Agricultural & Applied Economics Association

Discussion: AAEA Session in Honor of T. W. SchultzAuthor(s): Wallace E. HuffmanSource: Review of Agricultural Economics, Vol. 28, No. 3 (Autumn, 2006), pp. 351-353Published by: Oxford University Press on behalf of Agricultural & Applied Economics AssociationStable URL: http://www.jstor.org/stable/3877179 .

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Review of Agricultural Economics-Volume 28, Number 3-Pages 351-353 DOI:10.1111 /j.1467-9353.2006.00298.x

Discussion: AAEA Session

in Honor of T.W. Schultz*

Wallace E. Huffman

T he hardships imposed on Schultz by U.S. agriculture during the post-World War I years may have been a blessing in disguise. It forced him to delay his

education but provided an opportunity for him to undertake larger amounts of

physical work. Hence, as a young adult, his stock of health was undoubtedly larger than it otherwise would have been. His physical health continued to

permit him to work past age 90. Schultz also learned early to pace, and perhaps more importantly, reenergize himself; a topic which he would on occasion lecture new doctorates.

Schultz's early research at Iowa State College focused on topics in U.S.

agriculture-especially the instability imposed on the sector by macroeconomic events. Gardner's paper categorized Schultz's early contributions to agriculture as being on the economics of farming (farm management and marketing) and

agricultural policy. He emphasizes that Schultz did not concentrate on the traditional farm problems of credit and imperfect competition in output or input markets but was concerned about diminishing returns to land. Schultz, however, saw that diminishing returns to land could be overcome by investments in research, extension, and new technology.

The instability imposed upon agriculture was later seen as "the farm

problem." Schultz argued that the low earnings of farm people and great instability of farm income from farming are not due to causes within agriculture but elsewhere in the macroeconomy. Gardner emphasizes that Schultz did not adhere to laissez faire policies to deal with the problems of agriculture. Like Mansur Olson, the seeds for this perspective were undoubtedly planted in Schultz's South Dakota roots because agriculture there was frequently treated

unfavorably by the weather. Schultz believed commodity programs would stabilize prices but also felt there was a role for the public sector to provide

SWallace E. Huffman is C.F. Curtiss Distinguished Professor of Agriculture and Pro- fessor of Economic, Iowa State University.

*This paper was presented at the Principal Paper session, "AAEA Invited Paper Session in Memory of T.W. Schultz," Allied Social Sciences Association annual meeting, Boston, 6-8 January 2006.

The articles in these sessions are not subject to the journal's standard refereeing process.

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352 Review of Agricultural Economics

public goods through organized research and extension. However, by the 1960s, Schultz did see the potential pitfalls of public policies driven by rent-seeking private interest groups.

After Schultz left Iowa State College at the end of 1943, his research interests turned more intensely to agricultural development and human capital. One of Schultz's major lifetime contributions was to agricultural development, largely as summarized in his book Transforming Traditional Agriculture. The Abler and Sukhatme and Otsuka papers focus on this topic. Although classical development theory as developed by Adam Smith and others was seen as universally applicable, the economic turmoil during the two decades following World War I caused a rethinking of macro-economics, development economics, and public economics. During the immediate post-World War II period, development economics broke with past thinking and became a specialized subfield, emphasizing central planning over capitalism, trade protection over free trade, and benevolent public policy makers and government bureaucrats (Yang). In this way of thinking, agriculture was viewed largely as backward with surplus labor and a potential source of resource extraction to support industrial development.

Schultz, however, learned much of his economics before the great depression and was not swayed by this new line of thinking. In Transforming Traditional Agriculture, Schultz broke with the rest of the neoclassical development profession and concluded that farmers in low-income countries were "poor but efficient," that the price of income streams was high, and that if research and development could produce new, low-cost income streams, farmers would adopt them. Furthermore, he saw innovation leading to disequilibrium where

schooling of farmers and extension would be productive in adopting new technologies. He also saw the poor as being limited primarily by their opportunities and not by their culture or aspirations. Furthermore, he used data on a natural experiment from the India flu pandemic of 1918-19 to show cleverly that the marginal product of agricultural labor in India was positive and not zero. Grain production did indeed decline in years immediately after the flu pandemic and fell by a larger amount in provinces where the flu death losses were largest (Schultz, p. 63-70). In the same vane, he was more confident in the economic calculus of farmers--even in poor societies-than in their economic advisors.

Given the seeming power of Schultz's development model, Otsuka addresses the issue of the Green Revolution technology bypassing Sub-Sahara Africa. The main cause seems to be a failure of agricultural research to generate high payoff inputs. This arises for three reasons. First, Sub-Sahara Africa is a low rainfall and irrigation area, severely limiting crops and livestock to levels below their genetic potential. Second, these countries have small populations and are poor, so they cannot afford to set aside a small number of individuals and train them highly to undertake research (Jones). Third, their agricultural environment is different from those where Green Revolution technologies were successful. Hence, Green Revolution technology cannot be easily transferred to this region. No long-term solution to this problem has been identified. Hence, circumstances have conspired to make agricultural economic growth unlikely in Sub-Sahara Africa. Huffman and Orazem show that all but three currently developed countries

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Proceedings 353

have undergone a successful agricultural transformation before entering into sustained modern economic growth. Hence, the future for Sub-Sahara Africa continues to be bleak.

Schultz's second major lifetime contribution was in human-capital research. A

key piece of this research appears in his 1960 AEA address, "Investing in Human Capital." In this article, he laid out the scope and substance of human

capital, and its importance to economic growth and development. Klein and Cook tackle the much smaller but also important issue of Schultz's

human-capital approach to entrepreneurship. Although Schumpter treated

entrepreneurship as an innate skill necessary for growth and development, Schultz viewed entrepreneurship as human capital-skills obtained by investing in a particular type of human resources. These produced skills could enhance an individual's ability to acquire and process information so as to

adjust or reallocate resources to exploit disequilibria. These disequilibria could be created by innovations leading to new low-cost income streams or due to new policies that changed incentives facing farmers and others. Hence, Schultz's

concept of entrepreneurship was much richer than that of his predecessors. Schultz was not fond of economists who labeled productivity change as the

residual or treated entrepreneurship as innate. These labels provide no mechanism by which growth could be reproduced in other places and times or where individuals could improve their entrepreneurial skills. He was greatly concerned about learning about reproducible economic growth and

development, which he believed was intimately related to human capital investment.

The four papers make the point that Schultz was truly an outstanding scholar and teacher. He had amazing insights into agricultural economics, development economics, and human capital economics, and his "students" continue to

investigate topics that he first shed light upon.

References Jones, C.I. Introduction to Growth Economics, 2nd ed. New York: W.W. Norton & Co., 2002. Huffman, W.E., and P.F. Orazem, "Agriculture and Human Capital in Economic Growth: Farmers,

Schooling and Nutrition," In Handbook of Agricultural Economics, Agricultural Development: Farmers, Farm Production and Farm Markets, R.E. Evenson and P. Pingali, eds., Vol. 3. North-Holland Publ., forthcoming.

Olson, M. The Logic of Collective Action. Cambridge, MA: Harvard University Press, 1965. Schultz, T.W. "Investing in Human Capital," Am. Econ. Rev. 51(Papers and Proceeding 1961):1-17. Schultz, T.W. Transforming Traditional Agriculture. New Haven: Yale University Press, 1964. Yang, X. "Classical Development Economics," In Economic Development and the Division of Labor,

Cambridge, MA: Blackwell Pub., 2003, pp. 20-31.

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