Difference between Physical Capital and Human Capital

If seen from the economic development point of view, human resources are important. In today’s world, it is believed that to build a strong nation, it is essential to focus on the development of people and the organisation of human activity. A country’s economic development is possible only when it optimally utilises its physical capital and human capital.

What is Physical Capital?

The inputs such as factory, buildings, plant and machinery, raw materials, etc., required for further production are known as Physical Capital. These inputs are required to make use of physical resources and their accumulation is essential for a country’s economic growth. To decide whether or not an investment in physical capital is required is based on the decision maker’s knowledge in this matter. The entrepreneur has knowledge of its requirements. He first calculates the expected rates of return of the required physical capital to a range of investments and then makes a rational decision as to which investment he should make. The formation of physical capital mostly consists of economic and technical processes.

What is Human Capital?

The skills acquired by an individual through education, training and/or experience, which add up to his/her value to the process of production is known as Human Capital. In simple terms, human capital is the stock of ability, expertise, skill, knowledge, and education embodied in an individual. One requires human capital to make effective use of their physical capital. We have plenty of human resources but to make them into human capital it is essential to invest in human capital. It means that in order to produce more human capital out of human resources, society needs human capital in the form of people who are competent and have themselves been educated and trained as professionals. 

Thus, it can be said that with proper and conscious investment decisions, a country can turn its physical and human resources into physical and human capital respectively. For example, it can turn a land into a manufacturing outlet and a student into an engineer or doctor.

Difference between Physical Capital and Human Capital

Basis	Physical Capital	Human Capital
Meaning	The inputs such as factories, buildings, plant and machinery, raw materials, etc., are required for further production is known as Physical Capital.	The skills acquired by an individual through education, training and/or experience, which add up to his/her value to the process of production is Human Capital.
Tangibility	Physical Capital is tangible. It means that one can easily sell physical capital in the market.	Human Capital is intangible. It means that one cannot sell human capital in the market, only their services can be sold.
Mobility	Physical Capital is more mobile between different countries.	Human Capital is less mobile between different countries as compared to physical capital. It is because of the restrictions by nationality and culture in their movement.
Separability	A Physical Capital (such as building) can be separated from its owner.	A Human Capital (such as skill) cannot be separated from its owner.
Formation	The formation of physical capital is a result of the conscious decision of the owner. It is an economic and technical process.	The formation of human capital is partly a conscious decision of its processor and party a social process.
Depreciation	Physical Capital depreciates with the passage of time.	Human Capital can also depreciate. It can be reduced by making continuous investments in health and education.
Formation Process	Physical Capital can be formed through imports.	Human Capital Formation can be done by forming a conscious policy.
Example	Land, Building, Plant and Machinery, etc.	Expertise, skills, ability, education, and knowledge in human resource.