All but in Name: Historical and Philosophical Reflections on the Theory of Human Capital

Abstract

Since Gary Becker received the Noble Prize in 1992, the theory of human capital has become deeply entrenched in mainstream economics. Building on the work of John Locke and David Hume, Adam Smith portrayed the investment in education as a critical factor for economic growth. He argued that the acquisition of knowledge and skills is a type of capital, much like a machine, and thus articulated the concept of human capital in all but in name. While the correlation between schooling and future earnings has been firmly established by empirical studies, the specific causes at work are still under debate. It is not yet established whether it is the quantity or quality of the education, or the preschool, primary, secondary, or tertiary stages, that matters the most, or even at all. Some scholars discredit schooling as either a type of signaling or behavioral modification that has little in common with job training. This essay will canvas some of the early modern literature on human capital theory and then critique contemporary efforts to locate the causal nexus between investments in education as the primary form of human capital and economic output. The theory of human capital, it is argued, is beset with ambiguities and vague appeals at the causal level.