Human Capital Theory

Human capital theory is a part of economics that includes the various aspects that go into the ability to perform labor as a production of economic value. Human capital is the aggregate of the individual's action within an economy. Any research paper on human capital theory will want to explore Adam Smith as one of the earliest proponents of human capital, but the theory does have its critics as well. Paper Masters can compose a custom written research paper on Human Capital Theory that follows your guidelines.

Human Capital Theory and Adam Smith

Adam Smith believed that the acquisition of talents, or useful abilities, through education and apprenticeships were part of the individual's "fortune" as well as part of the capital of the larger nation. The term "human capital" was largely unused by economists due to negative connotations (reducing individuals to commodities), but the 1964 book Human Capital by Gary Becker related human capital to the physical means of production, one that could be invested in (through education and training) and classified it as a means of production.

Many theorists see the term "human capital" as akin to Karl Marx's idea of the power of labor. Marx believed that, under capitalism, individuals sold their labor power in exchange for wages and salary. However, Marx distinguished between one's capacity to work and one's actual production, and human capital is not a liquid asset, but one that is contracted. Critics charge that human capital is inhumane and inappropriate, classifying human beings by their economic worth alone.

Human Capital Theory - Modern Day

Human capital theory as we know it today is a derivative of the work of British economist Adam Smith.Smith pioneered the concept that a nation's capital stock included the inhabitants' acquired and useful knowledge and abilities, based on his observation that human skills increase wealth for society overall as well as for the individual.

The modern-day conceptualization of human capital owes its re-birth to the writings of noted economists:

• Gary S. Becker
• Theodore Schultz
• Jacob Mincer

Becker (1964) refined Smith's supposition by categorizing education as an investment good. Up until that point, advanced levels of education was largely considered to be a consumption and status good because the ability to consume more non-compulsory education was a "privilege" most often exercised by the middle and upper classes, and as such was used to signal higher social standing (Machin & Vignoles, 2005). Positioning the unique skills and knowledge that an individual acquires through schooling in the same category as the physical assets of an organization forms the basis for modern human capital theory. Having become an asset like any other, the assumption is made that these skills and knowledge can be invested in with the expectation of achieving a rate of return from doing so. As such, this means that individuals would invest in human capital, such as formal post-secondary education, with the idea that acquiring such human capital enables a person to be more productive.