Human Capital, Signaling, and Social Capital: What is the Real Purpose of Schooling?

If the goal is simply to acquire knowledge, why must we have children sit neatly in classrooms by the dozens, listening to a teacher who might not even have much experience, lecturing on content that has long been standardized? Is state-run education, a product of the era of machines and massive factories, not already long outdated?

No one knows exactly how to reform education. Some parents choose to pull their children out of school and teach them at home—a practice called homeschooling in the US, which has developed into a mature system. However, most people do not have the circumstances for this, and the results are not always superior.

This lecture is not a call for reform; rather, I want to help you clarify your thinking: What is the actual purpose of a school?

Schools are said to “educate and nurture,” yet today’s schools are obsessed with exam scores. This is where all the friction in education lies: Does a score truly represent ability?

We complain about exam-oriented education while simultaneously pushing for high scores and competition certificates from primary school onwards. We want fairness—hoping everyone is equal before the exam; yet we also want efficiency—hoping for a better selection mechanism that can identify the “true talent” in our own home as early as possible, sparing them the agony of exam-oriented schooling… but you can’t have it both ways.

In my view, the reason you are conflicted is that you have too many expectations for a single educational space. The reality is that education serves multiple functions, and the primary function changes at different stages of education: primary school is where real skills are learned, a high schooler’s main task is to get into college, and college is, more than anything, a social venue.

Let’s discuss three mental models: Human Capital, Signaling, and Social Capital. They represent the three functions of education.

The Three Mental Models #

“Human Capital” is the original intent and mission of education—simply put, it’s about teaching skills. Human capital includes knowledge, skills, and ways of thinking, as well as good habits that allow one to become a law-abiding citizen and a competent worker standing on their own feet in society.

Human capital is highly dependent on the quality of a school’s teaching staff. If one teacher can’t explain it well, a different teacher might make it crystal clear. The reason some more modern and useful courses cannot be popularized nationwide isn’t that students can’t handle them, but because we don’t have enough high-quality teachers to teach them.

“Signaling” (or Screening) is the selection and sorting function of education—to put it bluntly, it’s about ranking via exams. There are only so many good jobs, elite universities, and top-tier high schools; who gets in? Exams are the fairest way.

In principle, learning should come first and exams second. Especially with the Gaokao (China’s National College Entrance Examination), where a single point can filter out hundreds or thousands of people, it seems nonsensical from a learning perspective: these two children have no real gap in ability, so why does one go to a top university while the other is stuck in an average one? Is the massive price paid for that one-point difference worth it?

Yes, it is. This is classic Game Theory [1]. A person’s true ability is a comprehensive and complex thing; universities have no way of precisely judging if a student is “good” or not, and employers have no time to investigate whether a job seeker has real talent. In this situation, your Gaokao score is a signal you actively send out.

For this signal to be effective, it must be expensive enough to ensure that those with lesser ability cannot mimic it.

It is like the male peacock who must drag around a massive, beautiful, but materially useless long tail. It is a signal to the peahens: “I have the strength to grow such a tail and I am not afraid of this burden, which proves I am healthy and have strong genes!”

In China, there is nothing hollow about this. Research has shown [2] that the tiny difference at the elite college admission cutoff eventually translates into a wage gap for graduates. Signaling is the peacock’s most important task.

“Social Capital,” as we’ve discussed before, refers to social relationships, which can influence class mobility. School is not just a place where students learn from teachers; it is also a circle of peers who spend a long time together—you can learn things from your classmates as well, especially “tacit knowledge.” What you learn in a dormitory isn’t just how to tolerate a noisy roommate, but how to handle interpersonal conflict.

For many, a life-long role model is a classmate. One study [3] randomly assigned college roommates and found that your roommate’s academic performance affects your own, and the social organizations your roommate joins will sway your own decisions.

From the perspective of social capital, homeschooling a child is a mistake. Adolescents need social interaction. Helping each other, imitating each other, doing things together, playing games, even bickering—these are all rehearsals for future social life. Not to mention, the friends we make among classmates are often our best friends for life.

So, schooling is a mixture of these three functions… but their proportions are not fixed. Across different stages of education, the weights of human capital, signaling, and social capital undergo dramatic shifts.

Primary School: The Golden Era of Human Capital #

In primary school, human capital is paramount. It is the stage closest to the ideal of “educating and nurturing.”

But the most important knowledge primary students learn isn’t difficult Math Olympiad problems; it’s the foundational “operating system” for modern society: reading, writing, calculation, attention, habits, self-control, cooperation, expression, and following rules. How to stand in line? How to reason with others? How to be neither a coward nor a bully in a group? These are things parents have few opportunities to teach, but teachers can.

A primary student’s brain is most easily shaped by teachers, and they are the students who respect teachers the most. The economist Raj Chetty, whom we mentioned before, conducted research based on random classroom assignments [4] showing that classroom experiences from kindergarten to third grade (K-3) directly impact a person’s college enrollment, adult income, homeownership, and retirement savings. Other studies [5] support this conclusion with a very solid chain of evidence.

So, does competition start in primary school? Does one have to buy a school-district house because “one step behind means always behind”? Not really. Evaluating a primary school teacher isn’t about the test scores they produce, but about the teacher’s overall quality and how they treat students.

Academic performance is the least important thing for primary students to worry about. Everyone’s brain develops at a different pace, and the curriculum is limited enough that even if a child falls behind initially, they can catch up once they “wake up” later. While I haven’t seen Chinese studies on this, a UK report stated that falling behind before age 11 isn’t “real” lagging, because there is still a chance to catch up between ages 11 and 16 [6].

Some parents have their children study advanced material as early as first or second grade to gain an early advantage, unaware that this might lead to school-aversion and backfire. Research shows that the advantages of early education are often leveled out—or even reversed—within one to three years [7].

Since a primary student’s learning ability is not yet fixed, tracking (or streaming) them into “elite middle schools” is a completely flawed policy. The label is applied far too early. Cross-national research suggests [8] that early tracking widens educational inequality and institutionalizes accidental gaps; it is not “teaching according to aptitude” and does not improve overall educational efficiency.

Primary school is a shaper, not a selector. The most important thing for a student is not to “lead,” but to build a solid “foundation.”

Middle School: The Beginning of Tracking #

However, from middle school onwards, you must start taking academic performance seriously.

Human capital in middle school remains important; you need to master logic, abstraction, systematic review, and writing. Meanwhile, signaling has entered the stage.

Especially in China, the Zhongkao (Senior High School Entrance Examination) is the first hard gate for social sorting. Parents in other countries might find it hard to imagine, but a Chinese child’s path is often decided at age 15: whether they take the “Ordinary High School - University” route or the “Vocational High School/Technical School” route. These two paths differ greatly in social perception, peer structure, subsequent opportunities, and self-identity.

I believe such early tracking is too cruel and unnecessary. Blue-collar workers don’t need specialized early tracking; everyone should have the opportunity to go to university and receive a complete education.

By the time someone graduates from middle school, they already possess the basic survival skills for modern society: they can read and write, make judgments, deal with institutions, and know how to act independently as an ordinary person. Achieving this would have been an incredible feat a hundred years ago! Thank goodness for nine years of compulsory education.

High School: The Signaling Machine #

High school is a signaling machine.

A high schooler’s most important task is to get into college—but college admission is not a reward for effort; it is a screening of signals. If you don’t recognize this, you will suffer unnecessary grievances. People angrily ask: “Why do we have to learn such obscure knowledge and strange question types? What job actually requires elliptical equations?” The answer is that those contents are not for education—they exist to rank students.

The Gaokao is a filter, so it must create variance. Yet, for fairness, this variance cannot depend too heavily on family resources or elite coaching. You might ask: can the Gaokao test more practical and interesting things like statistics or special relativity? Unfortunately, in a country as large as China, there aren’t enough teachers who understand these subjects; what about students in remote areas?

It’s the same principle as the ancient Imperial Examinations testing the “Eight-Legged Essay.” With just a few standardized textbooks, you don’t need great insight or governance experience—you just need to understand logic, be able to write couplets, and master formal beauty.

This kind of exam doesn’t measure scholarship; it measures abstraction, stress resistance, the ability to follow rules, and the ability to maintain continuous input in high-intensity competition.

All high schoolers are caught in a Prisoner’s Dilemma. If nobody studied hard, universities would still admit the same number of people. But to get a slightly better chance than others, everyone drags out a long peacock tail, and universities still admit the same number of people. Every year during the Gaokao, people wish “all examinees perform at their best,” unaware that the effect is identical to everyone performing at their worst.

This is the most fundamental form of “Involution” (Neijuan) and internal friction in China.

Of course, you have other choices. If you have a special talent in a specific subject, you can bypass the Gaokao through competitions; or if your family is well-off, you can attend an international high school and apply to US universities.

But for most, the Gaokao is a ticket that must be paid for with one’s youth.

My advice is to accept this setting. Stop agonizing over what is “useful,” treat the Gaokao as an athletic competition, and complete those three years with a competitive spirit. In fact, exams are perfectly suited for “Deliberate Practice,” and you can train for them scientifically [9].

Some suggest lowering the difficulty of the Gaokao. I believe that is the most foolish policy. If you lower the difficulty, you won’t be able to differentiate scores, and the Gaokao becomes a form of random admission, burying talent. To maintain differentiation, students would be forced to drill even more meaningless, obscure tricks.

The correct path for Gaokao reform is to increase the difficulty. Developed regions could introduce university-level content in their self-designed exams. Let bright students learn real scholarship and achieve good scores without exhausting themselves before the exam; let those with average talent realize it early and avoid the struggle.

The Gaokao leaves a deep mark on the Chinese psyche. It is the highlight of life for many, and the most humiliating moment for others.

So much so that some people live in high school for the rest of their lives.

University: The Testing Ground for Social Capital #

If you treat university the same way you treated high school—focusing solely on accumulating GPA, preparing for the next exam, and entering “postgraduate entrance exam prep” mode from freshman year—you miss the most valuable part of university education: Social Capital.

The signaling value of the university brand has already been assigned to you, and postgraduate degrees are becoming less and less valuable. Now you need to see what else you can do to enhance your working ability and opportunities for high-level cooperation.

University is the final trial before entering society. You aren’t just learning professional knowledge here; you are learning “how to get things done in complex organizations”: doing projects, joining labs, internships… these are all part of university education, known as the “Hidden Curriculum” [10].

I met several great teachers in university and feel I benefited greatly. However, many skills were not learned from teachers, but from classmates.

This is a social sandbox game with a high tolerance for error. How to send your first decent email to a supervisor, how to fight for lab opportunities, how to speak concisely in meetings, how to judge if an opportunity is worth chasing, how to make your abilities visible to others, how to build an organization… you need to interact with students from different grades and departments. You can always see how others do it first, imitating their strengths and learning from their mistakes, and the price you pay is very small.

Classmates are not just companions; classmates themselves are the curriculum. Especially in top universities, where else can you gather a group of high-potential young people and have them train each other in cooperation and competition?

The Functional Ratio Model #

I had GPT and Gemini separately research a large amount of literature, and they each estimated a set of functional ratios for each stage of schooling. I’ve synthesized them, and the result is roughly as follows:

• Primary School: Human Capital 80% + Signaling 5% + Social Capital 15%
• Middle School: Human Capital 45% + Signaling 40% + Social Capital 15%
• High School: Human Capital 10% + Signaling 80% + Social Capital 10%
• University: Human Capital 30% + Signaling 20% + Social Capital 50%

You need to fine-tune this based on specific circumstances. For example, if you are studying medicine or hardcore STEM subjects in university, the ratio of human capital would be higher. But the key point here is: do the right thing in the right place. Don’t live primary school like eleventh grade, don’t treat the Gaokao as a judgment on your character, and don’t live university like a thirteenth year of high school.

Conclusion #

A reader of this course once asked in the comments: “First-graders are the most eager to raise their hands; by sixth grade, very few do; middle schoolers say they aren’t interested in anything. Who stole the innate ability to learn?”

The answer, of course, is signaling. It is exams that have pushed learning from intrinsic motivation to external regulation, and from agency to passivity. If parents force their children to be “involution kings” starting from primary school, it only makes matters worse.

Remember, high school is only three years. What we must do is keep the spark of curiosity alive through high school, into university, into work, and into lifelong learning as adults—that is where real scholarship and real ability lie.

I hope the model I’ve described today becomes obsolete soon. One day, people will realize that high schoolers shouldn’t specialize in drilling for the Gaokao, and that university isn’t that important.

There are already signs: employment rates for university graduates are falling, and the signaling effect of a university diploma is weakening. The reality is that talents in sports, arts, sales, repair, operations, live streaming, entrepreneurship, organization, negotiation, aesthetics, craftsmanship… these have little to do with exam papers. “Everything can be tested via exams” is not a social norm; it is a social disease.

An ideal society should be one where whoever has what talent can exercise it, and whoever wants to learn what talent can learn it, without needing certification or institutional approval… but until that ideal is realized, you must temporarily respect the hard constraints.

Notes #

[1] Spence, Michael. 1973. “Job Market Signaling.” Quarterly Journal of Economics 87 (3): 355–374. See also 精英日课 Season 3, Game Theory 12. How to Screen Signals.

[2] Jia, Ruixue, and Hongbin Li. 2021. “Just above the Exam Cutoff Score: Elite College Admission and Wages in China.” Journal of Public Economics 196: 104371.

[3] Sacerdote, Bruce. 2001. “Peer Effects with Random Assignment: Results for Dartmouth Roommates.” Quarterly Journal of Economics 116 (2): 681–704.

[4] Chetty, Raj, John N. Friedman, Nathaniel Hilger, Emmanuel Saez, Diane Whitmore Schanzenbach, and Danny Yagan. 2011. “How Does Your Kindergarten Classroom Affect Your Earnings? Evidence from Project STAR.” Quarterly Journal of Economics 126 (4): 1593–1660.

[5] Chetty, Raj, John N. Friedman, and Jonah E. Rockoff. “Measuring the Impacts of Teachers II: Teacher Value-Added and Student Outcomes in Adulthood.” American Economic Review 104, no. 9 (2014): 2633–2679; Heckman, James J., Seong Hyeok Moon, Rodrigo Pinto, Peter A. Savelyev, and Adam Yavitz. “The Rate of Return to the High/Scope Perry Preschool Program.” NBER Working Paper 15471, 2009.

[6] Chowdry, Haroon, Claire Crawford, Lorraine Dearden, Alissa Goodman, and Anna Vignoles. 2013. “Widening Participation in Higher Education: Analysis Using Linked Administrative Data.” Journal of the Royal Statistical Society: Series A (Statistics in Society) 176 (2): 431–457.

[7] 精英日课 Season 3, Scientific Conclusions on the Early Education Arms Race.

[8] Hanushek, Eric A., and Ludger Woessmann. 2006. “Does Educational Tracking Affect Performance and Inequality? Differences-in-Differences Evidence across Countries.” Economic Journal 116 (510): C63–C76.

[9] 精英日课 Season 6, Scientific Learning Methods Targeting Exam-Oriented Education.

[10] Jackson, Philip W. Life in Classrooms. New York: Holt, Rinehart and Winston, 1968.