BY: ODED GALOR
Brown University
Department of Economics
OMER MOAV
Hebrew University
Department of Economics
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Paper ID: Brown University Working Paper No. 2000-17
Date: September 2000
Contact: OMER MOAV
Email: Mailto:msmoav at mscc.huji.ac.il
Postal: Hebrew University
Department of Economics
Mount Scopus
Jerusalem, 91905 ISRAEL
Phone: 972-25883121
Fax: 972-2-5816071
Co-Auth: ODED GALOR
Email: Mailto:Oded_Galor at brown.edu
Postal: Brown University
Department of Economics
Providence, RI 02912 USA
ABSTRACT:
This paper hypothesizes that the demise of the 19th century's
European class structure reflects a deliberate transformation of
society orchestrated by the Capitalists. Contrary to
conventional wisdom, it argues that the demise of this class
structure has been an outcome of a cooperative rather than a
divisive process. The research suggests that the transition from
this class structure may be viewed as the outcome of an optimal
reaction process of the Capitalists to the increasing importance
of human capital in sustaining their profit rates. The paper
argues that the process of capital accumulation has gradually
intensified the relative scarcity of labor and has generated an
incentive to augment labor via human capital accumulation. Due
to the complementarity between physical and human capital in
production, the Capitalists were among the prime beneficiaries
of the potential accumulation of human capital by the masses.
They had therefore the incentive to financially support public
education that would sustain their profit rates and would
improve their economic well being, although would ultimately
undermine their dynasty's position in the social ladder. The
support for public education is unanimous despite the fact that
the Capitalists carry the prime financial burden of public
schooling. That is, due to the co-existence of credit market
imperfections and capital-skill complementarity, the
redistribution associated with public education is Pareto
improving. Had Karl Marx been exposed to Gary Becker's Human
Capital theory, the socio-political experience of the 20th
century might have unfolded in a strikingly different manner.