- Elgar original reference
Edited by Geraint Johnes and Jill Johnes
1 Human capital and rates of return George Psacharopoulos and Harry Anthony Patrinos 1 Introduction As with many other underpinnings in economics, the seeds of the theoretical link between education and productivity is in the writings of classical economists, but for reasons explained by Schultz (1971, p. 27), Adam Smith’s insight was left dormant until the late 1950s, the time when the modern human capital school was born. Among the most important historical landmarks in the ﬁeld is Adam Smith’s  (1991) classic statement that ‘a man educated at the expense of much labour and time to any of those employments which require extraordinary dexterity and skill, may be compared to one of those expensive machines. The work which he learns to perform, it must be expected, over and above the usual wages of common labour, will replace to him the whole expense of his education.’ Alfred Marshall  (1991) referred to industrial training as a national investment in his Principles of Economics. Soon after the Russian revolution a Soviet economist made estimates of the beneﬁts to the nation from investment in universal primary and secondary education, based on his cost–beneﬁt analysis of training in a Leningrad (St. Petersburg) factory (Strumilin, 1924). Walsh (1935) estimated the stock of human capital in the United States and the returns to formal schooling of college graduates. Friedman and Kuznets (1946) used the discounted value of future earnings to explain the incomes of doctors and dentists. Such scattered work was formally...
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