The Concise Encyclopedia of Economics

Theodore William Schultz

In 1979 Theodore Schultz was awarded the Nobel Prize along with W. Arthur Lewis for their "pioneering research into economic development... with particular consideration of the problems of developing countries." Schultz's focus was on agriculture, a natural interest for someone who had grown up on a South Dakota farm. In 1930 Schultz began teaching agricultural economics at Iowa State College (now Iowa State University). He left in protest in 1943 when the college's administration, bowing to political pressure from some of the state's dairy farmers, suppressed a report that recommended substituting oleomargarine for butter. Schultz moved to the University of Chicago's economics department, where he spent the rest of his academic career.

Early on at Chicago, Schultz became interested in agriculture worldwide. In his 1964 book, Transforming Traditional Agriculture, Schultz laid out his view that primitive farmers in poor countries maximize the return from their resources. Their apparent unwillingness to innovate, he argued, was rational because governments of those countries often set artificially low prices on their crops and taxed them heavily. Also, governments in those countries, unlike in the United States, did not typically have agricultural extension services to train farmers in new methods. A persistent theme in Schultz's books is that rural poverty in poor countries persists because government policy in those countries is biased in favor of urban dwellers and against rural dwellers. Schultz is optimistic that, without this government hostility to agriculture, poor agricultural nations can develop. "Poor people in low-income countries," he has stated, "are not prisoners of an ironclad poverty equilibrium that economics is unable to break."

Schultz is an empirical economist. When he travels to serve on commissions or to attend conferences, he visits farms. His visits to farms and interviews of farmers have led to new ideas, not the least of which was on human capital, which he pioneered along with Gary Becker and Jacob Mincer. After World War II, while interviewing an old, apparently poor farm couple, he noticed how contented they were. When he asked them why they were so contented even though poor, they answered that they were not poor because they had used up their farm to send four children to college and that these children would be productive because of their education. This led Schultz quickly to the concept of human capital, capital produced by investing in knowledge.

In 1960 Schultz was president of the American Economic Association. In 1972 he won the Francis A. Walker Medal, the highest honor given by that association.

Selected Works

The Economic Value of Education. 1963. (Translated into Spanish, Portuguese, Japanese, Greek.)

"Investment in Human Capital." American Economic Review 51 (March 1961): 1-17.

"Reflections on Poverty within Agriculture." Journal of Political Economy 43 (February 1950): 1-15.

Transforming Traditional Agriculture. 1964. Reprint. 1976. (Translated into Japanese, Korean, Portuguese, Spanish.)

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