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What about Capital?

Summary:
In his post this morning, co-blogger Bryan Caplan attributes increased worker productivity to two factors:1. Practice.2. Management. I think he's right that these are quite important, but I think he's left out a more-important factor: the growth of capital per worker. Give workers more capital to work with and they will typically be more productive. It's true that they need to learn how to operate the capital, but even a worker who does a mediocre job of working with, say, a tractor, will be able to plow more ground than a very practiced worker working with a team of oxen. Once that mediocre worker gets practice, chances are that he will graduate to being a good worker. Once the farm owner

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What about Capital?

In his post this morning, co-blogger Bryan Caplan attributes increased worker productivity to two factors:
1. Practice.
2. Management.

I think he's right that these are quite important, but I think he's left out a more-important factor: the growth of capital per worker.

Give workers more capital to work with and they will typically be more productive. It's true that they need to learn how to operate the capital, but even a worker who does a mediocre job of working with, say, a tractor, will be able to plow more ground than a very practiced worker working with a team of oxen.

Once that mediocre worker gets practice, chances are that he will graduate to being a good worker. Once the farm owner coordinates the worker's efforts with those of others, chances are that the worker will become even more productive. So give practice and management their due. But give capital its due also.

Here's a conceptual experiment: Take the worker who has a lot of skill dealing with tractors and the farm manager who has a lot of skill dealing with such workers and move them to India, giving them no tractors to work with. Their productivity will likely be a small fraction of what it is on a farm in capital-intensive United States. That implies that capital is a HUGE factor in productivity.



David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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