Human capital

The phrase "human capital" entered mainstream economics through Theodore Schultz's 1961 presidential address to the American Economic Association, titled "Investment in Human Capital." Schultz argued that the skills, knowledge, and health of workers should be understood as a form of capital, subject to the same investment logic as machinery or land.¹

Gary Becker expanded the concept in his 1964 book Human Capital, applying price theory to education, training, and health decisions. He treated schooling as an investment that individuals made in themselves, expecting future returns in the form of higher wages. Becker received the Nobel Prize in Economics in 1992 in part for this work.²

The metaphor was controversial from the start. Critics argued that describing human beings as capital reduced them to instruments of production, erasing the distinction between a person and a machine. The phrasing implied that a worker's value was determined by their economic output, and that education was worthwhile only insofar as it increased that output.³

Defenders countered that the concept simply acknowledged what was already true, that employers valued workers' skills and that individuals invested time and money to acquire them.

1992, The year Gary Becker received the Nobel Prize, partly for his work on human capital theory.

The phrase migrated from academic economics into corporate vocabulary by the 1980s and 1990s. Human resources departments began describing their work in terms of human capital management, talent pipelines, and workforce investment strategies.

Schultz was explicit that his concept included health and nutrition, not just education. In developing economies, he argued, the most productive investments were often in basic nutrition and disease prevention, forms of human capital that preceded any classroom.⁴

Timeline

• 1961, Schultz delivers his AEA address on investment in human capital.
• 1964, Becker publishes Human Capital, applying price theory to education decisions.
• 1992, Becker receives the Nobel Prize in Economics.

Endnotes

1. Theodore W. Schultz, "Investment in Human Capital," American Economic Review 51, no. 1 (1961): 1-17.
2. Gary S. Becker, Human Capital (New York: Columbia University Press, 1964); Nobel Prize Committee, "Gary S. Becker: Prize in Economic Sciences 1992."
3. Samuel Bowles and Herbert Gintis, Schooling in Capitalist America (New York: Basic Books, 1976).
4. Schultz, "Investment in Human Capital."