At least, compared to infrastructure and other capital spending for one. He had a variety of arguments for the claim; the central one was that money spent on education was money denied to income-generating activities. And surely we're all familiar with the eternal student or the citizen with several qualifications but who cannot get a job, and has nothing immediately productive to contribute.
Still, it seemed a terribly utilitarian argument. So I looked around, and came across Prof De Long's blogpost here. I'll summarise the good bits:
From Adam Smith (1776) until 1950 or so, capital was considered by
economists to be absolutely essential for economic growth. You also
needed a few good basic institutions. "Security of property and
tolerable administration of justice," as Smith put it.
If these fundamental institutions were right, then landlords,
merchants, and manufacturers would invest and improve. In investing and
improving, they would add to the capital stock: "In all countries where
there is a tolerable security [of property], every man of common
understanding will endeavor to employ whatever [capital] stock he can
command, in procuring either present enjoyment or future profit... A
man must be perfectly crazy, who, where there is a tolerable security,
does not employ all the stock which he commands, whether it be his own,
or borrowed of other people..."
A larger capital stock would mean thicker markets, a finer division
of labor, and a more productive economy. A highly productive society
based on a sophisticated division of labor was how you secured "the
wealth of nations."
Reverse the process, however, and you get the poverty of nations,
which Smith believed he saw in the Asia of his time. For Smith and his
successors over the first 175 years, any episode of sustained economic
growth overwhelmingly required investment capital. We economists were
by and large capital boosters, and our magic formula for economic
development was saving, investment, thrift, and wealth accumulation.
The last and fullest expression of this line of thought comes at the
end of the 1950's with W.W. Rostow's book The Stages of Economic Growth
.
Then Robert Solow and Moses Abramovitz challenged this
near-consensus. They calculated that 75% to 80% of economic growth did
not come from increasing the capital-output ratio - at least not if the
private marginal product of capital was taken as an indicator of the
social marginal product. Instead, the keys to growth and development
appeared to lie beyond an increase in capital intensity as measured by
capital-output ratios: skills, education, technology broadly
understood, and improvements in organizational management.
So it seems there's something to be said about education as motor for economic growth, quite apart from its intrinsic goodness. Now:
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The whole of the Brain Drain phenomenon, underlines just how crucial this balance is. Simple question really, is there enough coming to the government in revenue to pay a large civil service, is there a large enough and prosperous enough capital base and class of entrepreneurs to absorb all the graduates from our schools and colleges? Do you produce enogh food, or energy as a country? Education can do none of these.
A well educated populace that cannot find employment moves away, and the country is in essence training up skilled workers for others to poach off it.
As for technology, well technology is capital, no?