Capital in the Twenty-First Century

by Thomas Piketty

In any case, it is clear that this type of calculation makes sense only in a slave society, where human capital can be sold on the market, permanently and irrevocably. Some economists, including the authors of a recent series of World Bank reports on “the wealth of nations,” choose to calculate the total value of “human capital” by capitalizing the value of the income flow from labor on the basis of a more or less arbitrary annual rate of return (typically 4–5 percent). These reports conclude with amazement that human capital is the leading form of capital in the enchanted world of the twenty-first century. In reality, this conclusion is perfectly obvious and would also have been true in the eighteenth century: whenever more than half of national income goes to labor and one chooses to capitalize the flow of labor income at the same or nearly the same rate as the flow of income to capital, then by definition the value of human capital is greater than the value of all other forms of capital. There is no need for amazement and no need to resort to a hypothetical capitalization to reach this conclusion. (It is enough to compare the flows.).18 Attributing a monetary value to the stock of human capital makes sense only in societies where it is actually possible to own other individuals fully and entirely—societies that at first sight have definitively ceased to exist.