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The first use of the term in the modern neoclassical economic literature was in an article entitled "Investment in Human Capital" in The American Economic Review in 1961 by Nobel laureate Theodore Schultz (who expanded it into a book of the same name in 1971). The best-known application of the idea of "human capital" in economics is that of Jacob Mincer and Gary Becker of the Chicago school. Becker's book entitled Human Capital, published in 1964, became the "standard" reference for many years. In this view, human capital is similar to " physical means of production", e.g., factories and machines: one can invest in human capital (via education, training, medical treatment) and one's income depends partly on the rate of return on the human capital one owns. Thus, human capital is a stock of assets one owns, which allows one to receive a flow of income, which is like interest earned. Human capital is substituable: it will not replace land, labor, or capital totally, but it can be substituted for them to various degrees and be included as a separate variable in a production function.

The introduction of the term is explained and justified by the unique characteristics of knowledge. Unlike physical labor (and the other factors of production), knowledge is:

• Expandable and self generating with use: as a doctor gets more experience, her knowledge base will increase, as will her endownment of human capital. The economics of scarcity is replaced by the economics of self-generation.
• Transportable and shareable: knowledge is easily moved and shared. This transfer does not prevent its use by the original holder.

In some way, the idea of "human capital" is similar to Karl Marx's concept of labor-power: to him, under capitalismCapitalism generally refers to a combination of economic practices that became institutionalized in Europe between the 16th and 19th centuries. Exactly which historic and current practices are considered part of "capitalism" varies among users of the term workers had to sell their labor-power in order to receive income (wages and salaries). But long before Mincer or Becker wrote, Marx pointed to "two disagreeably frustrating facts" with theories that equate wages or salaries with the interest on human capital.

1. The worker must actually work, exert his or her mind and body, to earn this "interest." Marx strongly distinguished between one's capacity to work (labor-power) and one's very human activity (practice) of working.
2. A free worker cannot sell human capital to receive money revenues; it's far from being fungible, a liquid asset. Even a slave, whose human capital can be sold, does not earn an income him- or herself; instead, the slave-owner gets the income. Under capitalism, to earn income, a worker must submit to the authorityIn politics, authority generally refers to the ability to make laws, independent of the power to enforce them, or the ability to permit something. People obey authority out of respect, while they obey power out of fear. For example, the congress has the a of an employer who want to hire for a specific period of time.

The latter means that the employer must be receiving an adequate rate of profitIn economics, the profit rate refers to the relative profitability of an investment project or of an capitalist enterprise or for the capitalist economy as a whole. It is similar to the idea of the rate of return on investment. In Marxian political econom from his or her operations, so that workers must be producing surplus-value, i.e., doing work beyond that necessary to maintain their labor-power. (See CapitalDas Kapital ("Capital") is a treatise of political economy written by Karl Marx. The book is a critical analysis of capitalism and of its economic practices. Marx bases his work on that of the classical economists like Adam Smith, David Ricardo, and even, volume III, ch. 29[1], pp. 465-6 of the International Publishers edition.)

Modern labor economics has criticized the simple Chicago-school theory that tries to explain all differences in wages and salaries in terms of human capital. The concept of human capital can be infinitely elastic, including unmeasureable variables such as personal character or connections with insiders (via family or fraternity). This allows the theory to be tautologically true without explaining anything. Often, it is not the education or training that one has which determines the value of one's education, but the prestige of the credential or degree received. Someone who gets a degree from an elite school will likely get a higher income than one from a large government-funded one, even if they have exactly the same knowledge. Others point to the existence of market imperfectionsIn economics, a market failure is a case in which a market fails to efficiently provide or allocate goods and services. More generally, market failure refers to situations where market forces do not serve the perceived "public interest. Economists use mod (which are especially rampant in labor markets) that imply the existence of non-competing groups or labor-market segmentation . In these theories, the "return on human capital" differs between different labor-market segments. Similarly, discriminationTo discriminate is to make a distinction. There are several meanings of the word, including statistical discrimination, or the actions of a circuit called a discriminator. This article addresses the most common meaning of the word, social, racial, religio against minority or female employees imply different rates of return on human capital.

Following Becker, the human capital literature often distinguishes between "specific" and "general" human capital. Specific human capital refers to skills or knowledge that is useful only to a single employer (and who will likely be willing to pay for it), whereas general human capital (such as literacy) is useful to all employers.

Other analysis, for instance in human development theory, differentiate social trust ( social capital), sharable knowledge ( instructional capital), and the individual leadership and creativity ( individual capital) as three distinct capacities of a human applying him or her self in economic activity. The term human capital in human development theory, thus refers to ambiguous combinations of these. Interactions with the welfare, education and health care systems can be modelled even past retirement (whereas, according to classical and neoclassical analysis, human capital would be zero, as no "labour", "employment" or "goods" are now involved).