Economic reality is always stranger than economic theory. Human capital is no exception.
While we can trace ideas akin to human capital back to the classical political economists (such as Smith) and the critics of political economy (including Marx), the notion of human capital really takes hold within neoclassical economics (in the work of Arthur Lewis, Ted Schultz, and especially Gary Becker). It came to refer to the stock of skills, knowledges, and social and personality attributes individual workers had acquired, which in neoclassical models determined their productivity and their appropriate compensation (which, these days, means that CEOs are “worth” 323 times average workers).
But, however offensive and misguided the use of human capital within neoclassical economics has been, it still doesn’t capture the latest development in the economy: human capital contracts [ht: sm].
We’ve heard a lot about corporate personhood – the idea that, as one former Massachusetts governor put it, “Corporations are people.” But there’s a new hot concept in the land of personal finance: personal corporatehood, the notion that people can act like corporations. Increasingly, amid record-high stock markets that have rewarded anything with a ticker symbol, normal people are finding new ways to sell stock, lash themselves to investors, and throw themselves at the market’s mercy.
The latest such deal was the IPO of Arian Foster, the NFL running back who partnered with a sports-marketing agency called Fantex to offer himself up on the public markets. Under the terms of the deal, Foster would earn $10 million by selling 20 percent of his future earnings to investors in the form of a personalized “tracking stock.” (The IPO fell through after Foster sustained a season-ending injury.)
But you don’t have to be a millionaire NFL star to play the stock-selling game. There are now a handful of companies offering what are called “human capital contracts” or “income-share arrangements” to normal people. These contracts don’t involve actual stocks, but they have stocklike characteristics. People who sign up for these programs agree to give a percentage of their income to their financial backers for a period of several years, in exchange for a one-time cash infusion. It’s a sort of Kickstarter for people, a crowd-funding platform that provides backers with monthly royalty checks instead of signed T-shirts.
It used to be the case that workers were encouraged to invest in their human capital portfolio in order to improve their own lot. But economic events have moved us beyond that idea of human capital, making it possible for wealthy investors to acquire portfolios that include a claim on workers’ future earnings.