# Are you worth your weight in gold? MONEY

HARRY G. JOHNSON When a person is extraordinarily effective in_ performing his responsibilities, so much so that he appears indispensable to the organisation that employs him, he is frequently said to be `worth his weight in gold.' The implication is that he is extremely valuable to the organisa- tion, far more valuable than any remuneration he may receive. But inflation has been gradu-_ ally eroding the real value (purchasing power) of gold, while rising educational levels and technical progress have been gradually in- creasing the value of human beings. In con- sequence, a significant number of people in our society have become worth far more than their weight in gold. For these people, to say, that they are worth their weight in gold is not to praise them but to belittle them, since it

implies-that they are grossly overpaid. • Gold is currently priced at $35 an ounce. This, however is a troy ounce, not the avoir- dupois ounce used in weighing people. It takes 14.58333 troy ounces to make a pound avoir- dupois. Hence a pound of gold, in terms of the system of measurement of human weight, is worth $510.421; an ounce of gold, in terms of the same measurement system, is worth. $31.90; and a hundredweight of gold is worth $51,041.661. Hence a person who weighed 125 pounds would have to be worth $63,802.08.

People's weights vary with their age. height • and sex, and it is these variations that are of interest to insurance companies, public health authorities and others interested in compiling statistics of average weights. Hence it is diffi- cult to find average figures for the typical American male or female adult. Margaret Reid has, however, provided me with the following figures: the average American adult male weighs. 168.5 pounds, the average American adult. female weighs 139.1 pounds, and the average American adult weighs 153.3 pounds. To be worth their weight in gold, therefore, the average American male adult would have to be worth $86,000, the average American female adult $71,000 and the average American adult , $78,300 (all figures rounded to the nearest $100).

How much is a person worth? Colloquially, this question refers to the value of a person's holdings of property, that is, to his wealth.

The notion of a person's being 'worth his weight in gold,' however, is usually taken to refer to his value on the job, rather than to

his wealth. For the purpose of assessing the value of a person in this sense, economists

have invented the concept of 'human capital'; that is, they look at the worker or salaried employee as a kind of capital equipment, which contributes a stream of productive ser-

vices to the economic system and receives in exchange an income that represents the return

on the human capital. Like other capital equip- ment, human capital can be valued in two different ways, useful for different purposes. One way is by the cost of producing it; this

Nicholas Davenport is on holiday. In his article last week the figure for the supply of new equity shares. in 1966 shottld have read 1142.5 million and not 11,425 million.

is most useful for assessing the value of people who have just completed some stage of their formal education. The other way is by the present value of the stream of income that a particular item of human capital will yield over its probable remaining future lifetime; this is most useful for assessing the value of people already established in a career.

Some estimates of the average investments in human-capital formation involved in the formal education system have been furnished me by Herbert G. Grubel and Anthony D. Scott. According to their figures (which relate to 1956 and include both education costs and foregone earnings) it takes an investment of $2,240 to complete eight years of elementary school, $7,926 to complete four years of high school, $12,722 to complete four years of college (the BA), $26,336 to complete two year's of graduate school (the MA) and $33,950 to complete four years of graduate school (the PhD); all figures relate to total cost cumulated from the beginning of elementary school. These figures, however, seriously understate the amounts of the investments involved, be- cause they make no allowance for the accumu- lation of interest on the investments between the time they are made and the time of graduation.

A rough calculation of the true value of the investments involved in the various levels of educational attainment, assuming a 5 per cent rate of interest, indicates the following capital values of people at the point of gradu- ation : eight years of elementary school, $2,745; four years of high' school, $9,621; four years of college, $23,628; two years of graduate school, $34,046; four years of graduate school, $45,553. To these figures should properly be added whatever values people would have if they had no education whatever; but this can probably safely be regarded as negligible. On the basis of these figures, it appears that—contrary to the expressed belief of some eminent educators—the products of the education system are not worth their weight in gold, except for students who have com- pleted four years of graduate school and weigh 89.2 pounds or less.

The alternative method of estimating the capital value of a person is to calculate the present value of his expected future earnings. Burton Weisbrod (1961) has used thii method to estimate the values of American males by age ranges from zero to four to seventy to seventy-four years of age. At a 4 per cent dis- count rate, he finds that a male aged zero to four is worth $27,124—which makes boy babies

worth considerably more than their weight in gold—and that the value of a male rises

rapidly with age to a peak of $57,494 at ages twenty-five to twenty-nine, declining thereafter to $241 in the age group seventy to seventy- four. In the age group twenty to thirty-four,

the average value is $55,836, so that on the aver.age any male in this age group who weighs

less than 109.4 pounds is worth more than his weight in gold. Since men in this age group weigh considerably less than older men, it is probable that a significant proportion of them are worth appreciably more than their weight in gold.

Weisbrod's figures relate to the average of all males. Gary S. Becker (1964) has produced more detailed estimates of the average age- wealth profiles of male graduates of various levels of education in the year 1939, thit is, of the capital values of the future earnings of these men at different ages. According to his estimates, wealth (that is, capital value) peaks at thirty-nine, at which age the graduate of seven or eight years of schooling (elementary school) is worth about $34,000, the graduate of twelve years of schooling (high school) is worth about $49,000 and the graduate of six- teen or more years of schooling (college, or college plus graduate school) is worth about $71,000. Using the typical weight of 168.5 pounds previously selected (value $86,000), it appears that the average elementary school graduate is never worth more than about two fifths of his weight in gold and a high school graduate never worth more than seven twelfths of his weight in gold, whereas at his maximum a college graduate is worth about 82.5 per cent of his weight in gold. In fact, the average college graduate of this weight is worth at,least 80 per cent of his weight in gold between the ages of thirty-seven and forty-one.

Are you worth your weight in gold? To find out, you must first determine the value of your weight in gold, using the figures previously giyen of $510.42 per pound and $31.90 per ounce. Then you must determine the present (capital) value of your future earnings.

As a very rough estimate indeed, you might start with the amount of your life insurance, since this is a capital sum, and its magnitude is related to the premiums you can afford to pay, which in turn is related to your income. To compensate for the probability that your in- surance underestimates your value, you should probably reckon your value at double the face value of your insurance. Alternatively, you rrijght reckon your value at four times the value of your house, since mortgage lenders generally follow the principle that you should spend no more than a quarter of your income on housing, so that the value of your house will represent approximately a quarter or less of the capitalised value of your income.

"both of these methods, however, are appro- priate only for younger people (say, thirty-nine and under), since for older people insurance and house values reflect past income rather than the capitalised value of future income. If you want to be really accurate, you will have to estimate your future earnings year by year and determine their present value; and this will require an intricate actuarial calculation. A reasonable rough approximation, however, can be, obtained by starting with your present annual earnings, estimating the number of years you expect to be an earner, and multi- plying your annual earnings by the present value multipliers contained in Table. I. (These multipliers assume a 5 per cent discount rate

for future earnings; for number of years be- tween those shown, use an average of the two nearest multipliers.)

TABLE 1

Total No of Earning Years

Present Value Multiplier

5 4.5 10 8.1 15 10.9 20 13.1 25 14.8 30 16.1 35 17.2 40 18.2 45 18.7

To illustrate the use of the table, a man earning $10,000 a year and expecting to work ten years altogether would be worth $81,000 —more than his weight in gold provided he weighs less than 158.7 pounds. Similarly, a man earning $5,000 a year and expecting to earn it for twenty years altogether would be worth 565,000—and worth his weight in gold provided he weighed no more than a shade under 127.4 pounds.

Try the calculation yourself. You will prob- ably be surprised to find that you are worth your weight in gold. If you are not, you may be able to derive some consolation from the thought that if you went on a diet and lost a few pounds you might quite easily make it.

This article is published by courtesy of the University of Chicago Press and the Journal of Political Economy.