Money, Banks and Finance in Economic Thought

Loose ends? The uses of Education and Human Capital in economic analysis in the first half of the twentieth century

Teixeira Pedro, CIPES & U. Porto

The use of the expression “human capital” has a long pedigree in the history of economics. However, since its early uses by people such as William Petty, Adam Smith, or Stuart Mill there was a kind of ambivalence. The expression was found suggestive, but these and other authors decided nevertheless not to explore it from an economic point of view (e.g. in terms of earnings, income distribution, or economic growth). Moreover, Marshall had been very clear about its problematic nature and his authority seemed to have killed the use of this expression in early twentieth-century economics. In fact, the main published economics sources of the first decades of the century confirm its almost complete absence and suggest that the qualification of the labour resources were hardly a topic for early twentieth century economists. Until the first decades of the twentieth century the link between education and the labour market, and especially with worker’s performance, was almost non-existent. The few references were limited to a repetition of Adam Smith’s compensatory principle. Education was still largely valued for its social benefits or non-monetary private ones, and very little was mentioned about its potential economic benefits. Even those like Marshall that went further to consider its economic benefits for the country, suggested that individuals would neither realise their importance nor could reap the full benefits for that investment. This lack of interest in the economic value of education persisted and most economists of the early decades of the twentieth century did not seem to care much about education, let alone its economic impact. The published writings from the period indicate that the references to education were not only sparse but also seldom linked with central features of the economic system. Despite some grand rhetorical statements on the importance of education for the individual and society as a whole, the truth was that education was a peripheral issue when it came to the analysis of economic phenomena, notably in terms of the labour market. The attention to human capital was left mostly to authors with other background and interests. This text shows that although the subject was not completely ignored during that period, it was discussed mostly by non-economists or by people outside academia. Moreover, the different and hardly related contexts in which the concept was used meant that neither human capital (nor the economic value of education) meant the same for the various debates. The text analyses the slow and erratic process of stabilisation of the concept “human capital”, and the resistances it raised throughout the first half of the twentieth century, within and outside economics.


Keywords: Education; Human Capital; Twentieth century