Pioneer of human capital

Gary Becker

Human capital is a term that is used widely to refer to a person's education, skills, etc. The pioneer of 'human capital' was economics Nobel laureate Gary Becker of the University of Chicago, who has passed away at the age of 83.

His work spans a wide range of what can perhaps be termed the Economics of Life, the title of one of his books.

He has written on topics ranging from the economics of crime to which restaurant we choose to eat in. His application of the tools of economics to what had been considered to be more sociological areas won him the highest prize in economics in 1992.

In the area of human capital, his work altered the thinking on the subject.

In his book, Human Capital, published in 1964, he described how a person's education and skills should be viewed as investable assets, like a steel plant or shares of a company.

Capital is anything that yields income and other returns over time.

He was concerned that education could be underinvested in, because a young person who would benefit from education or training may not have money to pay for it now. In other words, those building their human capital faced a liquidity constraint.

An university education is estimated to net someone $1m (£592,000) more over her lifetime than a non-graduate. So, Becker asked, why can't a person borrow against this investable asset?

By re-framing the concept as "capital", Becker changed the way that education was viewed.

Although human capital isn't the type of collateral that banks would accept, it was a basis for governments to offer student loans to help invest in human capital, whose returns accrue not only to the individual, but to society.

His work on the economics of discrimination has also been widely influential.

If a manager maximises utility - an economic concept that refers to everything that makes up a person's well-being - instead of profit, then there is scope to discriminate against, say, women or minorities. Such a firm should be competed out of the market, but that would be the case only if the market was very competitive.

Not all agree with applying economics so widely. But his influence is evident, as policy debates are now over the returns to human capital and who should pay for higher education.

Linda Yueh Article written by Linda Yueh Linda Yueh Chief business correspondent

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  • rate this

    Comment number 24.

    Fairsfair @23
    "terms of reference"

    Difficult the escape
    From 'our capitalism'

    Like 'our socialism'
    Use as of lead sock

    Ahead of our neighbour
    So lost to our friends

    Parted from principles
    Soon to find poverty

    In equal partnership
    Investment to good

    Sensible no simpler
    Like riding a bike

    Always on the edge
    But safely balanced

    Faith in existence as real
    So in the worth of caring

  • rate this

    Comment number 23.

    All con men and women use mis-direction to win or those wishing to win an argument change the terms of reference of the argument. If you don’t agree with their point you must be a communist and we know communism failed. The fact is that what a lot of them argue for is not necessarily part of capitalism. They have succeeded so well so far that our capitalism now has cancer.

  • rate this

    Comment number 22.

    19. m
    But the person paid in in the past what would now be an inflated amount. Present old people paid for the improved and more expensive pre university education of the younger generation. University education was paid for but only a few could take advantage of it. Higher priced houses are not consumable and will be paid back at death.

  • rate this

    Comment number 21.

    15.f TP

    No, he wasn't he was(is) part of the problem with economics - not the solution.

    The whole of economics since the fifties has basically been rubbish built upon rubbish.

    They even have had to apologise for their incompetence!

    Economics teaching has been corrupted by the paymasters - this substantially caused the crash.

    The whole 'we have defined a new paradigm' nonsense is the evil.

  • rate this

    Comment number 20.

    18. "His 1957 thesis claimed it would end discrimination because prejudice would cost employers"

    He claimed no such thing! He merely stated that discrimination imposed costs not only on those disciminated againt but on thos discriminating. Perhaps you should try to look past your own "apologist totting" nonsense?


Comments 5 of 24


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