Why 'Human Capital' is an abomination

I’ve always felt uneasy with using the term ‘human capital’ as a synonym for ‘people’. In this month’s issue of the consistently excellent Prospect magazine, philosopher Edward Skidelsky beautifully nails the arguments:

‘Economists, said John Maynard Keynes, should think of themselves as humble specialists, on a par with dentists. But his advice has gone unheeded. Over the past 50 years, economics and its jargon have penetrated every corner of human life. Decisions to marry and inject heroin alike are explained in terms of utility maximisation. Doctors, priests and scientists are lumped together as service providers or rent seekers. Schoolteachers are urged to “add value” to their pupils. The pig philosophy, as Thomas Carlyle called it, has become all-embracing.

Of the many harms inflicted by economics on the English language, “human capital” is the most grievous. Coined by Chicago economists Jacob Mincer and Gary Becker in the 1960s, it refers to the stock of personal skills and qualities that constitutes a worker’s economic value. Such skills and qualities are often costly to acquire and yield returns only over a long period of time, so are readily thought of as a kind of capital. Mincer and Becker’s work has provided the intellectual rationale for the huge expansion of higher education in recent decades. In an economy dominated by the knowledge and service industries, with personality and expertise at a premium, “investment in human capital” is the name of the game.

The phrase “human capital” is now so thoroughly naturalised that we seldom pause to ponder its implications. What is capital anyway? Capital is not a particular kind of good, but any good viewed in relation to certain interests. A donkey is capital to the wood-carrier. A derelict church is capital to the restaurant entrepreneur. Capital, in short, is wealth viewed not as an end in itself but as a means to more wealth. The phrase “human capital” insinuates that human beings too are to be viewed in this light—as instruments of the productive process. We have all of us attained the status which Aristotle reserved for slaves, that of living tools. What a triumph for the dismal science! Keynes naively supposed that economic growth was for the sake of personal cultivation. His modern successors have put him right: personal cultivation is for the sake of economic growth.’

Brilliant. ‘Human capital’ shall not pass my lips again.

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Comments

12 Responses to “Why 'Human Capital' is an abomination”
  1. Reaing about “human capital” makes one wonder about the whole field of economics as a science. The new concepts and terms that are being used are highly subjective and often not measurable. Economists try to model abstract concepts that do not actually exist, but are created by them. Economics has much in common with “sciences” of former centuries, such as phrenology. In future it will be confied to the dustbins of history.

  2. Edward

    Duncan,
    No one ought to think that the pursuit of knowledge or education is always for economic ends. Most often it is a reward in itself.

    Is your suggestion that most economists reject this idea? I doubt this is the case.

    What, therefore, is at the heart of your objection?

    The idea that individuals can be reduced to instruments in (not of) the productive process is both true, and also a gross simplification of human life.

    But can you propose an alternative way that helps explain why two countries with the same number of people, the same amount of physical capital can have different levels of income per capita?

    I’d be interested to know that as you drop the use of the term ‘human capital’ and instead start saying ‘skills and knowledge’, will you also assume that such elements have no place in how and what is produced?

  3. Nicholas Colloff

    An objectuion to ‘human capital’ is the assumption that it is a quantifible term akin to ‘physical capital’ etc instead of a complex set of factors that will help determine different outcomes; and, that the only purpose of it being there is to produce outcomes that are financial (thus work as alienation from a full range of human purposes).

    I rather like the idea of economics as phrenology: a redundant fad that withers and dies but, more realistically, we need to treat it as an art rather than a science and put it firmly in its place when deciding what to prioritise about our common ordering – after all a home economy is undertaken to achieve wider purposes – human well being, hospitality etc not for its own sake.

  4. I wonder what you think about social capital, which is a term that (in my view) attempts to valuate community.

    I wouldn’t necessarily blame economists for all this. Alot of regular folk want to see their public services in terms of the value that they provide. They pay for it, they want to ensure accountability for their tax dollars.

    I also do not think the term intends to ‘capitalize humans’ but instead asserts that humans produce value intrinsically – another way to parse the phrase is ‘capital that belongs or comes from humans.’

    Where I come from, these analogies are providing the opposite effect – they are opening the doors to help stodgey public servants to see the value in developing communities and staying the heck out of their business. From this attitude we get ‘asset based’ community development, which I think is a much more friendly view of communities (assuming that they are valuable in and of themselves, rather than ‘problems’ that need to be solved).

  5. Excellent find and excellent points. The implications behind our view of the worker as capital/assets are profound and affect our daily interactions with the people we work with and especially those that report into us. People become easily replaced and are only valuable to us for what they can for the company/organization.

    Lots of food for thought in one small post. Thanks!

  6. I don’t think the economics profession really sees education (human capital) only as a means to an end, but it would be silly to pretend that the motivation for education isn’t driven in part by the rate of return that it offers.

    From my experience in East Africa, everyone is desperate to get an education in order to get a decent job. Sure, this may be signaling more than actual knowledge accumulation (although something tells me that you don’t believe in signaling either), but you have to recognise that economic forces and interests help drive the demand, and the resulting value of education.

  7. People-Centered economics on the other hand gets straight to the point about humans:

    “Economics, and indeed human civilization, can only be measured and calibrated in terms of human beings. Everything in economics has to be adjusted for people, first, and abandoning the illusory numerical analyses that inevitably put numbers ahead of people, capitalism ahead of democracy, and degradation ahead of compassion.”

    Introduced in a proof of concept project in Russia in the wake of the 1998’Chicago School’ engineered collapse of their economy, it has remained well below radar.

  8. Lloyd

    Wake up – its capitalism and for capital if the factors of production are not to be used to increase the value of capital then what is there purpose. You can feel whatever you want but it does not change things one iota. I think a guy called Marx wrote about that awhile back. But of course his work is not mentionable because….I guess because he is Marx.

  9. George

    Something to think about: from most ancient times human beings have discovered their potentials. Among them the potential of been able to ‘capitalize’ or benefit (not just financially) from those potentials (such as the intellectual and physical ones) by mean of constructing, acquiring-appropriating, developing and actualizing ‘competencies’ as an exponential results-outcome-return of knowledge, analytical-critical understanding, attitudes toward what they know-understand, and aptitudes to apply and benefit (not just financially, not just for themselves…) from the capitalization of those competencies.

    It’s seems exaggerated and out of focus to let particular, ideological views -and the elaborated intellectualization of them, disguised as philosophies, and mixed with some personal dogmas, preferences and feelings- engage so deeply in a subjective understanding and meaning of the metaphoric use of “capital” in relation with humans and with what humans had been developing for decades to face realities and situations and to satisfy their needs (human, social, economic, cultural, scientific, technological, technical and environmental), building with the constant growth of their human (personal) capital much more than material or financial wealth.

  10. Jared West

    This critique is way off the mark. Human capital isn’t a euphemism for people, it’s a description of what’s in their heads.

    People have human capital. People are *not* human capital.

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