The Economic Importance of Human Capital in Modernization

The full effects of human capital are difficult to observe. In addition to the internal effects which enhance the productivity of the individual in whom the investment has been made, there exist external effects—in particular the creation of new knowledge—which may have a large impact on economic growth. Since human capital invents new forms of physical capital, the former is the key to economic progress. Unlike physical capital, however, property rights in human capital—patents, copyrights, workplace safety rights—have often not been strong enough to encourage the most enterprising use of human capital resources.