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 persists in poor countries because government policy in those countries is biased in favor of urban dwellers. Schultz was always optimistic that poor agricultural nations would be able to develop if this government hostility to agriculture disappeared. “Poor people in low-income countries,” he stated, “are not prisoners of an ironclad poverty equilibrium that economics is unable to break.”
Schultz was an empirical economist. When he traveled to serve on commissions or to attend conferences, he visited farms. His visits to farms and interviews with farmers 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 their obvious contentment. 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. Schultz was president of the American Economic Association in 1960, and in 1972 he won the Francis A. Walker Medal, the highest honor given by that association.
About the Author
David R. Henderson is the editor of The Concise Encyclopedia of Economics. He is also an emeritus professor of economics with the Naval Postgraduate School and a research fellow with the Hoover Institution at Stanford University. He earned his Ph.D. in economics at UCLA.