WACO, Texas – Some of the most interesting and enlightening discoveries come where disciplines converge. Experts in one field who can see applications in other areas often give us new understanding of complex issues.
The work of Dr. Gary S. Becker broke new ground in applying economic tools to other social sciences, generating theories and ideas on topics ranging from family dynamics to discrimination to criminal behavior. I was saddened to learn of his recent death at the age of 83. Our paths only crossed a few times, but I always found him fascinating.
For extending economic analysis “to new areas of human behavior and relations,” Dr. Becker received the 1992 Nobel Prize in Economics (formally, the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel). As the Royal Swedish Academy put it, Dr. Becker worked with an “economic approach” centered on the idea that individual behavior follows the same basic principles in various contexts. Specifically, individuals (or households, companies, or other organizations) behave purposefully.
Within economics, such purposeful behavior is known as “rational” behavior, meaning that there is a specific goal driving the decision process. For firms, profits are generally seen as the driving objective, and the firm’s management makes decisions such that profits are maximized. Another objective we talk about in economics is “utility,” which is essentially a blend of happiness/contentment and usefulness. People act in certain ways so as to maximize their utility. Of course (as Dr. Becker pointed out), utility is not determined strictly by financial success for individuals.
Four of the major areas Gary Becker concentrated on were human capital, family behavior, crime and punishment, and discrimination. Human capital deals with the returns on investment in human competence (such as education and on-the-job training). His theory of human capital provides a framework for analyzing wage differences and other patterns, and economists have used his work in this area as a basis for theories on topics ranging from immigration to trade.
The family dynamics work of Dr. Becker looked at how a family is similar to a manufacturing firm, using various inputs to produce necessities of life (meals, a place to live, and so on) as well as entertainment. He also looked at what happens when wages rise, changing the incentives to work. Many of the outcomes when nations become increasingly industrialized (more women enticed into the workforce, fewer children, and so on) fit well within this framework. He could also be a bit quirky and humorous, including postulating a theory of extra-marital affairs based on the optimal allocation of time (a construct which he used effectively for many other subjects).
He also used economic principles to explain the motivations of some criminals, theorizing that they implicitly analyze the benefits of committing a crime in light of the potential cost of punishment. In the area of discrimination, Dr. Becker published a book in 1957 setting forth his theory that discrimination harms (in economic terms) not only the person discriminated against, but also the one doing the discriminating.
Gary Becker spent most of his career teaching at the University of Chicago, where he influenced his students as well as other professors. His colleagues use words and phrases such as transformational thinker and intellectually fearless to describe him. Milton Friedman called him the greatest social scientist in half a century. High praise, indeed.
While some of Dr. Becker’s ideas seem obvious to us today, many were conceived and written about as far back as the early 1960s. At that point, many economists were skeptical of the value of work dealing with the social sciences, and Gary Becker was blazing a new trail. As recently as earlier this year, he continued to write thought-provoking essays. He wasn’t afraid of being controversial, and blogged on a wide range of topics. Through his creative brilliance, he made people think, even if they disagreed with him. Before Becker, economists pretty much stuck to traditional subjects – production, consumption, investment, labor, and such. After Becker, we started using our toolkits to venture into other areas. For that alone, many of us are eternally grateful.
<I>Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.</I>