Although the modern theory of human capital has been developed over the past half century, the concept of human capital has been traced at least as far back as the 17th century. Around 1691, Sir William Petty placed a value on laborers, estimated the value of human capital to demonstrate the power of England and estimated the cost of life lost in war and other deaths.
In 1853, William Farr proposed that the present value of a person’s net future earnings, which he defined as earnings less living expenses, represented wealth in the same way as did physical property and should be similarly taxed. Theodore Wittstein, in 1867, proposed that Farr’s present value of net future earnings should be used to determine compensation for claims involving loss of life.
Louis Dublin and Alfred Lotka were in the life insurance business. In 1930, they were interested in the approach used by Wittstein for determining the amount of life insurance someone should purchase. Their work extended Wittstein’s present value of net future earnings to consider mortality statistics. (Interestingly, the approaches most often used by so-called “forensic economists” are essentially based on the formula used by Wittstein in 1867 and by Dublin and Lotka in 1930.)
Many others were early contributors to the literature on human capital economics by suggesting in various ways that human beings are an investment which generates a return. Among them were Adam Smith (1776), Jean Baptiste Say (1821), John Stuart Mill (1909), William Roscher (1878) and Henry Sidgwick (1901). Human beings were included in Irving Fisher’s definition of capital in 1897. Many other early researchers recognized the concept but refused to consider people in the same way as physical commodities due to what has been termed “sentimentalism.”
Alfred de Foville attempted to estimate the value of the capital stock in France around 1900. He applied Petty’s method (from the 17th century) and subtracted consumption. Another Frenchman, an actuary by the name of A. Barriol, sought to determine the “social value of a man in France.” He used Farr’s present value of earnings approach, but did not deduct for consumption. He did his calculations by different age groups.
Solomon Huebner, the founder of the American College of Life Insurance at the University of Pennsylvania, stated in 1914 that human life value should be afforded the same scientific treatment as is applied to conventional capital. To this day, the certificate of the Certified Life Underwriter (CLU) states that the recipient is an expert in insuring human life value.
Through the centuries, the application of what today would be called human capital theory has been applied to address many issues of public policy. Most of these issues remain the subject of that theory today. These include the power of nations, the effects of migration, investments in and regulation of safety, investments in health, economic development and education policy and investment.
As with any science, human capital economics is not stationary; it continues to evolve. At any point in time, it is the result of what has come before. Some of the more recent contributors to modern human capital theory can be found on this web site. A small sample of their contributors to the literature is also provided.