Schultz defines traditional agriculture as an economic equilibrium where (1) farming techniques remain constant, (2) farmer preferences and motives for owning production factors remain constant, and (3) this state remains long enough for marginal productivity and income from factors to reach equilibrium with zero net savings. Key characteristics are perfect allocation of resources and no unused factors or misallocation. The only way to increase production is adopting new production factors. However, critics argue Schultz's definition and assumptions of perfect allocation and no unused factors are flawed, and a purely market-based approach neglects social interests.

1. SCHULTZ’S THESIS OF
TRADITIONAL
AGRICULTURE

2. Some Misconceptions about Traditional
Agriculture:
(a) Traditional agriculture has nothing to do with the traditions of a society. According to Schultz
agriculture can become traditional in any country, irrespective of the customs and conventions
which its people have generally practiced. For example, it is not necessary that only a
conservative, superstitions and a whimsical society can have a traditional agriculture. Even a
forward looking society can find its agriculture to be traditional in nature.
(b) Traditional agriculture has nothing to do with the institution arrangement in a country. A
country with any type of in situation arrangements can find its agriculture being traditional. For
instance agriculture in a country can become traditional whether it has large farms or small
farms though generally people feel that traditional agriculture is associated with small farm
Japan’s agriculture is not traditional even if the farm size is very small.

3. Meaning of Traditional Agriculture
According to Schultz:
According to Shultz traditional agricultural is all economic concept. It implies a short of an
equilibrium: When agriculture of an country reaches such an equilibrium, it will become a
traditional agriculture and according to Sehultz, as we have already pointed out, this equilibrium
can be reached irrespective of the cultural attributes of the society, its institutional arrangements
or the technical efficiency of its factors.
According to Schultz, the critical conditions underlying this type of equilibrium, either historically
or in the future are as follow:
1) The state of arts remains constant
(2) The state of preferences and motives for holding and acquiring sources of income remains
constant and
(3) Both of these states remains constant long enough for marginal, preference and motives for
acquiring agricultural factors as sources of income to arrive at an equilibrium with the marginal
productivity of these sources viewed as an investment in permanent income streams and with net
savings approaching zero.

4. Main Characteristics of Traditional
Agriculture as Defined by Schultz:
◦ (A) Allocative Efficiency in Traditional Agricultural:
◦ It is generally felt that resources in a traditional agriculture are not optimally allocated. Heady
had conducted a study on resource allocation for six class of formers in India and found that
allocation of resources was not perfect. Schultz’s definition does not lead to such a conclusion.
On the other hand, it leads one to conclude that resource allocation is perfect in a traditional
agriculture.
◦ The argument runs as follows. Art of cultivation remains unchanged (for agriculture to become
traditional) and so are the preferences and motives to hold various factors of production, When
year after year farmer, under such circumstances, get the same return (under normal condition),
they are bound to adjust their investment in various factors in such a way limit the marginal
productivity of each factor is finely balanced with its price and this balance will stay so long as
the art of cultivation etc. remains unchanged. As Schultz pointed out. “There are comparatively
few significant inefficiencies in the allocation of factors of production in traditional agriculture.”

5. Schultz made certain assumptions for
the equilibrium to prevail in traditional
agriculture.
(1) These first assumption is about the nature of factors of production. The factors have been used
for a long time without any change. If the factors have been changing in their nature,
obviously, their returns too will be changing and consequently, long run equilibrium cannot be
achieved. (In fact agriculture cannot be considered as traditional if the nature of factors of
production goes on changing).
(2) No significant activity like construction of road or digging of a canal is taking place. Such
activities will disturb the equilibrium temporarily.
(3) Events like war, partition or recruitment of labour in the army also disturb the equilibrium
temporarily. These are the assumed to be absent.
(4) Relative prices of various factors as well as of agricultural products are assumed to be constant.
(5) As the state of arts is assumed to be unchanged, the change in the technology, taking place at
any time is ruled out.

6. ◦ Schultz’s Suggestions for Transforming Traditional Agriculture:
◦ There are three ways of increasing production. These are to:
◦ (1) Make use of un-utilised resources
◦ (2) Optimally reallocate the resources so as to take the production on to the production frontier
and
◦ (3) Change the nature of factors namely replace all or some of the old factor by new ones with
higher output-input ratios.

7. Intentionally or otherwise, Schultz’s ruled out the adoption of first two methods meant for
increasing agricultural production. For instance, by his very definition of traditional
agriculture, he has concluded that there is no factor of production lying unused in traditional
agriculture. Land and labour and other capital assets are fully utilized in traditional
agriculture.
In the same way he has concluded that resources in agriculture are always perfectly allocated.
There is no misallocation of resources and therefore there is no possibility to increase
production in a traditional agriculture, by further improving the resource allocation.
So Schultz is left with only one way to increase production in a traditional agriculture i.e. by
changing the nature of the factors of production. Before we discuss in detail. Schultz’s scheme
of adoption of new factors of production it is necessary to discuss the approach to be followed
for such an adoption.

8. The Process of Transformation:
◦ In a market approach, ultimately the supply and demand for the factors of production will
govern the actual use. So Schultz discusses in detail the factors that influence the supply and
demand for such factors. We may in the first instance discuss the problems faced in the supply
of new factors and the suggestion that Schultz, makes to overcome these problems.
◦ A. Supply of New Factors:
◦ According to Schultz three important steps are involved in the supply of new factors.
◦ These are:
◦ (1) Research and Development of new factors.
◦ (2) Distribution of inputs to the cultivators and
◦ (3) Extension of new knowledge.

9. ◦ . Demand for New Factors:
◦ Supply of new factors is of no use if the farmers do not demand them. Schultz, therefore analyses
the factors which should be kept in view while trying to ensure that a demand is generated for
the inputs.
◦ In the first instance, Schultz tries to dispel a few misconceptions about the attitude of the farmers
in a traditional agriculture towards the new, inputs. He points out that it is wrong to assume that
a farmer in traditional agriculture is conservative and non-progressive and as such will refuse to
adopt the new inputs.
◦ According to him, whether he is a farmer in traditional agriculture or a non-traditional one, he
always goes by the economic motive. In this case, the economic motive is governed by
profitability of the new inputs over a long period. If the new inputs profitable the farmer will
accept it and substitute it for an old input.

10. Critical Reviews of Schultzian Thesis:
◦ We have already critically examined the definition of traditional agriculture as given by Schultz
and also its implications namely the poor but efficient hypothesis (perfect allocation of
resources) and the non-existence of disguised unemployment in a traditional agriculture.
◦ Some of his other assertions also suffer from infirmities. For example, his too much emphasis on
market approach is not correct. In a situation of shortages, too much emphasis on freedom to
buy and sell can lead to an allocation of resources which may not be optimum from the social
point of view.
◦ Social interests are likely to be sacrificed in favour of private interests if a total market approach
is followed. Further his suggestion -that only use of modern inputs will transform the traditional
agriculture is inaccurate. Traditional inputs like conservation of soil, irrigation etc. cannot be
discarded in any agricultural economy.

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