Keywords

1 Introduction

Theodore W. Schultz was a professor and leader in the Economics Department of the University of Chicago from 1943 until long after his official retirement in 1967. The next section of this chapter, “A Research Impresario”, explores the first half of Schultz’s career, during which he was deeply involved in agricultural policy research for the federal government and for private policy associations. His leadership of the Chicago Department of Economics and his mentorship of many cohorts of graduate students are placed in the context of his research on the economics of technical assistance, which is explored more fully in Section 3, “Project Evaluation”. Section 4, “Human Capital, Transforming Traditional Agriculture, and the Economics of Education”, frames these research areas as criticisms of economic theories of development and growth. Section 5 concludes.

Throughout his career, Schultz brought people, ideas, and resources together to face the pressing economic challenges of the day. He also made contributions to the economics of the family and population, but these were extensions of his fundamental research on returns to investment in education and his development policy work for organisations such as the Population Council. In fact, the key to understanding the influence of Schultz and his students was his service for State, intergovernmental, and philanthropic institutions, which connected his research on economics to policy and technical assistance. Schultz retired from the University of Chicago in 1967, although he continued to be a productive economist until well into the 1980s. He passed away in 1998.

2 A Research Impresario

In histories of US agriculture, economic development and Chicago economics, there is seldom more than a mention of Theodore W. Schultz, even though he is the only agricultural economist ever to be awarded the Nobel Prize in Economic Sciences, and was the Chair and leader of the University of Chicago Department of Economics during the heyday of the so-called Chicago School from the end of the Second World War until the 1960s. But it is hard to explain the global influence of Chicago economics without highlighting his organisational and political acumen, professional networks, and his ability to influence scholarly and practical conversations in the fields of US farm policy and international development during this key period at Chicago.

Schultz is somewhat of an éminence grise in the history of the Department of Economics at Chicago. His scholarly contributions, though significant, were overshadowed by his organisation of research programmes at Chicago and elsewhere, his development and support of policy alternatives to the dominant frameworks governing US agricultural policy, his work for private policy associations, and the technical assistance and educational initiatives in foreign countries that he undertook with support from philanthropic foundations and the American government. His chief audience throughout his career was less the academic economist and more the bureaucrat. He believed that, though democracy was an important tool of accountability for institutions, it fell to the experts to research and understand possible long-term solutions to public discontent.

The intellectual theme of Schultz’s career was not primarily the promotion of neoclassical or laissez-faire agricultural policy. He certainly believed that prices and markets acted as guides and signals to economic behaviour. But he also believed in the importance of institutions, especially the State, whose primary role in agriculture was to engage in long-term investment in research and education. The State socialised the costs of scientific research into farming techniques and technologies. It also disseminated information about products and markets. Together, in his view, these research and extension functions yielded a large social return on the State’s investment. Schultz spent his career promoting research into the returns to investment in research and education, which stood in marked contrast to the dominant policy frameworks in US farm politics and in international economic development.

Born near Arlington, South Dakota, in 1902, Schultz was raised on a farm in the midst of instability in the farm economy and the increasing problem of rural poverty in an industrialising nation. Like many economists of his generation, Schultz was formed in the crucible of economic depression and instability. Growing up among some of the poorer farming communities of the Midwest, he was a teenager when the agricultural depression struck after the First World War, and his education was put off at one point in order to help out with the farm. He attended South Dakota State College and the University of Wisconsin. At this home of institutional economics, which looked to the ways in which the State and other institutions shaped economic activity and outcomes, Schultz earned his PhD in international trade with B.H. Hibbard in 1930 (Nerlove 1999: F728). At the time, the discipline of agricultural economics research was becoming more sophisticated and more politically controversial, as politicians and populist movements sought answers to the problem of low farm income. Only a handful of economists were in a position to offer advice on the farm problem, which by the end of the 1920s was being defined as the widening ratio between the prices for products farmers sold and the prices for the manufactured products they purchased. This parity price ratio became the central logic of policy advocacy in American agriculture, a logic that Schultz would increasingly come to criticise.

Before Schultz entered such a controversial policy domain in any public fashion, he and his fellow economists needed the right tools to increase their authority and credibility. Schultz’s first faculty position was at Iowa State College in the Department of Agricultural Economics and Sociology, founded by Hibbard, where he presided over the improvement of its already formidable capacity in statistical analysis when he became Department Chair in 1935. This Department had strong links with the United States Department of Agriculture (USDA) and, within it, the Bureau of Agricultural Economics (BAE), and was part of a laboratory for the gathering and analysis of data. These linkages, spurred by Henry A. Wallace’s influence in the Department in the 1920s, were further reinforced when Wallace was Secretary of Agriculture from 1933 to 1940. The intellectual foment and quality of research was constantly refreshed by residencies from international leaders in statistics, such as R.A. Fisher, Jerzy Neyman, and P.C. Mahalanobis. Researchers at Iowa State became regular consultants on the nationwide and worldwide farm economy. Of articles published in the Journal of Farm Economics from the 1920s to the 1950s, researchers from Iowa State led the field by a wide margin.

Controversy would find Schultz, however, in part precisely because of these connections to the federal government. He trusted that his numbers would protect him from the storms of politics, but he was known for being forthright, even if his conclusions clashed with received policy wisdom. Not long after the outbreak of the Second World War, Secretary of Agriculture, Claude Wickard, asked Schultz to conduct research on any savings to be had from substitutions of essential commodities needed for the war effort. Schultz obliged and put graduate student Oswald H. Brownlee on the project. The resulting pamphlet indicated that margarine was a nutritious and economic substitute for butter. The Iowa dairy industry reacted negatively and pressured Iowa State to fire Schultz if he refused to alter the conclusions of the research. In a famed case of academic freedom, Schultz resigned his position after losing confidence in the University’s administration, taking a large number of graduate students and colleagues with him (Burnett 2011a).

Schultz and quite a number of these students and faculty landed at the University of Chicago, where Schultz had been cultivating relationships for some time. George Stigler had studied at Iowa State in the late 1930s and had finished his PhD at Chicago. Schultz had also participated in a seminar series in agricultural economics at Chicago since 1939. Economist Margaret Reid accompanied Schultz in the exodus, as did his graduate student D. Gale Johnson, who joined the faculty at Chicago soon thereafter. Brownlee, who penned the margarine pamphlet, spent a brief period at Chicago, but later took up a faculty position at the University of Minnesota, where he built up an impressive programme over the decades. Schultz took the concept of a graduate seminar, attended by all the faculty, from his time at Iowa State, and started his first workshop on agriculture at Chicago. Others soon followed, such as money and banking, public finance, and more. The workshops were not just training. Graduate students were actually working on pressing questions of the day, often posed initially by Schultz, often supported by the extramural funding he had secured.

Shortly after he arrived at Chicago in 1943, Schultz formed the Office of Agricultural Economics, which consisted of himself, D. Gale Johnson and later former student, George S. Tolley, at its core. Other noted graduate students passed in the orbit of this group, including Clifton Wharton Jr, Marc Nerlove, Vernon Ruttan, Oswald Brownlee, and especially Zvi Griliches, whose close collaboration with Schultz in the 1950s would become important to the latter’s work in international development in the 1960s. The scholarly identity of this group is not trivial, as it runs slightly askew from the portrait of Chicago economics drawn up either by its supporters or by its critics. Although Schultz understood himself to be an economist full stop, his training as an agricultural economist inspired an ethos of public service. Agricultural economists were scientists of the State in several senses. A Bureau of Agricultural Economics was created within the USDA in 1922, just three years after the appearance of the first issue of the Journal of Farm Economics, the journal of record for the academic discipline. Their science was to understand the agricultural economy and to help farmers to better manage their farms. They worked at land-grant colleges almost exclusively, with their salaries paid by the State. But for the elite agricultural economists, their calling was also to serve the State itself, to collect data and produce scientific knowledge in the service of statecraft, which included addressing the political claims of organised farm populations and the problems of collapsed export markets for farm products.

Schultz had already seen how interest groups could complicate the service of agricultural economists. Such problems were also becoming apparent at the federal level, even for close friends of his. The head of the BAE, Howard R. Tolley (father of George S.), felt acute pressure from Congressional leaders in the southern states, who opposed what they regarded as meddling research into social and race relations. Under such attacks, Tolley was removed from his position, many of the research programmes at the BAE were stopped, and the Bureau, which had served as the central nervous system of American agriculture since the First World War, was dismantled after the Second World War. Agricultural economists had acquired a reputation during the New Deal and the war years as intellectuals who sought to reform social relations and provide ‘social justice’ to American farmers (Ezekiel and Bean 1933: 1). There were indeed several strains of such work during the Roosevelt Administration, but their efforts were usually stopped at the planning stages by swift and outsized political reactions. The content of the programmes ranged from the innocuous to the beneficent and was often devoted to opening up channels of communication from the local level up to Washington and back down (Gilbert 2015: 83). But the perception of federal encroachment on state and county territories was further amplified by the background anti-intellectualism in American public life.

Now that Schultz was no longer at a land-grant college, however, he was freed from some of the political pressures that went with this highly visible and vulnerable public service. The scars from this period led him to demand complete independence for himself and any of the researchers who worked with him on external projects from then on, whether at Chicago or abroad. However, Schultz did not forge this new path alone. At the beginning of direct US involvement in the Second World War, two new private policy associations were formed by leading academics, foundation heads, former cabinet-level secretaries in the federal government, and, in particular, leaders of the largest corporations in the US. The objectives of the National Planning Association (NPA) and the Committee for Economic Development (CED) were to develop well-researched policy positions on the major issues of the day, especially with an eye to planning in post-war America. The idea was to somehow rise above the political fray and to communicate directly with business and consumer associations, clubs, and politicians through position papers and monographs. “Planning” was to be reclaimed from its association with socialism and New Deal reform and deployed in harmony with market forces. Former heads of the Agricultural Adjustment Administration, such as Chester Davis and Howard R. Tolley, worked for the NPA and CED, as did younger Chicago economists such as George P. Shultz and Milton Friedman.

Schultz was the first leader of the agriculture committees of both of these organisations, and it was from these positions as much as his faculty appointment at Chicago that he cultivated carefully a new rationale for the State support of agriculture. The most prominent policy strategy for coping with the agricultural depression was that of price supports. Since the 1920s, farm organisations and agricultural economists had worked on policies that would provide farmers with a “just price” for the commodities they exported on the world market. The strongest policy rationale was the parity price. Exporting farmers identified the source of their economic woes as the sustained agricultural price collapse that followed the First World War and which entered a second wave that started with the Great Depression. As farm prices stayed low, prices for manufactured products stayed high. Through a combination of strategies, farm leaders pressured the federal government to preserve the price ratios between the products that farmers sold and the manufactured products that farmers purchased: mass government purchases of surpluses of commodities that could not be sold at the world price and government mandates of acreage reductions in planted crops such that the reduced supply drove up the price of the commodity, indirectly subsidising farmers. To Schultz, this was a backwards policy, with consequences that were the opposite of those intended (Burnett 2011b: 83–84).

Schultz argued that the pain faced by farmers was a function of the modernisation of the American economy. This modernisation promised all kinds of efficiencies and welfare benefits, not least of which was the increased productivity of farming, yielding more food at a lower price for a growing urban population. Schultz’s most powerful evidence in his argument was that price supports had not worked. Farmers rationally gamed the acreage allotments by taking their worst land out of production and soaking their best land with the latest techniques and farm inputs advised by the state colleges of agriculture, purchased in part with money from government payment programmes, in order to produce more food more efficiently. But the self-interest of the individual farmer did not accord with the community interest in preserving a way of life and a policy practice of freezing price relationships that obtained before 1914. Moreover, determining the price ratio itself was becoming more and more difficult as farmers bought and sold different baskets of goods from those sold before the First World War.

Farmers should be supported by the government, argued Schultz, to ease the inequities as they adjusted to modernisation. But this support needed to be geared to improving farm productivity, helping farmers to change their operations to match the demand for farm products on the domestic and world markets. Schultz published his conception of the farm problem in Redirecting Farm Policy in 1943 and Agriculture in an Unstable Economy in 1945. The CED invested in a print run of 5,000 of the second book from the publisher McGraw-Hill, and distributed free copies to US senators, women’s clubs, business and farm associations, and more. The uptake of Schultz’s ideas was slow and long. Aspects of them were taken up in the fight for the Truman Administration’s Brannan Plan, a revision of agricultural policy that was ultimately defeated by Republican opposition. But small changes in federal price supports along the lines suggested by Schultz were effected almost immediately. Schultz did not advocate the complete liberalisation of agricultural markets. He proposed a system, worked out with student and colleague D. Gale Johnson, of “forward prices”, whereby government prices would be keyed to anticipated demand in the following growing season rather than a historic pattern of production. Farmers could then make planting decisions to better conform to likely future demand. Such a system never fully came to fruition, although the principles behind Schultz’s economic advice gradually became folded into farm bills over the course of the next few decades. Production-oriented agricultural subsidies, of the kind advocated by Secretary of Agriculture, Earl Butz, in the 1970s, and mechanisms of direct payments to farmers which did not distort prices as much as price supports, became a key part of farm policy in the US in the 1980s and 1990s. Butz was an early advocate of Schultz’s policy frameworks (The Farm Foundation 1952), though his “get big or get out” policy was a crude and limited distillation of Schultz and Johnson’s more comprehensive plans.

The CED and NPA involvement with Schultz and other Chicago economists was the fulfilment of the long-term ambitions of the University of Chicago leadership: to make a centre for agricultural research beyond the orbit of Washington. These associations took up where the Farm Foundation had left off, which included its support of the earlier seminar series at Chicago in which Schultz had been involved. Financed by International Harvester, the Farm Foundation continued to support agricultural research at Chicago and other universities, as did the Institute of Meat Packing. The senior administration was not the only party to benefit from this arrangement. Schultz’s analysis and arguments concerning the parity problem in farming became lore among Chicago students and faculty in the Economics Department at Chicago and were used in case studies of the core course in price theory. Although Schultz wrote occasionally on domestic agricultural policy throughout his career, he left the bulk of that struggle to his students and to D. Gale Johnson. In the 1950s, Schultz would apply his research on American agriculture to another growing challenge: international development, helping to bring Chicago into the ranks of the top East Coast universities that engaged in problems of international cooperation and foreign policy.

For Schultz, the New Deal and the Second World War were a catalytic period for economic research and policy experimentation. The lessons he drew from it would define his intellectual and vocational commitments for the rest of his career. In July 1942, Schultz was a delegate to the Second Inter-American Conference on Agriculture in Mexico with M.L. Wilson, one of the architects of the New Deal agricultural programmes, and Claude Wickard, the Secretary of Agriculture who had fatefully asked Schultz to research the virtues of margarine. Schultz gave a talk on the centrality of research at agricultural colleges—and its extension to farmers—to any programme of national modernisation:

Its researches must make room for the tool makers, those who develop new methods and those who seek fundamental relations, and at the same time, for those who find out how to use and apply science to the operation of the farm, the farm household, and to the thousand and one intermediate steps that exist between production and consumption in agriculture and the total economy (Theodore W. Schultz Papers (hereafter TWSP), Regenstein Library Special Collections, University of Chicago: “The Place of the Agricultural College in National Emergencies and the Planning of Economic Readjustment”, Box 29, “US Office For Ag Rel”, Folder “Mexico City (7/6-16)”).

The ingredients in this talk became the foundation of Schultz’s policy advocacy both in the US and abroad: public investment in science and education of the people, public underwriting of some of the risks of adopting new technologies in farming, public dissemination of information about products and techniques, the new techniques and technologies themselves, a market which allows farmers to make choices about how to improve their operations, and a resulting general welfare benefit of lower prices for more abundant quantities of food.

With the announcement of President Truman’s Point Four Program, which was to offer technical assistance in the development of the productive capacities of foreign countries, Schultz turned his attention to this field with alacrity. He had already been on technical cooperation tours to Mexico City, where he visited experiment stations developing locally suited varieties of hybrid corn, and to Puerto Rico, Guatemala, and Costa Rica. As the Cold War settled in, Schultz was involved in helping the US government to plan technical cooperation and assistance to this new category of “developing countries”.

3 Project Evaluation

Before delving into the research contributions for which Schultz was celebrated near the end of his career, it is important to further reflect on his work as a research impresario. Schultz’s connections and consulting with federal government programmes relating to agricultural development increased dramatically after the Second World War. He also established strong relationships with the newly active Ford Foundation and Resources for the Future, and strengthened his engagement with the Rockefeller Foundation. Crucially, Schultz used these relationships to effect the rejuvenation and expansion of the Economics Department at Chicago. From the end of the First World War until he stepped down as Chair in 1961, he remade the Department with critical hires: Milton Friedman to cover money and banking (macroeconomics), Arnold Harberger to teach public finance and international trade, and George S. Tolley to teach agricultural economics and Keynesian macroeconomics, among others. In a single year, 1954, Schultz helped secure $1.4 million in extramural funds, which he used to fund research projects, graduate students, and the famed workshop system, which he imported from his practice at Iowa State College and extended from the Agricultural Seminar at Chicago. In the late 1960s, he was bringing in an average of $40,000 per year from the Ford Foundation alone, which provided a portion of his income after his retirement from the University in 1967.

There is a theme running through almost all of these sponsored research projects: how to measure the returns on public and private investment in people. It was Schultz’s long-standing hypothesis that education was the linchpin of a socio-technical system of modernisation that lay at the heart of American modernity. The extramural sponsorship of such research was rooted in the challenge of project evaluation by the new US government organisations and foundations that were sponsoring research and technical assistance in foreign countries. Schultz led this critical meta-research during these early years and consolidated the identity of many of the Chicago economists with whom he worked, who understood that a large part of their vocation was to help institutions with practical questions around the economics of technical assistance and international development.

How to evaluate technical assistance was an early concern for the Eisenhower Administration. The Foreign Operations Administration (FOA) was its attempt to bring all foreign assistance programmes under one roof. With the blessing of Harold Stassen, the Director for Mutual Security in the Office of the President and head of the FOA, Schultz was invited by the Ford Foundation in 1953 to undertake a comprehensive study of US technical assistance programmes in Latin America through the NPA (TWSP, Regenstein Library Special Collections, University of Chicago: Box 3, “TALA”, Folder, “Ford Foundation”). In 1954, he visited Brazil, Chile, and Paraguay, while research partners and students went to Peru, Bolivia, Venezuela, and Argentina, gathering information about technical assistance programmes on the ground in those countries. Schultz had also cultivated contacts in every South and Central American country, along with several of the Caribbean nations. He was quite critical of the generic training programmes offered by various branches of the US government, including the USDA, but was intrigued by the training programmes that were sponsored under technical assistance by the US, the United Nations (UN), and the Organization of American States, which brought students to study at American universities (TWSP, Regenstein Library Special Collections, University of Chicago: Schultz to Holland, 24 September 1954, “Tech Cooperation for Lt Am”, Box 1, “TALA”, Folder 1, “Training Programs”). Much of the research on early university-to-university assistance programmes in agriculture in Latin America revealed the absence of institutions that functioned like the extension service in the US. Schultz stressed the need for a spirit of cooperation and service among those sent to Latin America, and the importance of bolstering competence and capacity in public administration in that region in order to improve government-to-government transfer of knowledge (TWSP, Regenstein Library Special Collections, University of Chicago: “Further Reflections on Scope and Method in Studying Technical Assistance by TW Schultz”, Box 31, “TALA”, Folder, “Scope and Method of Tech Assistance Research”).

In 1953, Schultz hired Harberger, a former Chicago graduate student, to teach and conduct research in the field of public finance. The following year, Albion “Pat” Patterson, head of the International Cooperation Administration of the State Department, contacted Schultz and requested that the University of Chicago undertake a programme of training a number of Chilean students in economics. The programme flourished and expanded into the famous or perhaps notorious Chile Project, a university-to-university contract with the Catholic University in Chile, run by Harberger and H. Gregg Lewis. Known as “Los Chicago Boys”, the first cohorts of Chilean graduate students at Chicago became the professors of the new Economics Department at the Catholic University. Some of them eventually authored the economic plan for the regime of President Augusto Pinochet following the coup against President Salvador Allende in 1973. It has been implied that the insulation of this group from the political chaos both before and under the dictatorship is evidence of the purported anti-democratic nature of Chicago policy advocacy (Klein 2007: 71, 127–128). There is no denying the fact that some students of the Chile Project worked for a terrifying regime. Nevertheless, it is important to remember that, in Schultz’s case, his insistence on scholarly independence for researchers associated with his projects was rooted in his life experience and the fact, of which he was keenly aware, that there were persistent and vocal objections to the very idea of foreign aid programmes by conservative political forces in the US. Schultz did all he could to insulate researchers from political pressure of any stripe.

4 Human Capital, Transforming Traditional Agriculture, and the Economics of Education

Schultz’s research on human capital was a generative contribution to the field of economics in general, with applications in a number of subfields of economics in particular. It will be instructive, however, to view his work on the subject as part of his response to development economics. Schultz’s experiences studying technical assistance provoked more questions than answers. He became sceptical of a growing number of theories of economic development that were promulgated to explain the state of developing countries. Economists such as Raul Prebisch and Arthur Lewis argued that it was the historic and structural relationships between developed and developing nations that blocked the realisation of economic potential in the latter. Much of the early post-war work on international development proceeded from theoretical assumptions about the nature and sources of economic growth. Development economics defined a developing economy as having its own economic phenomena requiring special economic theory and policy tools to dislodge the structures that stood in the way of economic growth.

Schultz encountered the advocates of these theories in his policy work and external service and began in the 1950s to craft research projects to respond to theoretical claims with empirical claims of his own. The basic orientation to the problem of development relied on the classical divisions of the economy into land, labour, and capital. It was hypothesised that as much as 25% of the rural population was unemployed or underemployed, and could be redirected into more profitable endeavours with the right incentives. The Soviets held out a promising example to developing countries of rapid industrialisation with the rationalisation and collectivisation of farming; Western economists competed with this example by likewise placing capital investment at the centre of their plans, often to the neglect of agriculture. Two early examples of development theory that stood out to Schultz were the concept of the zero marginal productivity of labour in developing countries, also known as “disguised unemployment”, and the unexplained variable of “technological change” resulting from the investment of capital. This first concept was developed by Lewis, who argued that a surplus of labour could be drawn from the ‘subsistence sector’ and employed profitably in the ‘capitalist sector’ without any significant loss in agricultural production, while the second was associated most strongly with Robert Solow (Solow 1957).

Beginning in the late 1950s, Schultz took years to develop his most significant intervention in development economics, which culminated in the publication of Transforming Traditional Agriculture in 1964. At Chicago, he developed a project for the agricultural economics group called “The Economics of Education”, which produced a series of papers by colleagues, students, and visiting scholars on the subject. Schultz was influenced as well by Gary Becker, who left Chicago in 1957 for Columbia University, and who published his transformative works on human capital, Becker (1962, 1964) at around the same time as the publication of Transforming Traditional Agriculture. Schultz used this project as a laboratory and clearinghouse for ideas on the subject. Chicago colleague Mary Jean Bowman cited Schultz’s 1958 piece on education as the beginning of his effort to account for the residual growth coming out of a conventional production function (Bowman 1980: 87). In addition to noting the increasing costs of human capital over time, he surmised that improvements in the quality of capital and labour were responsible for the increased growth (Schultz 1958). In a 1960 article, Schultz inched towards his theory of human capital by estimating the increasing costs of education as a percentage of gross capital formation and the costs of foregone wages as students invested in themselves by going to school: ‘We should also like to know how much, if any, of the increase in national income is attributable to increases in the stock of human capital and what the “rate of return” on investment in education has been’ (Schultz 1960: 572).

When Schultz was elected president of the American Economic Association in 1961, his Presidential Address was a bold declaration: ‘It has been widely observed that increases in national output have been large compared with the increases of land, man-hours, and physical reproducible capital. Investment in human capital is probably the major explanation for this difference’ (Schultz 1961: 1). He further suggested that the value of investment in something like education could be calculated by discounting the future earnings of the student, just as the income stream of a capital good could be discounted (ibid.: 8). To transform traditional agriculture, Schultz borrowed Friedman’s idea of a permanent income stream to argue that the focus should be on the lifetime yield of the educational investment that farmers make. Although the former cannot be bought or sold as a form of capital, the increase in income resulting from education or training is a kind of permanent income stream that is ‘in touch with the market’ (Schultz 1964: 76; see also Friedman 1957).

However, in order to argue the importance of education in development, Schultz sought to demonstrate in Transforming Traditional Agriculture that farmers in developing countries were amenable to learning new techniques and adopting new technologies. Schultz needed to deal with the portrait of stagnation in the agricultural sector that was common in the development literature and had to find a case of a sudden reduction in the agricultural workforce, as opposed to gradual migration or changing employment, to determine if there was this reservoir of labour. He developed a natural experiment from the case of the influenza epidemic in British India at the end of the First World War. Using labour coefficients, he predicted the effect of the reduction in the rural, working-age population due to the epidemic on the acreage sown to crops. In almost every state in India, the predicted reduction in acreage derived from mortality rates closely mapped onto the actual reductions in acreage. Therefore, according to Schultz, there was no mass of under- or unemployed labour in the agricultural sector (Schultz 1964: 61–70).

His second challenge to development economics was the notion of the cultural specificity of preferences, the non-economic decision-making that occurred among different communities in developing countries. This was prevalent in the anthropology literature, but it was also common to theories of development economics in which the structure of developing economies prevented agents from responding to incentives in a manner amenable to neoclassical analysis. Schultz embraced the research of Chicago anthropologist Sol Tax, whose fieldwork in Guatemala showed that poor farmers engaged in all kinds of market activity and did respond to changes in relative prices. He found further evidence of the allocative efficiency of farmers in India, citing the research of agriculture group fellows, David Hopper and Raj Krishna (see, for example, Krishna 1963).

If farmers were capable of assessing the risk of acquiring new knowledge, Schultz wondered what evidence could be provided that showed the pay-off from investment in education and new technologies. In the mid-1950s, Schultz asked graduate student Zvi Griliches to study rates of adoption of new technology in the US, in particular hybrid corn. This began a distinguished research career for Griliches, studying the uptake of new technology by farmers and the returns to investment in research. Although this research was about farming in the Midwest of the US, a key conclusion was that the economic variables washed out any sociological differences in Griliches’ sample. The key factor was whether or not the technology was profitable (Griliches 1957: 515).

Schultz’s belief in the power of the American system of scientific research and its extension of new techniques and technologies to the farm dated back to the beginning of his career, but his leadership in this research area in the 1960s produced some encouraging evidence that suggested an explanation for the “technical change” variable that was so puzzling in growth economics. Griliches produced another paper in 1958, which adjusted the relative contributions of capital and labour in the production functions used in development growth models. In Griliches’ econometric analysis, the mysterious residual of technical change was due to improvements in the quality of labour due to education, improvements in machinery services, capital, and economies of scale (Griliches 1958: 430). It was not capital or labour or land; it was the ability of farmers to ‘somehow acquire, adopt, and learn how to use effectively a profitable new set of factors’ (Schultz 1964: 144). Schultz was arguing that it was the modernising socio-technical system that made the difference.

The reception of Transforming Traditional Agriculture and other work that followed reinforced an earlier point about Schultz’s audience. It was barely reviewed in academic journals, not least those devoted to either agriculture or development studies, and yet it sold widely and was translated into many languages. Schultz proposed no model for economic development. Models were part of the problem in his view and in the view of many in the Chicago agriculture group. This may be one reason why he has been effectively written out of the history of academic involvement in the project of international economic development after the Second World War. The shift from models and central planning in development research to studies of markets, decision-making, and education either never took place in development studies or it sprang fully formed in policy circles as the Washington Consensus in the 1980s (Easterly 2001).

Although Schultz was a prolific writer of monographs, articles, and reports, he originated no fully formed, new economic theory to speak of. This aside, although economist Becker surely coined the current usage of the term “human capital”, it may be more accurate to argue that Schultz was a key promoter of the general turn in the profession towards the economics of investment in people. Bowman described Schultz as an ‘intellectual catalyst’ and an ‘entrepreneur of research’ who facilitated and further developed the work of other colleagues, students, and partners in the development space (Bowman 1980: 82). If Schultz had a research modality, it would be the application of a comparatively simple empirical analysis to undermine or at least further qualify commonly held assumptions in economics, especially development economics.

The dominant mode of analysis in development economics, when it was not Marxist, was structuralism. Harvard economist Hollis Chenery described neoclassical policy as ‘removing impediments to the functioning of markets so as to make the real world as much like the abstract model as possible’ (Chenery 1975: 314). By contrast, Schultz’s orientation to the problem of development was to increase the role of the State, not by redistributing income, land, or capital, but through its investment in the capacities of human beings to adapt to constantly changing circumstances in a dynamic economy. To the extent that development economics constructed models of the special economic world of the Global South, Schultz was opposed. He did not focus on the degree to which economic or social relations were relatively fixed by custom and the depth of timeworn historical paths. Rather, his understanding of economics had to do with the human capacity for choice and change. This was not a neoclassical or laissez-faire position as defined by Chenery. Schultz was a strong advocate for the State support of education, scientific research, and agricultural extension. This history of the agriculture group that Schultz led presents a somewhat more variegated picture of economics at Chicago.

In recent years, historians have pointed to the links of prominent Chicagoans such as George Stigler and Friedman, and others to the Mont Pelerin Society, a global academic project to develop research that advocated an expanded role for markets in society and a strong State (Mirowski and Plehwe 2009: 13–17). Schultz was invited to participate in this “Free Market Project”, which included setting up an “Institute of Political Economy” at Chicago and finding a position for this project’s leader, Friedrich Hayek. There is no evidence that Schultz ever attended more than one meeting of the “Free Market Study” group in 1946, which was probably in his new capacity as Department Chair. In evaluating potential allies for the project’s early stages, Chicago project leader Henry Simons dismissed ‘the new agricultural economists’ as ‘libertarians in name only’.Footnote 1 Although the neoliberalism of the Mont Pelerin Society was a big tent, Schultz was more deeply engaged in policy work that required much broader support to be effective. Part of his idea of a large role for the State was derived from a view of the historic role of land-grant colleges and extension services that served the people of the State, not some counter-reformation away from New Deal liberalism in the minds of Hayek and his supporters. Finally, throughout his career, Schultz repeatedly appealed to values and fairness in discussions of policy. As a Chicago economist, he was against agricultural subsidies because they distorted markets; as a policy advocate, he was also against them because the bulk of those public funds went to large farms and mostly white farmers, while low-income farmers were largely left out of the farm welfare picture.Footnote 2

If the agriculture group had been part of, and not adjacent to, the neoliberal Free Market Project at Chicago, it would have been the most successful advocacy group for the State promotion of market-oriented policies. Schultz, his students, and their students fostered a large network of economists who populated the highest ranks of the international financial institutions, the State Department, the Council of Economic Advisers, and the central banks, ministries of finance, and colleges of agriculture of dozens of countries. The trouble with trying to link the agriculture group too strongly to Chicago neoliberalism is that its policy orientation long antedated the work of the Mont Pelerin Society, was consonant with much of the work that the USDA and State Department were already doing, and was fostered by a different set of actors who ran across a range of political opinion and philosophies. The economists who were pilloried during the New Deal and Second World War for their alleged sin of proposing economic justice for farmers moved into the development space as well. Mordecai Ezekiel went to work in the Economics and Statistics Division within the new Food and Agriculture Organization at the UN, a department which Howard R. Tolley had helped to establish. Schultz worked with such figures, especially Tolley, through the NPA on a number of projects. Several informants have described Schultz as a “statesman”, indicating not only an ability to lead but a strong desire to cooperate and forge consensus among groups (Burnett 2016, 2018, 2020).

5 Conclusion

Reflection on the political context of Theodore Schultz’s career may shed some light on his low profile in histories of US agriculture, international development, or the Chicago School of the Cold War period. Those historians who see the Chicago Department of Economics as a bastion of conservative or neoliberal policy advocacy are drawn to the more strident and dramatic figures in the department, such as Milton Friedman or George Stigler. Those who write the history of US agriculture tend to be more interested in the political and cultural history of the New Deal than the post-war underpinnings of the rise of industrial agriculture. Finally, those who write of the history of international development tend to focus on the academic departments, programmes, and State functions devoted to economic development, ignoring Schultz’s critical research on development theory and practice. Stretching beyond each historiographical row, Schultz’s life story tells us something about the politics of social science research at a time when the underlying rationales of economic policies were shifting.

Schultz was a scientist of the State who studied and promoted the effectiveness of State intervention in the economy. His work was supported by powerful actors, in government, philanthropic foundations, and the private sector, and he almost never refused an opportunity to bend their ears. He was an intellectual for the organic intellectuals: bureaucrats who worked for the USDA, international development agencies, or economists at central banks in developing countries. By several accounts, however, he most enjoyed having his own ears bent by the people who were literally in the field: farmers around the world or local officials or extension agents running farm programmes. His enthusiasm for these conversations inspired a culture at Chicago that stressed the importance of field research beyond the agriculture group, whether the site was garbage dumps or the Chicago Board of Trade. Until recently, Schultz’s work on human capital was one of the main arguments used to forge a long-standing political consensus around the support of equal access to a quality education. Although he at one point late in his career entertained Friedman’s concept of vouchers for private schools (Schultz 1981), Schultz’s broader legacy is his reinforcement of the notion that education, especially public education, is the engine of democracy and modernity.