How people became the central focus of economics

By S.R.

This week “The Economist explains” is given over to economics. Today’s is the second in a series of six explainers on seminal ideas

WHEN the subject of investment comes up in economics, it is often with hard, physical assets in mind. Companies talk of investing in factories, governments in infrastructure, and people in houses. But there is a softer, less tangible focus of investment that, in many cases, is more important: knowledge and skills. Companies try to cultivate these in their workforces, governments in their populations, and people in themselves. Economists use the concept of “human capital” to describe this kind of investment. The thinking is that just as spending on buildings or roads generates physical capital, so too investment in knowledge generates human capital. Some critics dislike reducing education to the pursuit of capital, but it is a valuable concept for analysis and policy. What can economics teach us about how we teach ourselves?