The Nobel Prize

Gary S. Becker (b. 1930)

Gary Becker was born in Pottsville, Pennsylvania, USA, in 1930. When he was still a young child his family moved to Brooklyn, New York where he went to school (interestingly, Becker and the 1987 Nobel Laureate Robert Solow both graduated from the same high school: James Madison; Fuchs, 1994). Becker was a good student with a particular interest in mathematics. His family life was stimulating and he recalls ‘many lively discussions in the house about politics and justice’, to which he credits a growing desire he felt ‘to do something useful for society’ (Nobel Foundation, 2004).

Becker’s first encounter with economics happened ‘accidentally’ at Princeton University – where he was taking mostly mathematical courses. However, the subject seemed to blend social concerns with mathematical rigour and this made it attractive to him. In his final year at Princeton, some of this allure had worn off and Becker says he contemplated switching to sociology but he ‘found that subject too difficult’ (Nobel Foundation, 2004). He graduated with a BA from Princeton in 1951. Becker’s graduate study was in economics at the University of Chicago, where he excelled. Jacob Viner, a faculty member at Chicago during the time when Milton Friedman and George Stigler studied there, credits Becker with being ‘the best student I ever had’ (quoted in Fuchs, 1994, p. 183). The university awarded Becker an MA in 1953 and a PhD in 1955. By the time Becker arrived at Chicago, Friedman was himself on the faculty and Friedman’s teaching and wider academic influence both revived Becker’s excitement about economics and ‘had a profound effect on the direction taken by my research’ (Nobel Foundation, 2004). Becker also mentions, among others, the 1979 Nobel Laureate Theodore Schultz – with his pioneering work on human capital – as an important influence at Chicago.

In 1954 Becker was appointed to his first academic post as assistant professor at Chicago. In 1957 he moved to Columbia University, New York – again as assistant professor but combined this with an appointment at the National Bureau of Economic Research, also in New York. Becker had been offered a lot more money to stay at Chicago but, I felt I would become intellectually more independent if I left the nest and had to make it on my own … I have always believed this was the correct decision, for I developed greater independence and self-confidence than seems likely if I remained at Chicago. (Nobel Foundation, 2004)

At Columbia, Becker became associate professor, professor and then Arthur Lehman Professor of Economics. After 12 years in New York and beginning to feel ‘intellectually stale’ he decided to return to Chicago where he was Ford Foundation Visiting Professor of Economics from 1969 to 1970 and Professor of Economics from 1970 to 1983. In 1983 Becker was offered a joint appointment by the Sociology Department at Chicago, a post he still holds alongside that in economics. Since 1990 he has also been a senior fellow at the Hoover Institution at Stanford University, California.

Becker’s offices and honours include the W.S. Woytinsky Award from the University of Michigan (1964) and – in 1967 – the receipt of the American Economic Association’s John Bates Clark Medal. He is a fellow of the American Statistical Society, the Econometric Society and the American Academy of Arts and Sciences. In 1974 Becker served as vice-president and in 1987 as president of the American Economic Association. He is a member of the National Academy of Sciences and from 1990 to 1992 served as president of the Mont Pelerin Society. He also received the National Medal of Science Award in 2000. In 1992 Becker was awarded the Nobel Memorial Prize in Economics ‘for having extended the domain of microeconomic analysis to a wide range of human behaviour and interaction, including nonmarket behaviour’ (Nobel Foundation, 2004).

As we have seen, in Becker’s upbringing and in his student life he developed a concern about social issues and what might be done about them. A reasonable characterisation of his work would be that it has sought to apply a basic economic approach to a diffuse range of social problems and institutions, many of which – such as discrimination, crime and punishment, and considerations of the family – were previously thought to be beyond the remit of economic analysis. Moreover, Becker has accomplished this feat often in the face of doubt and hostility from others in his own profession, as well as practitioners in other disciplines affronted by what they perceive as an interloper in their intellectual domain.

Becker’s method is to apply an enriched model of rational choice to try to understand the behaviour of individual agents in particular contexts. It is his contention that this approach is a powerful and general means of producing explanations and predictions that are open to empirical resolution.10 Becker’s working assumption is not that individuals ‘are motivated solely by selfishness or gain’ but that they try, consistently, to ‘maximize welfare as they conceive it, whether they be selfish, altruistic, loyal, spiteful or masochistic’ (Becker, 1993, p. 38, emphasis in original). Their choices in turn are constrained by a variety of factors such as income, opportunity and, importantly for Becker, time.

Becker’s first significant publication was a book, The Economics of Discrimination, based on his Chicago PhD thesis (Becker, 1957a).11 Becker thought that discrimination against minorities was an important social concern but he was aware that, hitherto, economists had displayed no great interest in the matter.12 Although the book was favourably reviewed in some journals, Becker was aware of the hostility and doubt that it also generated. Perhaps this was to be expected. As Rosen (1993, p. 33) notes, 10 Although Becker does not specifically acknowledge it in his Nobel lecture, Friedman’s methodological influence might be inferred here – see entry on Friedman in this volume. 11 This was not his first publication. Becker had already produced two papers arising from his time at Princeton and co-authored an article with Friedman (Becker, 1952a; Becker and Baumol, 1952b; Friedman and Becker, 1957b). 12 Gunnar Myrdal was an exception. His book American Dilemma (1944) is specifically acknowledged as such by Becker. See entry on Myrdal in this volume.

It is hard to describe what a daring work this was back then, given the general tenor of the times in the United States, and the general scepticism of economists and other social scientists for work that strayed too far from familiar turf.

Becker’s simple but effective approach was to explore the economic implications of discrimination using a model analogous to that employed in the study of international trade. This allows the incidence of discrimination to be interpreted as a tariff: in the case of a discriminating employer the tariff is a tax the employer is willing to pay (a rational choice in spiteful subjective terms) to hire a less-productive white person instead of a more productive black person (see Sandmo, 1993). Such a reading allowed Becker to demonstrate that discrimination harms both its victims and its perpetrators (Nobel Foundation, 2004). Just as trade protection reduces social welfare in international goods markets, so does discrimination-based protection in the job market. However, Becker also showed that where the discriminating majority is large, such as in the United States, ‘discrimination by the majority hardly lowers their incomes, but may greatly reduce the incomes of the minority’ (Becker, 1993, p. 40).

Becker’s Nobel citation suggests that his work on human capital may be his most notable contribution to the canon of economics. It is generally recognised that while he was not the first modern economist to offer new insights into this subject – Becker himself credits inter alia Theodore Schultz with that distinction (see entry on Schultz in this volume) – he has certainly done most to underpin its microeconomic foundations and to explore its empirical applications. The key references here are Becker’s 1962 article in the Journal of Political Economy and his 1964 book, Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education. The choice of book title is interesting. Becker expected the phrase ‘human capital’ to generate a hostile reaction given its (at that time) demeaning human-as-machine connotations and because it would be read as devaluing the cultural enrichment associated with education. He recollects: ‘As a result, I hesitated a long time before deciding to call my book Human Capital, and hedged the risk by using a long subtitle’ (Becker, 1993, p. 43).

Although he was in uncertain territory in the early 1960s, the rational choice approach to human capital Becker pioneered has bequeathed what is today ‘a uniform and generally applicable analytical framework’ (Nobel Foundation, 2004). Becker’s starting point is to interpret the decisions by individuals to invest in their own capabilities through education, training, medical care and so on as turning on the balance of benefits and costs of such investments. This is not simply a narrow appeal to self-interest as individuals maximise welfare subjectively and they may be as much motivated by altruism as greed. (Recall that Becker’s own interest in economics originated partly because of its relevance to social improvement; if he had just wanted to make money he might have chosen to augment his human capital in another way.) The benefits of investing certainly include higher earnings and better jobs but they also encompass, for example, cultural enrichment where individuals think this is important. The costs centre on the value of the time surrendered in making investments.

This approach has wide application. To give just one example used by Becker in his Nobel lecture, human capital theory can be used to understand recent changes in the ‘gender gap’ in earnings (see Becker, 1993). He argues that the traditional obligations of childcare gave women fewer incentives to invest in education and training – hence their lower earnings. But in most advanced societies, labour markets have changed substantially in recent decades. Smaller families, more single-parent families, the growth in service sector employment and changes in the legislative framework have all encouraged more women to enter the labour market, and this has provided an incentive for them to invest in their own skills. The consequence has been a narrowing of the gender gap in earnings.

After Becker returned to Chicago at the beginning of the 1970s, his work found a new focus. He began to try to use his economic approach to explore a ‘whole range of family issues: marriage, divorce, altruism toward other members, investments by parents in children, and long-term changes in what families do’ (Nobel Foundation, 2004). The results were brought together in 1981 in his book, A Treatise on the Family.13 This was not entirely new territory to Becker. He had, for example, previously considered questions about fertility (Becker, 1960) and the way that households allocate time (Becker, 1965). Building upon the foundations laid in the latter paper, Becker has arrived at a general theory of family behaviour in which, for example, increases in real wages and greater opportunities for substituting capital for labour in household tasks have created new incentives and opportunities for families to function in different ways, with more time allocated to paid work and less to unpaid household labour (Sandmo, 1993). With Nigel Tomes, he has argued that these trends account for both increases in the participation of married women in the labour market and the rising tendency towards divorce, particularly for poorer couples (Becker and Tomes, 1986; and see Becker, 1993).
A final dimension to Becker’s work acknowledged in his Nobel citation is his application of the rational model to considerations of crime and punishment. A personal anecdote reveals how he got started. Late for an appointment he weighed the cost of parking his car legally in a car park against the probability of a fine for parking illegally and took the size of the fine into account. He risked parking illegally and was not caught. Becker thought that this kind of experience could be used to analyse criminal behaviour: ‘I was not persuaded that criminals had radically different motivations from everyone else’ (Becker, 1993, p. 41). Criminality, in other words, could be considered rational: ‘some individuals become criminals because of the financial rewards from crime compared to legal work, taking account of the likelihood of apprehension and conviction and the severity of punishment’ (ibid., p. 42). The key references here are Becker (1968) and Becker and Landes (1974).

Main Published Works
(1952a), ‘A Note on Multi-Country Trade’, American Economic Review, 42, September, pp. 558– 68.
(1952b), ‘The Classical Monetary Theory: The Outcome of the Discussion’ (with W.J. Baumol), Economica, 19, November, pp. 355–76.
(1957a), The Economics of Discrimination, Chicago: University of Chicago Press.
(1957b), ‘A Statistical Illusion in Judging Keynesian Models’ (with M. Friedman), Journal of
Political Economy, 65, February, pp. 64–75.
(1960), ‘An Economic Analysis of Fertility’, in Demographic and Economic Change in Developed
Countries, Conference of the Universities – National Bureau Committee for Economic
Research, A Report of the National Bureau of Economic Research, Princeton, NJ: Princeton
University Press, pp. 209–40.
(1962), ‘Investment in Human Capital: A Theoretical Analysis’, Journal of Political Economy,
70, October, pp. 9–49.
(1964), Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education,
New York: Columbia University Press; expanded edn 1993, Chicago: University of Chicago Press.
(1965), ‘A Theory of the Allocation of Time’, Economic Journal, 75, September, pp. 493–508. (1968), ‘Crime and Punishment: An Economic Approach’, Journal of Political Economy, 76, March/April, pp. 169–217.
(1974), Essays in the Economics of Crime and Punishment (ed. with W.M. Landes), New York: Columbia University Press.
(1981), A Treatise on the Family, Cambridge, MA: Harvard University Press.
(1986), ‘Human Capital and the Rise and Fall of Families’ (with N. Tomes), Journal of Labour Economics, 4, July, S1–S39.
(1993), ‘The Economic Way of Looking at Life’, Journal of Political Economy, 101, June, pp. 38– 58.
Post a Comment