How much do we value investing in ourselves?

“Excellence is never an accident. It is always the result of high intention, sincere effort and intelligent execution – it represents the wise choice of many alternatives…” – Aristotle

Investing is one of many aspects of life covered under this timeless quote—which connects ‘excellent’ results with the sacrifices made to achieve them. Although 'investment' may refer to any sacrifice for future gain, it typically connotes ideas about finance. Investors worldwide are understandably anxious about losing the capital they sacrificed and facing an uncertain future as the financial effects of the COVID-19 pandemic continue. In fact, hedge fund manager Ray Dalio recently pointed out that traditional stores of value, considered ‘safe’ capital investments, may no longer be so under the current circumstances. This may raise some questions. What exactly can the term ‘capital’ describe? Is there a kind of capital whose value can appreciate, even under current conditions? If so, what value could that have, and how would investing in that work?

This article explores some possible answers.

What does ‘capital’ describe?

It can be hard to find a simple answer to this question, since definitions vary by discipline. Nonetheless, many would agree that:

• Capital has value.
• Capital may be used to produce more value.
• Capital results from human effort.

To qualify the final point, consider this: investment in capital is funded by savings, or a collection of value that was not consumed when it was created. If persons consumed everything they produced as soon as they could, there would be no savings; no savings would mean no ability to invest and therefore no ability to create capital. Thus, capital is something that humans create by sacrificing immediate consumption.

Financial capital fits these characteristics. How?

• It has value. Few would argue with this. Since financial capital can be used to claim goods and services, its immediate value is derived from whatever it can buy or be redeemed for.
• It may be invested to produce more value (be it by capital gains, interest or dividends).
• It exists because humans made the effort to save some of their income.

Likewise, productive machinery is a type of capital.

• It has value. One gives up valuable liquid funds to buy machinery; one can also recover some funds by selling or scrapping the machinery if market conditions permit.
• It may be used to produce more value by making goods that persons buy.
• It resulted from human effort—not only to fund its development, but in all the labour, engineering and other human skills needed to create it.

Evidently, these types of capital are external to persons—but maybe persons also have internal capital. Do the skills, human connections and culture that we intangibly carry within us qualify as capital? Maybe, if they fit capital’s characteristics.

Do skills, connections and culture have value?

• Skills have value. The ability to safely conduct surgery has the priceless value of saving human lives. Surgeons are also some of the most generously remunerated medical professionals, reflecting the value of 15+ years of training and attention to life-critical details under pressure for long hours.
• Human connections have value. Not only are they crucial to our health as social creatures, but they facilitate the exchange and development of incredibly valuable ideas. There is so much value in persons being healthy and inspired, for that creates the position to make meaningful sacrifices and realize excellent results. A 2010 academic review documents studies showing the relationship between health and creativity, which fosters innovation that can revolutionize economies.
• Culture has value. Persons travel to other parts of the world to experience culture because they value experiencing culture. In 2019, 10 percent of the world’s gross domestic product was spent on travel and tourism, according to the World Travel and Tourism Council. More qualitatively, an article published by the World Bank argues that culture can facilitate behaviours that are crucial for economic development. Of course, culture can also have negative effects, but the productive aspects are what determine much of its value. Individual persons may adopt productive aspects of different cultures to benefit themselves and others, for example, valuing hard work and sacrifice.

Can skills, connections and culture be used to produce more value?

• Skills can create more value by making more efficient use of existing resources and labour. Creating more output with the same input is very much increasing the value of a production process.
• Human connections can create more value by fostering collaboration on productive ideas. Urban studies professor Richard Florida highlights that there exist ‘mega-regions’, or combinations of metropolitan areas, that drive the world’s economy. He continues that the top 40 mega-regions in the world are responsible for two-thirds of global economic output and 9 in every 10 of new technological innovations, despite being home to less than 1 in 5 of the world’s people. Some may argue that this is due to income inequality and uneven levels of development, but consider: these mega-regions facilitate countless interactions among skilled persons from around the world. These interactions may very well contribute to the inspiration, exchange and development of revolutionary, valuable ideas. Could that be part of why these regions are so productive? Human connections, when facilitated, can be used to produce more value.
• Culture can be shared and can be changed to foster an environment that is conducive to the creation of value. Cultures that encourage innovation and discipline often see rapid economic growth, which is, by definition, the creation of more value. If individuals cultivate these values, they may benefit tremendously.

Do skills, connections and culture result from human effort?

• Skills result from human effort. It requires much effort to overcome the difficulty and cost to acquire skills.
• Human connections result from human effort. Effort is needed to build and maintain relationships, which consume time that comes at a great opportunity cost.
• Culture results from human effort. Historically, cultures have been preserved, changed or even eradicated due to efforts of different cultural groups involved.

Of course, this argument has its limitations. Generalizations inevitably omit nuances that may make some concepts better examples of capital than others. But since skills, connections and culture fit key characteristics of capital, they are arguably types of capital. One may realise that they are seldom discussed in this context, even though doing so stands to offer immense value. Why could that be so?

Capital that we can cause to appreciate

Image by truthseeker08 from Pixabay 

“Human capital” is a controversial term. In 2004, German academics voted against using it, positing that it inhumanely degrades persons to only their abilities and as a result, human beings’ value gets reduced to their quantified economic relevance. Of course, there is much more to someone than their ability to produce value. But the term ‘human capital’ may benevolently refer to the value that persons can create from their skills, connections, culture and other assets aside from their untrained efforts. So this ‘capital’ refers to aspects of persons that:

• have value
• can be used to create more value
• resulted from their efforts (and oftentimes, those of others as well)

It can be very inspiring to note that human capital can appreciate—even while the values of other types of capital remain uncertain. Why? Skills, connections and culture have unique characteristics that give them potential resiliency and adaptability when compared to physical or financial capital.

Human capital can store value in inflationary environments.

• True, changes in price levels may affect the remuneration that one may be able to obtain for a skill—and this can be most adverse when price level changes are not homogenous among industries. Connections and culture may do little to remedy this. Nonetheless, central banks around the world continue to increase the supply of money in efforts to cushion the economic contraction from COVID-19 lockdowns, which causes many investors to panic about inflation. Rightly so—this inflation coupled with near-zero or even negative interest rates is a terrible threat to the purchasing power of the financial capital they sacrificed. Also, physical capital continues to depreciate even if economic contractions reduce its value.
• This is not the case with skills, connections or culture, which persons can continue to build regardless. Economic contractions often offer more time for persons to invest in building new skills, connecting with others and enriching their culture. Is it a coincidence that rich cultural artefacts including board games like Monopoly and music styles such as swing jazz and bebop emerged during the Great Depression and not in the Roaring Twenties?

Human capital creates unique value.

• Imagine this scenario: your vehicle needs a replacement part, and your dealer quotes you an exorbitant price for the genuine spare. Buying an inferior generic brand means you would need to replace the part again before the month is over, which is not worth it at all. Tragic? Not necessarily. Suppose someone told you that the company that your car manufacturer contracts to make the part you need has a vendor in your city. The vendor sells an unbranded part, identical to what you need, manufactured by the contractor—you can hardly get closer to genuine quality than that. There is more—the part goes for less than 10 percent of the price that your dealer quoted you. Would you value the information that this person shared? Of course. That connection with someone you knew, in a culture that perpetuates imperfect information, allowed skilful insight to be shared and added immense welfare to the market for vehicle parts. Human capital creates that value of reducing imperfect information and adding to total welfare.
• Moreover, as concerns about artificial intelligence replacing humans in jobs intensify, investing in one’s own human capital is crucial to being equipped for adapting to such a situation. Industries like entertainment, nursing and others that are based on human connection and culture are the least likely to be replaced, because the human capital involved creates unique value that is difficult to recreate.

Human capital may have untapped value.

• 20th century French sociologist Pierre Bourdieu argued that ‘value’ is derived from cultural capital—involving how much society values something. An item with a lot of intrinsic value could be worth little if society does not value it and reward it accordingly.
• He divided cultural capital into 3 forms: embodied (things that a culture values that are intrinsic to a person), objectified (things that a culture values that are extrinsic to a person) and institutionalized (the system that ranks the value of things in society). Human capital involves embodied and institutionalized capital, because these involve our own skills and how society rewards them. As concerns about health, climate and other aspects of development rise, it is very likely that embodied human capital related to these will gain institutionalized value in the near future—societies globally will likely value skills, connections and cultures that are relevant to these and reward them more generously. Here, a change in culture can cause culture itself to be valued more.

Investing in skills, connections and culture

These aspects of human capital are no doubt valuable. Since the COVID-19 lockdown, many have already begun to invest in it.

• Teaching ourselves skills. Books, videos and online courses are abundant, and many are available for free. One can even practise many of these skills in the safety of one’s home. There are so many reasons why this is a good idea. To store value, create unique value and benefit from untapped value in the future, enriching one’s skillset is an excellent investment. While capital markets are full of concern about storing value for the future and the institutionalized value (as per Bourdieu) of formal education continues to be called into question, teaching oneself new skills offers a compelling investment.
• Connecting with others. Being at home has made many long for more connection, in both quantity and quality. Supportive friends and family, the opportunity to invest in mentees and be invested in by mentors—and even broadening and deepening one’s professional network—all constitute connections. These can position someone to make the most of their ideas and contribute to others’ ability to build their own. Although ‘Zoom fatigue’ can be challenging, we have the opportunity to use online communication within reason to connect with persons around the world. The same could not be said for the Spanish flu pandemic nearly a century ago.
• Engaging our culture. Culture can most simply be defined as a group’s way of life. Not only can this refer to when we wake up, what we eat, how we exercise and so on. It refers to the values that we hold, and the activities that we do for leisure. Engaging our value system is a significant investment in our human capital, because it can align our goals and help to focus our scarce energies where they may be the most meaningful. While it is possible that profound changes to our way of life may continue long post-COVID, persons may be able to choose an optimal set of daily habits to function. Also, taking up new hobbies can be considered engaging our culture and investing in our human capital—hobbies provide joy and often provide additional income streams.

Final words

None of this is likely to be easy. Aristotle’s quote at the beginning implies that excellence requires intentional sacrifice and wisdom—just like investing. While many may be concerned about their physical and financial capital, it may be of value to invest in one’s skills, connections and culture as stores of value and sources of unique, perhaps untapped value, both now and in the future. Making the sacrifices to invest in ourselves and in others now may pay generous dividends in the uncertain coming times.