input of nurture and schooling, and then depreciates gradually to zero just as buildings do. Yoram Ben-Porath combined these ideas and more in a masterly life-
cycle model published in 1967. We'll get to it soon.
Schultz called the part of consumption exhausted in taste satisfaction “pure consumption”. The part invested in human capital was “pure investment”. I change that to “invested consumption” to avoid confusion with investment in physical capital. Since there is no settled term for the part of work invested in learning, | call it “self-invested work”. I call the part of work sold for pay “realized work”. Then the consensus view formed in the 1960s held that human capital growth equals invested consumption plus self-invested work less human depreciation. I agree, with a clarification as to possible deadweight loss that I'll come to in Chapter 6. I call it the Ben-Porath equation, although he drew it from the Schultz-led consensus. It is
really a summary of the first four of the equations in his 1967 paper taken together.
This explains my critique of the Y=I+C equation. The equation would be true if human capital growth equaled invested consumption. In fact it equals that plus self- invested work less human depreciation. The corrected equation would read “output equals consumption plus investment plus self-invested work less human
depreciation”. | call this the “Y rule”.
Upending the Y =! + C equation is big news. Macroeconomics and the national accounts are founded on it. That’s one reason, although not the main one, why | think that macroeconomics should start over. It doesn’t follow that national accounts in themselves need much change, aside from reporting net investment at market as well as at book, because accountants must measure what they can. Human depreciation and self-invested work elude market measurement. But economists can allow for them, and they are huge flows. Human depreciation is depreciation of the larger factor. And self-invested work includes more than learning. Ben-Porath showed, as we will see, that it equals all growth in human
capital not explained by inflows of nurture and schooling less outflows in human
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