James M. Buchanan and “The Human Resource”

Abstract

This paper describes James M. Buchanan’s analysis of human capital concepts in a class paper that he wrote in 1946 titled “Federalism: One Barrier to Labor Mobility.” The paper described how federal financing of human capital investments impeded labor mobility and formed the basis for his 1948 dissertation Fiscal Equity in a Federal State. Buchanan saw the various types of human capital as “complex and interrelated,” and therefore not easily amenable to partial equilibrium analysis. Similar to his professor, Theodore Schultz, Buchanan believed there was ample scope for public investment in human capital and did not see conceptualizing education and health as “capital” as a reason for relying exclusively on privatized provision. In “Federalism: One Barrier to Labor Mobility,” Buchanan also argues that differential birth rates in low- and high-income regions had dysgenic consequences by operating against the relative population increase of “a socio-economic elite” that had “eugenic advantage” compared to “the bulk of the population” (Buchanan, 1946, 9). These eugenicist arguments raise important questions about the relationship between early human capital theory and eugenics, and cast a new light on Buchanan’s early scholarship and career.