Contingent Human Capital

In a fundamental sense, we can define capital as something that increases the ability to perform economically useful work. We think of capital within the firm as existing in, among other things, machinery. With appropriate machines economic work is increased. The machine is not the product, it is, plainly, an input in the production function. Of course, capital also exists in far less obvious guises than machines in a factory. When a government uses tax revenue to build roads, for example, these kinds of capital projects have, at least if planned well, a positive impact on the ability to generate economic goods and services.

These two examples demonstrate that capital, even in these simple scenarios, exists in a contingent sense. It is not capital in and of itself, it is capital when it performs this basic function of increasing the efficiency of producing a good or service. This contingency requires that we use active voice in our discussion of capital. It is the capitalist that actively creates capital.

We all, of course, have an endowment of economic resources, large or small, and participate in markets accordingly. When we define capital in our contingent sense, we can say that the human capitalist has three basic market offerings: problem identification; problem solving; and innovation. These offerings may differ qualitatively and quantitatively in degree between individuals, but, they are the sine qua non of human capitalism. The absence of all these economic outputs itself defines the individual's output as mere labour.

Organizations, of course, as demand-side participants, are essentially the arbiters of value in the human capital market. Although knowledge and cognitive capabilities have potential value embedded in them, much like any other organizational resource, little or none of this value will be realized unless there is an organization in place that is equipped to assimilate them into a production function. Moreover, value is only realized when the human capital is leveraged in practice: that is, when it identifies problems, solves problems, or innovates.

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