Dear Economist

Creating something from nothing

Dear Economist,

How do you turn “f*** all” into “something”?

Tim Renshaw, painter, West Norwood

Dear Tim,

I am sure this is not a purely abstract question. You believe that you have no valuable assets and you would like to accumulate some. That is natural enough.

The first thing to recognise is that not all capital is tangible. It is nice to have a cool million in a Swiss bank account, or a fancy apartment in Belgravia, but there is also such a thing as “human capital”. That constitutes the skill or simply the muscle-power to generate an income. Most people have some, including you – unless you are an extraordinarily bad painter.

So, you should use your human capital to begin the process of accumulation – that is, get off your painterly backside and get a job, then put some of the money aside.

Alternatively, you could get some kind of training to build up your human capital and thus your earning power. This may be the best way forward, because human capital investments typically have a higher return than financial investments.

This strategy might combine well with a second possibility: arrange for a transfer from someone else. Despite appearances to the contrary, education in this country is still somewhat subsidised. Going on a subsidised course is a bit like having the government contribute to your savings account…

Continued
on ft.com

15th of July, 2006Dear Economist • Comments off