Abstract
This chapter deals with the view of Theodore W. Schultz on what causes poverty and how poverty can be overcome, mainly as he expressed it in Transforming Traditional Agriculture, published in 1964. It also examines the criticism directed against Schultz and some suggested alternatives to his analysis. The basic tenet of Schultz’ analysis is that farmers in poor countries are profit maximizers who behave rationally. They are poor because they are constrained. The production factors at their disposal are fully utilized, but their yield is low. New, technologically superior production factors are needed to break out of poverty: above all improvement of the human factor through education. Schultz’ critics argued that he neglected that traditional farmers are operating in an environment characterized by risk of falling below the subsistence level in bad years, and that hence their behavior was guided by survival algorithms instead of by profit maximization, and that his discussion of education and its effects failed to take the institutional context in the Third World into account. © 2021 selection and editorial matter, Mats Lundahl, Daniel Rauhut, and Neelambar Hatti; individual chapters, the contributors.