History of HCM
From OrgChart.net
Importance of Human Capital
More and more organizations are realizing that in order to stay on top in the global economy, they need to pay more emphasis on retaining and developing their people. It is the collective attitudes, skills and capabilities of people that contribute to the success and growth of a company. Employees are essential assets who contribute to the development and growth of a company. Hence, in the world of rapid technological advancements, organizations are looking at building relationships with employees and appreciating the financial impact of their employees who are referred to as human capital. So, when did the concept of Human Capital Management formulate?
History of Human Capital Management
Many great philosophers and economists have contributed to the development of the concept of human capital. The modern theory of human capital dates as far as the 17th century. In 1691, Sir William Petty was credited to be the first economist to understand the economic importance of human beings. He demonstrated the power of England, through statistics, by suggesting that they were other factors apart from area and population that were important in determining the national wealth and strength of a nation. He evaluated the value of human capital by placing a value on laborers and estimated the cost of life lost in wars and other deaths. Petty’s method and logic greatly appealed many of his followers who used his method of calculating national wealth, for about one hundred years, after his death.
About fifty years later, another economist, Philip Cantillon, made another contribution towards the concept of human capital. His estimation was based on the cost of maintaining the slave and his offspring rather on the slave’s earnings that he created.
In 1853, William Farr, more sophisticated in his approach, proposed that the net value of a person’s earnings, which he defined as earnings less living expenses, should be taxed. He attempted to find a system of taxing the population and felt that each member of the community should contribute to the public expenditure, in a fixed proportion, to the amount of property in his possession during that year. He felt that it was equivalent to wealth and physical property.
In 1867, Theodore Wittstein proposed that William Farr’s theory on net future of a person’s earnings should be utilized to calculate compensations for those who lost their lives.
In 1930, Louis Dublin and Alfred Lotka, who was majorly into life insurance, claimed that William Farr’s theory on present value of net future earnings can be used in mortality statistics too.
Adam Smith (1776), Jean Baptiste Say (1821), John Stuart Mill (1909), William Roscher (1878) and Henry Sidgwick (1901) were the prominent economists who felt that human beings are an investment and generated a return.
In 1897, Irving Fischer, in his definition of capital compared human beings to physical commodities. Many early researchers and economists refused to acknowledge this concept labeled it as “sentimentalism”.
Around 1900, Alfred de Foville, attempted to estimate the value of human stock in France. He applied Petty’s method and subtracted consumption. A. Barriol, a Frenchman, around the same time, used Farr’s method of present value of net earnings approach to determine the social value of man in France but did not deduct for consumption. He calculated using different age groups.
The founder of the American College of Life Insurance at the University of Pennsylvania, Solomon Huebner, in 1914, stated that human life value should be given the same treatment as conventional capital.
Human Capital Management is a valuable concept where humans are treated as assets instead of liabilities and takes people management onto the next level.
