Theodore W. Schultz

Capital Formation by Education

IPROPOSE to treat education as an investment in man and to treat its consequences as a form of capital. Since education becomes a part of the person receiving it, I shall refer to it as human capital. Since it becomes an integral part of a person, it cannot be bought or sold or treated as property under our institutions. Nevertheless, it is a form of capital if it renders a productive service of value to the economy. The principal hypothesis underlying this treatment of education is that some important increases in national income are a consequence of additions to the stock of this form of capital. Although it will be far from easy to put this hypothesis to the test, there are many indications that some, and perhaps a substantial part, of the unexplained increases in national income in the United States are attributable to the formation of this kind of

Reflections on Investment in Man

THEODORE W. SCHULTZI University of Chicago T HE analytical scaffolding ofthese studies rests on the proposition that people enhance their capabilities as producers and as consumers by investing in themselves. It implies that not all of the economic capabilities of a people are given at birth, or at age fourteen when some of them enter upon work, or at some later age when some complete their schooling; but that many of these capabilities are developed through activities that have the attributes of an investment. These investments in people turn out not to be trivial; on the contrary, they are of a magnitude to alter radically the usual measure of the amount of savings and capital formation. They also alter the structure of wages and salaries and the amount of earnings relative to income from property. These alterations are clues to longstanding puzzles about economic growth, structure of relative earnings, and the distribution of personal income. Inasmuch as these alterations are a consequence of investment in human capital,

Investment in Entrepreneurial Ability

The economics of the acquisition of entrepreneurial ability is still in its early phase. What entrepreneurs do must have some scarcity and have some economic value; there must be some rent that accrues to the scarce entrepreneurial ability. The supply of entrepreneurial ability is rarely considered. Rejects the idea that the economic value of entrepreneurial activities can be considered as a return for risk bearing. Risk bearing is not unique to entrepreneurs. Disequilibria are inevitable in a dynamic economy. Using a human capital approach, this analysis argues that the abilities of entrepreneurs to deal with economic disequilibria -- to make non-routine decisions and reallocate resources -- are part of the stock of human capital. Experience, health, and education enhance the acquired abilities of entrepreneurs. As technology becomes more complex, the comparative advantage of schooling increases. A number of studies of the effects of schooling on farmers, which demonstrate their ability to perceive and interpret new information and to decide to reallocate their resources to take advantage of new and better opportunities. Increased education added to the earnings of farmers and, hence, their entrepreneurial abilities. This investment approach to entrepreneurial ability suggests that the returns to education are substantially undervalued. (TNM)

Investment in Man: An Economist's View

My plan is first to comment on the state of our knowledge about investments that people make in themselves and, then, to consider briefly the reluctance that we have in thinking about human wealth, and to give reasons why modern economists have shied away from it. I plan, then, to show how wholly new and important questions can be examined, once we acknowledge the role of human wealth, and how a number of big puzzles in our economic data may be solved. I venture to suggest a human wealth hypothesis and to note that estimates from two recent studies are consistent with it. It is a simple truth that people invest in themselves. They do it as individuals and as families and through their national and local communities. In mak-

Nobel Lecture: The Economics of Being Poor

Poor people in low-income countries are no less concerned about improving their lot and that of their children than those of us who have incomparably more income. They are also competent in using their meager resources. Many low-income countries have advanced substantially in recent decades in improving the quality of their population and in acquiring useful knowledge. These achievements imply favorable economic prospects, provided they are not dissipated by politics.

Life Span, Health, Savings, and Productivity

In this paper we begin by drawing attention to the dramatic increases in the life span of people in most low-income countries during recent decades. We then argue that longer life and the associated improvement in health have important economic implications which have been ignored in the literature. Last, we present evidence in support of two of these implications, namely, the growth of educational investments including the foregone earnings of students and the apparent gains in the productivity of agriculture in India over a period of about 2 decades.

The Value of Children: An Economic Perspective

It is postulated that parents respond to economic considerations in the children they bear and rear and that they equate the sacrifices and services expected in arriving at the value of children to them. Advances in economic analysis which make this analysis of population growth possible include: the theory of investment in human capital the treatment of human time in allocative decisions the household production function and a view of the family that encompasses both consumer choice and household production decisions including the bearing and rearing of children. In poorer countries children are very much capital. They require a great deal of care in the beginning and the rewards are wholly psychic but as the child becomes a teen-ager the cost is less and the rewards in the form of useful work are great. The concept of time as a factor in household production and the idea of household production itself show that a child does indeed contribute value to a home even though he is not gainfully employed. Other studies in this supplement elaborate these concepts. At the present time the therory lumps all the costs of the children at the beginning of the cycle and all the rewards at the end. It is thought that the process is a continuing one with varying values at each stage of the reproductive life cycle. Economic tools have great potential in explaining various demographic patterns. To be truly effective models will have to be developed for each stage of family life including the time childrearing days are over. Only thus will family planning personnel be able to see what results increased economic opportunity for women increased labor-saving devices and changes in contraceptive technology as well as infant mortality will have on untimate family investment in children.

The Economic Importance of Human Capital in Modernization

The full effects of human capital are difficult to observe. In addition to the internal effects which enhance the productivity of the individual in whom the investment has been made, there exist external effects—in particular the creation of new knowledge—which may have a large impact on economic growth. Since human capital invents new forms of physical capital, the former is the key to economic progress. Unlike physical capital, however, property rights in human capital—patents, copyrights, workplace safety rights—have often not been strong enough to encourage the most enterprising use of human capital resources.

Resources and Output Trends in the United States since 1870.

Introduction This paper is a very brief treatment of three questions relating to the history of our economic growth since the Civil War: (1) How large has been the net increase of aggregate output per capita, and to what extent has this increase been obtained as a result of greater labor or capital input on the one hand and of a rise in productivity on the other? (2) Is there evidence of retardation, or conceivably acceleration, in the growth of per capita output? (3) Have there been fluctuations in the rate of growth of output, apart from the shortterm fluctuations of business cycles, and, if so, what is the significance of these swings? The answers to these three questions, to the extent that they can be given, represent, of course, only a tiny fraction of the historical experience relevant to the problems of growth. Even so, anyone acquainted with their complexity will realize that no one of them, much less all three, can be treated satisfactorily in a short space. I shall have to pronounce upon them somewhat arbitrarily. My ability to deal with them at all is a reflection of one of the more important, though one of the less obvious, of the many aspects of our growing wealth, namely, the accumulation of historical statistics in this country during the last generation. For the most part, the figures which I present or which underlie my qualitative statements are taken directly from tables of estimates of national product, labor force, productivity, and the like compiled by others.

The Increasing Economic Value of Human Time

HEN data and theory talk to each other there is hope for economics. We are very much in need of such talk with a view of explaining the long-term changes in relative prices of the productive services of the factors of production. When we leave the equilibrium static state and endeavor to bring theory to bear on the economic processes that change these prices relative one to another, our factor price economics is wanting. Modern economic growth theory puts this issue aside on the convenient assumption that these prices do not change relative to each other. The classical economists, however, had more courage and a broader perspective of economic processes, and their theories continue to influence our thinking about long-term changes in rents relative to wages and relative to the price of the services of reproducible capital. By their theory, rents would necessarily rise relative to wages. But the data have been hard on this theory. We were all taught that the rent paid for the services of land must rise relative to the price of other factor services in accordance with the rise in Ricardian Rent as a consequence of population increases and of economic growth because of the highly inelastic supply of land. But what we observe in countries where per capita incomes are high is that rent per acre declines over time relative to the price of human time. In the United States, for example, the total real compensation per hour at work of all manufacturing production workers increased between 1929 and 1970 more than four times as much as did the rent of farm