Schultz was born April 30, 1902, to Henry Edward and Anna Elizabeth Schultz, in a German farm settlement near Arlington, South Dakota, and grew up on a farm near Badger, South Dakota. Theodore was the eldest of eight children.
He attended a winter four-month course at the South Dakota State University School of Agriculture for three years from 1921, and in 1924 he entered the undergraduate program there and received a degree in agriculture and economics in 1926. In 1928 at the University of Wisconsin in Madison he received his master's degree and in 1930 his doctorate from the same university.
In 1929 he visited the USSR to study the questions of agrarian economics, in 1960 he visited the USSR for the second time by invitation of the USSR Academy of Sciences, and in 1990 he visited the USSR again as a member of a large delegation of American businessmen.
In 1930 Theodore married Esther Florence Werth (1905-1991), a native of Frankfort, South Dakota, who gave him two daughters, Elaine and Margaret, and a son, Paul. His wife also studied and received her bachelor's degree from South Dakota State University in 1927.
He taught at Iowa State University from 1930-1943. He was a professor at the University of Chicago from 1943-1961, where he directed the Technological Aid to Latin America project in the 1950s. Theodore was a member of the American Economic Association and the U.S. National Academy of Sciences, a founding member of the National Academy of Education, a member of the American Philosophical Society, a member of the American Academy of Arts and Sciences, director and vice president of the National Bureau of Economic Research from 1949-1967, manager of the International Development Research Center in Canada, a trustee of the Population Council of the Institute for Current World Affairs and International Agricultural Development Service. He was professor emeritus at Grinnell College, South Dakota State University, the University of Illinois, the University of Wisconsin, Dijon and Chilean Catholic University, and the Universities of Michigan and North Carolina. He retired in 1970, but remained active in research until 1990, when he broke his hip, after which he was bedridden.
Theodore died on February 26, 1998, in Evanston, Illinois and was buried in Badger Cemetery, South Dakota.