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ity of the human being. If it does so, the individual is rewarded in a free enterprise society by receiving a higher return for his services than he would otherwise be able to command.6 This difference in return is the economic incentive to invest capital whether in the form of a machine or a human being. In both cases, extra returns must be balanced against the costs of acquiring them. For vocational schooling, the major costs are the income foregone during the period of training, interest lost by postponing the beginning of the earning period, and special expenses of acquiring the training such as tuition fees and expenditures on books and equipment. For physical capital, the major costs are the expense of constructing the capital equipment and the interest foregone during construction. In both cases, an individual presumably regards the investment as desirable if the extra returns, as he views them, exceed the extra costs, as he views them.7 In both cases, if the individual undertakes the investment and if the state neither subsidizes the investment nor taxes the return, the individual (or his parents, sponsor, or benefactor) in general bears all the extra costs and receives all the extra returns: there are no obvious unborne costs or unappropriable returns that tend to make private incentives diverge systematically from those that are socially appropriate. |
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If capital were as readily available for investment in human beings as for investment in physical assets, whether through the market or through direct investment by the individuals concerned, or their parents or benefactors, the rate of return on capital would tend to be roughly equal in the two fields. If it were higher on non-human capital, parents would have an incentive to buy such capital for their children instead of investing a corresponding sum in vocational training, and conversely. In fact, however, there is considerable empirical evi- |
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6 The increased return may be only partly in a monetary form; it may also consist of non-pecuniary advantages attached to the occupation for which the vocational training fits the individual. Similarly, the occupation may have non-pecuniary disadvantages, which would have to be reckoned among the costs of the investment. |
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7 For a more detailed and precise statement of the considerations entering into the choice of an occupation, see Milton Friedman and Simon Kuznets, Income from Independent Professional Practice (New York: National Bureau of Economic Research, 1945), pp. 8195, 11837. |
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