1.1 Introduction
Economics of human capital as an area of research is at least 45-years-old. Though the idea of human capital finds its origins to Adam Smith and Johann von Thunen of the eighteenth and nineteenth centuries, respectively (Blaug 1975) and was more clearly pronounced in the early part of the twentieth century by John Walsh and Irving Fisher, who even used the concept of specialised human capital to refer to skilled and higher educated individuals, Economics of Human Capital, and more clearly Economics of Education was born as a formal area of study only four and a half decades ago with the Presidential Address by Theodore W. Schultz (1961) to the American Economic Association in 1960 on āInvestment in Human Capitalā. The human capital theory was a great contribution to Economics and it created āthe human investment revolution in economic thoughtā as aptly described by Mary Jean Bowman (1966). The very concept of ācapitalā had to undergo a serious change, with the emergence of āhuman capitalā. Further, it is being realised that the concept of human capital has a profound interface with the newly emerging principles and theories of human development. Today, economists go even beyond human capital and formulate the concept of āsocial capitalā, which in a sense is built on the concept of human capital to some extent.
In about five years after the formal birth of Economics of Human Capital in Chicago, the Indian Economic Association had organised in its annual conference in 1965 in Banaras a special session on āInvestment in Human Resources,ā and could discuss the theme under as many as six major heads that include the concept of human capital, measurement of costs and benefits of education, efficiency of expenditures, rates of return and criteria for investment, and so on. A report of the conference was prepared by V.N. Kothari (1966a). Today when I attempt to review the area of Economics of Education in India, I recall the significant contributions of Kothari among several others and pay respect especially to Professor Kothari, who passed away last December.
According to the human capital theory, expenditures on schooling, health, training, migration etc., constitute investment in human beings, which enhance the capabilities of the people as producers and consumers in the labour market, in the households and in the society at large. Of all, education and health are considered as the two most important components of human capital, and the concepts of educational capital and āhealth capitalā (Grossman 1972) evolved. There are several similarities between educational capital and health capital, both being essentially embedded in human beings, but there are also several important differences. While expenditure on education improves skills and productivity of individuals, expenditure on health and medical services results in promoting reduction in death rates or birth rates and āprimarily affect the numbers and secondarily the skills, capabilities and efficiencyā (Kothari 1966a, p. ix). Hence, it is argued that it is not reasonable to treat expenditure on health as investment in human capital, on par with investment in education, though one can argue that certain kinds of expenditure on health might improve the productivity of the people in the labour market. Human capital is also largely defined as the stock of skills and productive knowledge embodied in people (Rosen 1987, p. 682). I do not wish to discuss this further, but I do recognise that Economics of Education and Economics of Health emerged over the years as two strong and vibrant areas of study in the main field of Economics. A short paper of this kind can hardly do justice to the spectacular growth of either Economics of Education or Economics of Health. I concentrate here on Economics of Education, not only because this is an area that dominates the theory of human capital, but also more importantly it is an area in which my comparative disadvantage is less.
In this short paper, I intend to give a flavour of the growth of Economics of Education at large and in India in particular, briefly describe the contribution of Economics of Education to our better understanding of several socioeconomic phenomena, and also the weaknesses that continue to haunt the area. On the whole, I attempt to show that Mark Blaug, who played a key role in popularising Economics of Education with his famous textbooks (e.g., Blaug 1970), Readings (1971) and several edited volumes in Economics of Education, was wrong, when he observed that āthe economics of education now lies dead in the mind of both professional economists and professional educatorsā (Blaug 1987a, p. 331).
1.2 Economics of Education
Beginning with the pioneering works of Theodore Schultz (1961, 1963, 1971), Gary Becker (1964), Jacob Mincer (1958, 1974), Edward Denison (1962) and others, Economics of Education has travelled a long distance during the last four and a half decades. There has been a steady and rather a fast growth of the area. From the āfirst generationā research of the heydays of the 1960s, reaching the peak in 1970, and the second generation studies of the 1970s and the 1980s, the area grew in strength decade after decade, not only in terms of empirical applications, but also going deep into the various facets of basic tenets of Economics of Education in the 1990s and in subsequent years. Economics of Education has drawn for its own development heavily from Economics, and in turn influenced heavily the development of Economics and also the fast promising area of Development Studies. Economics of Education also broadened the scope of economic planning. The contributions in Economics of Education during the last four and a half decades opened up new vistas in, and have influenced considerably and even expanded the boundaries of the theories of growth, labour market economics, public finance and development economics. Economics of Education also entered the theories of social choi...