ABSTRACT
Human capital theory posits that education can function like an investment. DeYoung puts the birth of human capital theory in a historical context: he believes that the industrial setting was right for the theory. The economic needs of the United States emerging from the Second World War were ready for such a theory: Thus, governments often have to provide incentives or guarantees in order for students to get loans for their education even when it can be shown that the investments are likely to have positive returns. Political economists from the late eighteenth and early nineteenth century saw little utility for economic productivity in public schooling. Several authors undertook research that applied production functions to the study of education contributions to national production-most notably Denison. Although rate-of-return analysis was already well established in the early years of human capital research, it was Psacharopoulos' work, beginning in the early 1970s, that brought substantial policy focus to the research.
