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?

  • rate this

    Comment number 19.

    #4 Unless it's untrue that a Degree makes you more money then the more graduates the bigger the payback on taxes later?
    #10 Pensions are a transfer from young to old because it's paid from current receipts?
    #13 We use our capital to borrow against our future earnings all the time?
    #14 Hayek (1943) said socialism was the Road to Serfdom? Good read!

  • rate this

    Comment number 18.

    Becker was a neo-liberal apologist totting the party line of thinking up new ways of claiming how wonderful it would be to eliminate Govt & its interference in markets. His 1957 thesis claimed it would end discrimination because prejudice would cost employers too much but its a lowest common denominator idea where all but the 'best' end up in sweatshops on zero hours contracts

  • rate this

    Comment number 17.

    Gary Becker, bless him, observed (with what concern, no matter) dependence of individual fulfilment chances (so also of national prospects for social cohesion) on equilibria between microeconomic satisfactions, his commendation implicit for social atomisation rather than democracy, with narrow profit as arbiter btwn all manner of prejudices and labour-cost inflation (amongst the favoured). RIP.

  • rate this

    Comment number 16.

    None of us able to feel we belong, all made to compete to give more-for-less, the 'more' at cost to conscience & vocation, all under threat against self & family of exclusion from fulfilment in every respect (political, occupational, personal), we wake to the moral illegitimacy of central governments & their alternating elites, but jump out of the frying-pan into the fire, equal partnership missed

  • rate this

    Comment number 15.

    13 & 14. You clearly have little or no idea what you are talking about. Pitiful and stupid!

    Becker was an insightful, brilliant economist who challenged orthodoxy. In many ways he was one of the first great behavioural economists.

  • rate this

    Comment number 14.

    In a nutshell, the guy redefined markets in to monetary Capitalism, whoops.... serfdom as is being inflicted now. I guess that at some point the mountain of student debt will be written off when one party or other needs some votes.

    It is unfortunate that he did not contemplate the efficient layering of profit or its social relevance. Such is life.

  • rate this

    Comment number 13.

    Crackpot economics has got so much out of control that it must distress 'real' economists.

    Human Capital does not exist because you can't borrow against it or indeed trade it! The market says - NO!

    Economists regularly come up with and give themselves prizes for devising new economics - that ignore the market - often they are bribed to do so by market actors themselves (banker justification)!

  • rate this

    Comment number 12.

    Becker saw Capital & “utility-maximizing economic agents”, that's you, coming together for mutual benefit in an unregulated environment of increased competition. He failed to see or possibly care that Capital is more powerful than Labour & without regulation the imbalance would only increase making workers into slaves of uncontrollable capital owners - no discrimination if every worker is a slave

  • rate this

    Comment number 11.

    The UK has a service economy which ought to mean staff are the most prized assets. Doctors, lawyers, scientists, programmers, engineers, even bankers.

    Where do the new ones come from? We need to encourage all those that are capable, not simply those already financially secure. The era of the polymath victorian gentleman are over, and numbers do matter.

  • rate this

    Comment number 10.

    I think what you say is true and that is what society is about. However, I am not sure about your last sentence. I have not seen any proof that there has been a transfer of wealth from the young to the old. I think it is a view that has been popularised but has not been proved. I would be happy to accept it, if I were given the proof.

  • rate this

    Comment number 9.

    You can't make a silk purse out of a sow's lug no matter how much you spend on it.
    You have to invest in the right product.

  • rate this

    Comment number 8.

    Whilst casting a nod at the concept of economics being the 'dismal science' it must be appreciated that this man has helped to soften this description. Not a bad achievement in itself, despite his many other contributions. I bet he didn't realise that the student loan facility would grow into such gigantic debts, mainly due to BLAIR's crazy aim for 50% to attend university. Adult Foresight? NIL

  • rate this

    Comment number 7.

    "If a manager maximises utility - an economic concept that refers to everything that makes up a person's well-being - instead of profit, then...Such a firm should be competed out of the market."

    Linda - did you not understand what he was saying? He meant that companies who ruthlessly exploit their employees will beat those who don't.

    He was advocating discrimination, not criticising it.

  • rate this

    Comment number 6.

    Gary Becker was right, but borrowing in order to achieve future increases of human capital has been proving a bad investment strategy of late.

  • rate this

    Comment number 5.

    Debts up front, paying for your own education, is not an economic incentive to do well, and not good for the greater economy in the long run either as an uneducated workforce benefits nobody.

    Investment in education is not unsustainable. It is essential to future prosperity.


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