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December 26, 2006

Physical and human capital

It used to be that physical things were much more important in economics. Rivers and harbors determined where cities grew, and the strongest workers received the highest pay. Economists call these characteristics physical capital. But as N.C. State University economist Mike Walden points out, physical capital isn't as important today as it used to be.

"Well, it is certainly important, but ... physical characteristics can now be overcome by technology and knowledge," Dr. Walden says. "For example, we can build roads and use them in place of rivers. And we can use airports and truck terminals in place of harbors. That means we can put cities just about anywhere we want.

"And with respect to workers, we can take a very small, diminutive worker and train that person to use high-tech equipment and machinery," he adds, "and they can lift and move a lot more than the strongest person could on their own.

"Economists call these other characteristics, apart from physical, human capital and human characteristics. And ... it means that in today’s economy we are just a lot more flexible," he concludes. "We can basically live anywhere they want, work anywhere we want, and people can do almost anything they want."

Posted by deeshore at December 26, 2006 07:54 AM

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