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The rise of human capital theory Blair Fix [York University, Toronto, Canada]

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Abstract Today, human capital theory dominates the study of personal income. But this has not always been so. In this essay, I chart the rise of human capital theory, and compare it to the rise (and fall) of eugenics. The comparison, I argue, is an apt one. Eugenics and human capital theory both focus on isolated traits of individuals. By doing so, both theories neglect the social nature of human behavior.

The most pernicious scientific theory? If there was an award for the most pernicious scientific idea ever, what theory should get first prize? I would vote for eugenics, a theory that claims we can “improve” humanity through selective breeding (Galton, 1904). If there was a second prize, I would give it to human capital theory. I think of human capital theory as “eugenics light”. It purges the idea that abilities are innate (and that we should selectively breed the “fit”). But human capital theory keeps the Nietzschean idea that humanity’s success can be attributed mostly to gifted übermensch (Nietzsche, 2005). Among us, human capital theory claims, walk individuals who are unfathomably productive. These übermensch produce more in an hour than most of us do in a week. Take just 1% of 1 these top individuals, and you will find that they out produce the bottom half of society! According to human capital theory, then, we could do away with half of society with no great loss to economic output. Of course, few human-capital theorists advocate such atrocities. But my point is that their theory contains the seeds of eugenics … even Nazism. The ethical problems with eugenics and human capital theory are easy to spot. But what about the scientific problems? These are more difficult to tease out. Eugenics is based on the hard truth that many traits are heritable. Similarly, human capital theory is based on the reality that some people earn hundreds of times more income than others. Where both theories go wrong, however, is that they misunderstand humanity’s social nature. Yes, many individual traits are heritable. But it is a fallacy that traits that are good for individuals are also good for society. That is the core scientific flaw in eugenics. And yes, it is true that some people earn far more than others. But it is a fallacy that this income is caused by traits of the individual. In reality, income is a social trait.

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I thank John Medcalf, Mike Tench, Robin Shannon, Brent Gulanowski, Tom Ross, Steve Keen, Hilliard MacBeth, Joe Clarkson, Grace and Garry Fix, Pierre and Norbert Hornstein for their support. 1 In the United States in 2019, the top 1% of earners took home 18.7% of all income. The bottom 50% of earners, in contrast, took home just 13.5% of all income. (Data is from the World Inequality Database, pre-tax income share of US adults, equal splits.) If human capital theory is correct, this income indicates productivity. So the top 1% produced more than the bottom half of society. And the average member of the top 1% produced abut 70 times more than a member of the bottom 50%. (The math: 18.7% / 13.5% × 50 = 69.2). So an übermensch member of the top 1% produced more in an hour than a bottom-50 percenter did in a week. Or so human capital theory would have us believe.