Theodore Schultz

Theodore William Schultz (30 April 1902 – 26 February 1998) was an American agricultural economist and chairman of the University of Chicago Department of Economics.

Theodore William Schultz was born on April 30, 1902, in a small town ten miles northwest of Badger, South Dakota, on a 560-acre farm.

When Schultz was in the eighth grade, his father Henry decided to pull him out of attending Kingsbury County Schoolhouse.

His father's view was that if his eldest son continued to get an education he would be less inclined to continue working on the farm.

Schultz subsequently did not have any formal post-secondary education.

He eventually enrolled in the Agriculture College at South Dakota State, in a three-year program that met for four months a year during the winter.

After being recognized for possessing great potential as a student, Schultz moved on to a bachelor's program, earning his degree in 1927 in agriculture and economics.

He graduated in 1927, then entered the University of Wisconsin–Madison earning his doctorate in Agricultural Economics 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.

Schultz taught at Iowa State College from 1930 to 1943.

Among the graduate students and faculty affiliated with the pair in the 1940s and 1950s were Clifford Hardin, Zvi Griliches, Marc Nerlove, and George S. Tolley.

He left Iowa State in the wake of the "oleomargarine controversy", and he served as the 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 also received an honorary doctorate of science degree from the college in 1959.

He became president of the American Economic Association in 1960.

He retired in 1970 though he remained active at the University of Chicago into his 90s until a fractured hip left him bedridden.

Shortly after his move to Chicago, Schultz recruited his former student, D. Gale Johnson to the department.

Their research in farm and agricultural economics was widely influential and attracted funding from the Rockefeller Foundation to the agricultural economics program at the university.

Schultz rose to national prominence after winning the 1979 Nobel Memorial Prize in Economic Sciences.

In 1979, Schultz was awarded the Nobel Prize in Economics for his work in human capital theory and economic development.

While he was chair of economics at Chicago he led research into why post-World War II Germany and Japan recovered, at almost miraculous speeds, from the widespread devastation.

Contrast this 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; education makes people productive and good health care keeps the education investment around and able to produce.

One of his main contributions was later called Human Capital Theory, which he formulated with the help of Gary Becker and Jacob Mincer.

Schultz coined this theory in his book titled Investment in Human Capital; however, he experienced negative feedback from other economists.

He states that knowledge and skill are a form of capital, and investments in human capital leads to an increase in both economic output and workers' earnings.

Schultz said the value of labor was determined by the productivity of the labor, which was not a new economic discovery.

The point of differentiation was that the labor productivity was based on one's investments into their personal "rate of return".

The more skills and education on a resume, the more return one will see on these investments in the form of a larger income.

This theory is still in use today, and at face value seems like a positive contribution in studying complex inner workings of differentiating pay scales.

However, this has been critiqued as leading towards a lot of biases regarding the observed investments that are realistically achievable for a lower-income worker.

In order for many people to make a comfortable, livable wage, it could be argued today that a college degree is the best, most guaranteed step in such a direction.

Those who are first generation college students arguably have to invest far more time, money, and effort into higher education in order to receive even a somewhat similar payoff to those with nepotism connections and social qualities perceived as more high-quality.

Many economists refused to support his theory of considering humans as a form of capital due to slavery, which at the time was an understandable critique given the civil rights movements at this time.

Schultz argues that his theory does not dismiss humanity but instead encourages individuals to invest in themselves.

He advocates for humans to invest in their health, internal migration, and on-the-job training; however, he focuses on encouraging individuals to better their education in order to increase their level of productivity.

He states that if people were to do these things, they would have many more opportunities available for them to better their economic situations.

He also inspired much work in international development in the 1980s, motivating investments in vocational and technical education by Bretton Woods system International Financial Institutions such as the International Monetary Fund and the World Bank.

During his research Schultz got down to details and went out among the poor farming nations of Europe, talking to farmers and political leaders in small towns.

He was "not afraid to get his shoes a little muddy."

He noticed that the aid the United States sent in the form of food or money was not only of little help but actually harmful to such nations, as the farmers and agricultural producers within those nations were not able to compete with the free prices of the "aid" sent and therefore they were not able to sustain themselves or invest the money they made from crops back into the economy.