Human Capital Theory
History
Blair Fix:
"After the horrors of the Holocaust, eugenics fell into disrepute. As a result, few people today dare argue that we should selectively breed humans for productivity. Still, the sentiment behind eugenics (that some people are far more productive than others) lingers on in mainstream academia. It survives – even thrives – in human capital theory. The ground work for human capital theory was laid just as eugenics fell out of favor. In the 1950s, economists at the University of Chicago tackled the question of individual income. 3 Why do some people earn more than others? The explanation that these economists settled on was that income resulted from productivity. So a CEO who earns hundreds of times more than a janitor does so for a simple reason: the CEO contributes far more to society. The claim that income stems from productivity was not new. It dated back to the 19th-century work of John Bates Clark (1899) and Philip Wicksteed (1894), founders of the neoclassical theory of marginal productivity. Clark and Wicksteed, though, were concerned only with the income of social classes. What the Chicago-school economists did was expand productivist theory to individuals. Doing so required inventing a new form of capital. The idea was that individuals’ skills and abilities actually constituted a stock of capital – human capital. This stock made individuals more productive, and hence, earn more income.
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Until the 1970s, human capital theory remained obscure. But then politics began to change. In the words of Ronald Reagan, “People were tired of wasteful government programs and welfare chisellers” (1990). The welfare system was not a social safety net, Reagan declared. It was a “creator and reinforcer of dependency” (1987).
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In the 1990s, a second generation of economists took up the human-capital mantle. By then, neoliberal politics was in full swing. The fact that human capital theory explicitly justified inequality was no longer a liability. It was a selling point."
(http://www.paecon.net/PAEReview/issue95/Fix95.pdf)
Discussion
Blair Fix:
"I think of human capital theory as “eugenics light”. It purges the idea that abilities are innate (and that we should selectively breed the “fit”). But human capital theory keeps the Nietzschean idea that humanity’s success can be attributed mostly to gifted übermensch (Nietzsche, 2005). Among us, human capital theory claims, walk individuals who are unfathomably productive. These übermensch produce more in an hour than most of us do in a week. Take just 1% of these top individuals, and you will find that they out produce the bottom half of society! 1 According to human capital theory, then, we could do away with half of society with no great loss to economic output. Of course, few human-capital theorists advocate such atrocities. But my point is that their theory contains the seeds of eugenics … even Nazism. The ethical problems with eugenics and human capital theory are easy to spot. But what about the scientific problems? These are more difficult to tease out. Eugenics is based on the hard truth that many traits are heritable. Similarly, human capital theory is based on the reality that some people earn hundreds of times more income than others. Where both theories go wrong, however, is that they misunderstand humanity’s social nature. Yes, many individual traits are heritable. But it is a fallacy that traits that are good for individuals are also good for society. That is the core scientific flaw in eugenics. And yes, it is true that some people earn far more than others. But it is a fallacy that this income is caused by traits of the individual. In reality, income is a social trait. "