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ABSTRACT Despite criticism, human capital theory (HCT) has remained central for six decades to the teaching and practice of economics. This paper reformulates the critique of HCT, focusing on two aspects that are typically relegated to the margin. The first of these is the pervasive presence of the external effects of learning, which is paid lip service in formal expositions of HCT but marginalized in the bulk of empirical work and policy advice. Similarly, marginalized are the social determinants of education demand. We show that the embedding of HCT in methodological individualism makes impossible the incorporation of key, non‐peripheral factors that affect the demand for, and effects of education. The resultant tensions from the use of an individualistic methodology to explain inherently social phenomena have been accommodated within HCT by ignoring them. The outcome is problematic in important fields of socioeconomic inquiry, several examples of which are noted in this paper. We conclude by advocating a new research agenda and revised program for the training of economists concerned with learning that includes behavioral economics, applications to education of the capability approach, and an expansion of empirical research on the external effects of education in historical and contemporaneous contexts.
Auerbach et al. (Tue,) studied this question.