Theodore Schultz

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Lore & Background

Theodore Schultz was born on a 560-acre farm ten miles northwest of Badger, South Dakota. His father Henry pulled him out of Kingsbury County Schoolhouse in the eighth grade, believing further education would make him less inclined to farm. Schultz eventually enrolled in a three-year winter program at the Agriculture College at South Dakota State, earning a bachelor's degree in 1927 in agriculture and economics. He received an honorary doctorate of science from the college in 1959. He earned his doctorate in Agricultural Economics from the University of Wisconsin–Madison in 1930 under Benjamin H. Hibbard, with a thesis titled 'The Tariff in Relation to the Coarse-Feed Grains and a Development of Some of the Theoretical Aspects of Tariff Price Research.' He taught at Iowa State College from 1930 to 1943, leaving after the 'oleomargarine controversy,' then served as chair of economics at the University of Chicago from 1946 to 1961. He became a member of the American Academy of Arts and Sciences in 1958, the American Philosophical Society in 1962, and the United States National Academy of Sciences in 1974. He was president of the American Economic Association in 1960. He retired in 1970 but remained active at the University of Chicago into his 90s until a fractured hip left him bedridden. Shortly after moving to Chicago, Schultz recruited his former student D. Gale Johnson. Their research attracted funding from the Rockefeller Foundation. Among the graduate students and faculty affiliated with them in the 1940s and 1950s were Clifford Hardin, Zvi Griliches, Marc Nerlove, and George S. Tolley. In 1979, Schultz was awarded the Nobel Prize in Economics for his work in human capital theory and economic development.

Reader's Guide

Schultz's significance lies in his foundational contributions to human capital theory and agricultural development economics. While chair at Chicago, he led research into why post-World War II Germany and Japan recovered rapidly from widespread devastation, contrasting with the United Kingdom which was still rationing food long after the war. His conclusion was that the speed of recovery was due to a healthy and highly educated population. He formulated human capital theory with Gary Becker and Jacob Mincer, coining it in his book 'Investment in Human Capital.' He argued that knowledge and skill are a form of capital, and investments in human capital lead to increased economic output and workers' earnings. He faced criticism linking his theory to slavery, but argued it encourages individuals to invest in themselves. He advocated investing in health, internal migration, and on-the-job training, focusing on education to increase productivity. His work inspired investments in vocational and technical education by the International Monetary Fund and the World Bank. He went among poor farming nations of Europe, talking to farmers and political leaders, and was 'not afraid to get his shoes a little muddy.' He noticed that U.S. food or money aid was harmful because local farmers couldn't compete with free prices. He theorized that educating rural producers and providing technology would make them more stable and self-sustaining. In his 1964 book 'Transforming Traditional Agriculture,' he argued that farmers in poor countries made rational decisions not to innovate due to high taxes and artificially low prices, and that resources were already perfectly allocated. He advocated replacing old inputs with new profitable ones through a market approach with limited government intervention. Schultz was awarded the Nobel Prize jointly with Sir William Arthur Lewis in 1979 for his work in development economics, focusing on the economics of agriculture. He also promulgated the idea of educational capital. He received eight honorary degrees in his career. He was the first South Dakota State University graduate and the second South Dakotan to win a Nobel Prize after Ernest Lawrence. Between 2012 and 2013, South Dakota State University built the Theodore W. Schultz Hall. He was awarded the Francis A. Walker Medal in 1972, the highest award of the American Economic Association. Schultz died in Evanston, Illinois, on February 26, 1998, at age 95, and is interred at Badger Cemetery in Badger, South Dakota.

Did You Know?

• Schultz's father pulled him out of school in the eighth grade because he believed education would make his son less inclined to farm.
• Schultz earned his bachelor's degree in 1927 through a three-year program that met only four months a year during winter.
• He was the first South Dakota State University graduate to win a Nobel Prize.
• Schultz noticed that U.S. food aid to poor nations was harmful because local farmers couldn't compete with free prices.
• He remained active at the University of Chicago into his 90s until a fractured hip left him bedridden.