is always an angle we can identify with.

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Most readers of this book are neither nature show producers nor archaeologists from a different planet. Perhaps their interests lie more in the policy insights of human capital theory than in any natural or archaeological angle. For people with such interests, it’s easy to feel overwhelmed with the number of statistical analyses out there. The internet is a fire hose of empirical studies, and seeing the big picture may be challenging. A Google Scholar search of the term human capital produces over three million results (reading the summaries of the ones published in 2023 alone would take you six months). In this context, this book provides a conceptual framework to interpret holistically the results of any number of studies. Don’t expect to find here a survey of the literature on human capital. The goal isn’t to describe many specific studies or discuss their merits or shortcomings. I deliberately keep the mention of empirical studies to a minimum (which is not easy given the piles of clever analyses out there) and focus on ideas that are helpful to understand and connect findings across a range of subjects, all within one coherent framework.

The topics covered in the following chapters cut across subfields such as economics of education, labor economics, public finance, health economics, and development economics. We won’t get into many issues that are the bread and butter of those subfields. For instance, I won’t discuss the workings of labor markets, the operation of educational systems, or the basics of the health sector. Rather, this book offers an introduction to those different compartments of the economics discipline with human capital as the unifying theme in the hope that the reader can then look at any policy or program and reckon its effects from a human capital angle.

The book is arranged not too differently from the way Gary Becker structured his doctorate-level course, proceeding from the intimacy of the family to the aggregate of humanity (videos of those lectures are available on YouTube). Loosely speaking, the book has four parts. The first part introduces the concept of human capital (chap. 1). The second discusses families from the perspective of parents (chaps. 2 through 5). The third part looks at individual decision-makers in adulthood (chaps. 6 through 10). The fourth and last part is about markets and aggregate behavior (chaps. 11, 12, and 13). The core ideas in this journey are adaptations and interpretations of the work of Becker and his coauthors. However, I don’t make explicit references to them in an attempt to make the exposition as natural as a conversation, which also means leaving out mathematical models and technical diagrams.

For the enthusiasts who would like to go to the sources of inspiration of this book, here is a cheat sheet. Chapter 1 is largely based on the Ryerson Lecture that Becker gave at the University of Chicago in 1989 (published in 1991). Chapters 2, 3, and 4 are mostly based on his article with Nigel Tomes (1986), the Woytinsky Lecture he gave at the University of Michigan in 1965 (published in 1967), and his article with Kevin Murphy, Scott Duke Kominers, and Jörg Spenkuch (2018). Chapter 4 also draws from the presentation Becker gave at the American Economic Association meetings in 1992 (published in 2023) and the article with Kevin Murphy and Jörg Spenkuch (2016). Chapters 6 and 7 are based on his articles on education and on-the-job training (1962) and health (2007), respectively. Chapter 8 relies on his articles on household production (1965) and marriage (1973) and his book chapter on spouses and beggars (1996). Chapter 9 is based on his article on fertility with Gregg Lewis (1973). Chapter 10 draws from his articles on tastes with George Stigler (1977) and Casey Mulligan (1997). Chapter 11 is based on Becker’s articles on specialization with Kevin Murphy (1992) and on the sexual division of labor (1985, 1993). Chapter 12 relies on his article on economic growth with Kevin Murphy and Robert Tamura (1990). Lastly, chapter 13 is inspired in part by his article with Luis Rayo (2007).

It’s worth highlighting the time span of the articles that constitute the foundation of this book, from the 1960s to the 2010s. Of course, Becker wrote more than that and about more topics. For that reason, Tyler Cowen includes Gary Becker in his list of the greatest economists of all time and declares, He won a Nobel prize, and indeed could have won a half dozen of them. Here I focus on his most significant contributions in the area of human capital (which have thousands upon thousands of academic citations).

To make those ideas accessible to as many readers as possible (including those without an economics background), more than a few aspects of the original studies are omitted while others are considerably simplified. Additionally, some of the examples and applications discussed here are new (you won’t find them in the sources). I also introduce a few extensions that would have been fun to discuss with Becker. That’s one of the aspects that make human capital theory exciting. It is a living thing that can be applied to a wide range of questions, big and small, past or present, in rich or poor countries alike.

Throughout, I intentionally cite people who preceded Becker to make one important point. When human capital theory was developed by Becker, Theodore Schultz, Jacob Mincer, and other great minds, they were not starting from zero. Some aspects of this theory had been floating around for a while. Sure enough, when Becker and friends worked on it, they went much deeper than anyone ever did and put it on the map. Prior to that, in the midtwentieth century, human capital was nowhere to be found in economics dictionaries or books on the history of economic thought. Now, such an omission would be inconceivable.

Initially, human capital theory was met with skepticism by some economists, as if it were reaching into areas not suited for economic analysis or where it would provide no real insights. This sentiment is best exemplified by the satirical article The Economics of Brushing Teeth from 1974 by Alan Blinder. As it has grown and matured, human capital theory hasn’t been free of criticism. But critics have mostly targeted specific assumptions or results, not the framework it provides. According to Alfred Marshall, a towering figure in the discipline, economic theory is not a body of concrete truth, but an engine for the discovery of concrete truth.¹ When understood as an engine for discovery, the approach developed by Becker and colleagues is very much alive and kicking and more popular than ever before. In A Little History of Economics, Niall Kishtainy explains, Many of Becker’s ideas have become so influential that it’s easy to forget how controversial they once were. Today economists constantly talk about ‘human capital.’²

The first step in our journey is the definition of human capital. So, what is it?

1 * Defining Human Capital

For people in a hurry, human capital can be defined as a form of capital that is embedded in humans. It’s the ability to produce goods and services that cannot be separated from the person possessing such ability. That’s it. Now, for people with more time and curiosity, human capital can be described by the list of skills we possess that allow us to generate ideas and create things that are valuable.¹ Human capital lets us solve a wide range of problems, from the most trivial (which film we watch on a rainy evening) to the most consequential (what job we take or whom we marry). Human capital is knowledge as well as the skills needed to apply that knowledge in a valuable way. It includes intellectual and physical attributes. It’s brains and brawn. It also encompasses what we generally refer to as character, determination, self-regulation, and so on. The next time you buy a bestseller at the airport on how to improve your health or build better habits, you’ll be picking up a book that talks about human capital.

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The first thing to know about human capital is that it isn’t fixed or predetermined. Sure, like many other species on the face of earth, human cubs are born already programmed to be able to do many things. However, by learning to read and write, add and subtract, and so on, they increase their ability to solve problems, generate ideas, and produce things. Those are all ways to increase one’s human capital, and the process is not limited to what happens inside schools. We learn a lot at home or on the streets. Through everyday interactions with our parents, we learn about how society works and how we should behave to avoid becoming pariahs. The same can be said about our contact with neighbors and even random strangers in what is often referred to as the school of life. Even working out at the gym or playing video games can be thought of as a way to develop abilities that increase our human capital. Not all abilities are equally valuable, however. Some abilities are just curiosities that may get you a round of applause in a talent show but no more.

Like other forms of capital—say, machinery—human capital depreciates. Perhaps the best evidence of this is that by age forty, we’ve forgotten much of what we learned in high school. To a large extent, human capital depreciates simply because the human body decays as it ages. Our ability to perform physical and mental tasks declines. Even great athletes and intellectuals eventually retire or stop being productive. Of course, not all abilities decay at the same pace. Physical skills tend to reach a maximum earlier than intellectual skills. Yet even among physical skills, some peak earlier than others. Female gold-medal gymnasts are usually teenagers whereas the fastest marathon runners are usually in their early thirties. In contrast, movie directors—whose occupation demands a mix of skills loaded more toward the intellectual than the physical—are, on average, nominated for Oscars when they are about fifty years old. Human capital increases early in life as we develop and learn, then it eventually decays at varying rates.

Taking good care of one’s health slows down human capital depreciation—not drinking or smoking excessively, having a balanced diet, exercising regularly, and so on. So does keeping active. Unlike a machine, moderate activity doesn’t wear us out, and it actually helps us stay in shape. Interestingly, as recently as the nineteenth century, people thought that physical exercise would shorten a person’s lifespan—like putting more miles on a car. That’s why some colleges were against sports on campus. Now we know regular physical activity slows down decay or, in our terms, reduces human capital depreciation.

Human capital is also subject to obsolescence. Some skills become irrelevant as time passes. Think of the knowledge and craft that went into repairing VCRs. Those skills were rendered obsolete thanks to technological change, like the introduction of DVDs and then video streaming (fig. 1). A person may still be great at repairing those household staples from the 1980s. But now those skills are useless because—leaving museums and antique collectors aside—nobody owns VCRs anymore. More generally, there was a time when physical strength may have been enough to get you a good job, but the proliferation of tools and machines has made brute force less and less valuable. Unlike with depreciation, the capacity to produce stuff may be intact. But it may have been rendered irrelevant by new technologies. Changes in societal preferences may also play a part. For instance, bans on bullfights have made the skills of bullfighters obsolete.

Figure 1. In the 1980s, video cassette recorders (VCRs) were a household staple, and there were professionals who could fix them if they broke. As new technologies displaced VCRs, the ability to fix them—a form of human capital—obsolesced. The same happens all the time with other skills. Even if they remain intact, the value they help create may vanish as technology or preferences change. Image: cover of Time, December 24, 1984.

The opposite of obsolescence, which I will call resolescence, may also take place. Some knowledge or skills once considered irrelevant may become valuable. Consider the skills required to play video games. Not long ago, they seemed nonproductive, but today they are applied to piloting drones. Just as with obsolescence, changes in technology or societal preferences may drive resolescence. Perhaps the best example can be found in the movie Monsters, Inc., where a monster’s productivity was determined by their ability to scare children. But