Institutions and the Rising Economic Value of Man

Abstract

I TAKE it to be true that there is a strong connection between the investment in human capital and the secular rise in the economic value of man. The implications of this development are, however, far from clear. My purpose is to show that the rise in the economic value of human agents makes new demands on institutions, that some political and legal institutions are especially subject to these demands, that there are lags in adjusting to the new demands and these lags are the key to important public problems, and that economic theory is a necessary analytical tool in clarifying and solving these problems. It might be said that human capital is protesting the status quo of institutions as it seeks participation rights for itself. Be that as it may, there is enough historical perspective to see that the ownership of land is declining as a source of economic leverage, and so is the ownership of physical capital relative to that of human capital. We have long known that Ricardian rent is not the fulcrum of economic values; nor is physical capital the critical historical factor, as Marx believed. The institutions governing private rights in land and in other forms of physical capital when Ricardo and Marx made their contributions would be far from adequate in contemporary society with its large investment in human capital. Would that could have been blessed by the marriage of Irving Fisher's allinclusive concept of capital [4] and John R. Commons' legal foundations of that capital [3]. It is currently a mark of sophistication in presenting economic models not to mention institutions. But for all that, it is a significant trait of contemporary that, despite this omission, it manages somehow to find support for changes. It is a neat trick, but it cannot hide the fact that, in thinking about institutions, the analytical cupboard is bare. There are a few old boxes on the back shelf labeled institutional economics which have been pushed aside and which have long been