The Nobel Prize

Theodore W.Schultz (1902–98)

Theodore Schultz was born in Arlington, South Dakota, USA in 1902. He studied agricultural economics at South Dakota State College where he received a bachelor’s degree in 1926, before obtaining an MS and PhD from the University of Wisconsin in 1928 and 1930, respectively. In 1930, Schultz began his career as a teacher at Iowa State College (an agricultural college), where he served as head of the Department of Economics and Sociology between 1934 and 1943. In 1943 he moved to the University of Chicago, where he was Professor of Economics from 1943 to 1952, and Charles L. Hutchinson Distinguished Service Professor from 1952 until his retirement in 1972. During his career at the University of Chicago he served as chairman of the Department of Economics from 1946 to 1961.

Schultz’s many offices and honours included presidency of the American Economic Association in 1960 and the award of the Francis A. Walker Medal of the American Economic Association in 1972, and the Leonard Elmhirst Medal of the International Agricultural Economic Association in 1976. In 1979 he was awarded jointly with Arthur Lewis the Nobel Memorial Prize in Economics ‘for their pioneering research into economic development research with particular consideration of the problems of developing countries’ (Nobel Foundation, 2004).

Schultz began his academic career as an agricultural economist. Initially focusing his research on the crises and problems of American agriculture, during the 1930s, 1940s and early 1950s his studies were published in a series of articles and influential books (see, for example, Schultz, 1941; 1943; 1945; 1949; 1953). He later turned his attention to the problems facing agriculture in developing countries (Schultz, 1964; 1965; 1968; 1978) and in doing so contributed to a much greater understanding of the relationship between agriculture, economic development and the economics of being poor. His classic book, Transforming Traditional Agriculture, published in 1964 by Yale University Press and subsequently translated into Japanese, Korean, Portuguese and Spanish, earned Schultz worldwide fame. The book brought together his views of the problems of agriculture and economic development in poor nations with his views about investment in human beings (see below).

A number of key themes can be identified in Schultz’s studies of the agricultural problems of the United States and developing countries including: the possibility of increasing, rather than Marshallian diminishing, returns in agriculture; the importance of prices in determining the use and allocation of resources, both within agriculture and across other sectors in the economy; the treatment of agriculture as an integral part of the whole economy, instead of studying it in isolation; the idea that farmers are rational and that they develop efficient methods of farming in traditional agriculture given the constraints and uncertainty they face; the importance of economic incentives to decision making and how they can be affected by government policies; a critique of the bias given to industrialisation through development planning in poor nations, with its consequential adverse effects on rural poverty and development in those countries; the key role which education and information can play in transforming traditional agriculture into progressive agriculture with the associated potential to promote dynamic development; and, more generally, the importance of human resources in economic and social development.

In addition to his influential contributions to agricultural economics, Schultz is also known for his pioneering research in the field of human capital. The essential idea underlying the theory of human capital is that investments are made in human resources (for example, through education and training), which increase the productivity of those resources. Given that such investments involve costs, investment criteria need to be applied to ascertain whether or not the future benefits or returns outweigh the costs incurred. In Schultz’s (1958) first major publication on human capital, which focused on high-school education, he suggested that increases in national income could be attributed to improvements in the quality of both human and non-human resources. In subsequent work he considered investment in human capital (Schultz, 1960; 1961a; 1961b; 1962; 1971) and investment in education (Schultz, 1963; 1972). His presidential address to the American Economic Association, ‘Investment in Human Capital’, published in the March 1961 issue of the American Economic Review, was particularly influential in drawing attention to the field of human capital. Indeed, Schultz’s pioneering work in the field, together with that of Jacob Mincer and Gary Becker (the 1992 Nobel Memorial Laureate), helped create what has come to be known as a ‘human investment revolution’ in economics. This revolution has had implications for research undertaken in a number of areas of study, including agricultural economics, business economics, development economics, the economics of education, labour economics and urban economics. Among the insights provided by Schultz in his research on the economics of human resources are: the importance of human capital investment, compared to non-human capital investment, to economic growth; the importance of forgone earnings from employment as a cost of human capital formation when people invest in education; identification of rates of return on investment in people; the importance of the quality of education in determining economic growth; estimates of the extent to which education contributes to economic growth; and the importance of investment in health and disease control, as well as investment in education, in the concept of human capital formation, with implications for economic development in poor nations.

In summary, Schultz will be remembered for his influential and pioneering contributions to agricultural economics, the study of economic development and the economics of human resources, work that has acted as a catalyst to much subsequent new research in these important fields of study.

Main Published Works
(1941), ‘Economic Effects of Agricultural Programs’, American Economic Review, 30, February, pp. 127–54.

(1943), Redirecting Farm Policy, New York: Macmillan.

(1945), Agriculture in an Unstable Economy, New York: McGraw-Hill.

(1949), Production and Welfare of Agriculture, New York: Macmillan.

(1953), The Economic Organization of Agriculture, New York: McGraw-Hill.

(1958), ‘The Emerging Economic Scene and Its Relation to High-School Education’, in F.S.
Chase and H.A. Anderson (eds), The High School in a New Era, Chicago: University of Chicago Press, pp. 97–109.

(1960), ‘Capital Formation by Education’, Journal of Political Economy, 68, December, pp. 571–
83. (1961a), ‘Investment in Human Capital’, American Economic Review, 51, March, pp. 1–17. (1961b), ‘Investment in Human Capital: A Reply’, American Economic Review, 51, December, pp. 1035–9.

(1962), Investment in Human Beings (ed.), Chicago: University of Chicago Press.

(1963), The Economic Value of Education, New York: Columbia University Press.

(1964), Transforming Traditional Agriculture, New Haven, CT: Yale University Press.

(1965), Economic Crises in World Agriculture, Ann Arbor, MI: University of Michigan Press.

(1968), Economic Growth and Agriculture, New York: McGraw-Hill.

(1971), Investment in Human Capital: The Role of Education and Research, New York: Free Press.

(1972), Investment in Education: The Equity–Efficiency Quandary (ed.), Chicago: University of
Chicago Press.

(1978), Distortions of Agricultural Incentives (ed.), Bloomington, IN: Indiana University Press.
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