December 2, 2019 Reading Time: 5 minutes

Eighty-nine years ago today, a baby was born in Pottsville, Pennsylvania. That baby was Gary Stanley Becker, and he would go on to revolutionize how we understand social phenomena by taking some of the basic tools of economics and applying them to questions not conventionally thought of as being economics. It has been said that economists are intellectual imperialists. If we are, Gary Becker led the charge from the time he finished his doctoral studies in the mid-1950s through his death in 2014. 

Becker was an active scholar and commentator to the very end: his final contribution to the Becker-Posner Blog — which he ran with his University of Chicago colleague, the virtuoso jurist Richard Posner  — was dated March 3, 2014, exactly two months before he passed away. In it, he argued (as many economists have) that the embargo on Cuba was, for the most part, ineffective and should be ended.

Becker was recognized with the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 1992 “for having extended the domain of microeconomic analysis to a wide range of human behaviour and interaction, including nonmarket behavior.” The Nobel website specifically mentions his contributions to the study of “aspects of human behavior which had previously been dealt with by other social science disciplines such as sociology, demography, and criminology.” His Nobel Prize address, “The Economic Way of Looking at Life,” was a fascinating study in how Becker approached the Dismal Science  — and how he used it to help us better understand a lot of things that people don’t immediately associate with economics.

Becker started with the economics of racial discrimination, which he wrote about in his 1957 book The Economics of Discrimination. The book was based on his 1955 dissertation, it would go through multiple editions, and it would change the way that people think about discrimination based on race and gender. Becker argued, and a lot of empirical research has confirmed, that discrimination tends to be punished  — albeit not eliminated, and Becker went to great pains to stress this — by competitive pressure. 

To understand this, Becker employed the simple analytical tools that help us understand a competitive marketplace. He argued that firms and managers willing to sacrifice profits in order to indulge discriminatory tastes would find themselves at a competitive disadvantage relative to less discriminatory competitors. His longtime University of Chicago colleague Kevin Murphy quotes him: “Most economists did not think racial discrimination was economics, and sociologists and psychologists generally did not believe I was contributing to their fields.” As Murphy puts it, “Becker’s model reduced a charged social issue to supply and demand.” He continues:

Becker … thought that greater competition would act as a strong force in reducing labor-market discrimination. It was clear to him, however, that competition would not completely eliminate it. Even if an employer weren’t racist, he or she could have customers who preferred not to conduct business with black people. Such customers, to avoid dealing with a black employee, would end up paying a higher price in equilibrium, thus subsidizing discrimination.

In my opinion, one of the more interesting empirical analyses of this phenomenon is a 1989 article by Donald Cox and John Nye in the Journal of Economic History. In a study of 19th-century French manufacturing  — when gender attitudes were far less progressive than they are in modern times and when, therefore, people had less of an incentive to misreport the data  — Cox and Nye found that men and women were paid according to their productivity rather than according to their gender. Is market competition a panacea that will eliminate all discrimination? That’s doubtful; however, Becker helped us understand how a competitive marketplace can punish discriminators.

His work on discrimination alone likely would have been sufficient for a long and distinguished career, but Becker wasn’t finished. He would go on to do pioneering work in the study of human capital (education and the accumulation of skills), the economics of the family, and the economics of crime. He took an important element of the economist’s toolkit  — rational choice and exchange under scarcity leading to equilibrium — and used it to help us better understand things that, again, were not obviously amenable to economic analysis. To the extent that the idea of an “economic analysis of the institution of the family” looks obvious in retrospect, it owes a lot to Gary Becker’s work.

Becker’s work on the economics of crime begins with a story about a “hapless graduate student.” In his Nobel lecture, Becker said that he parked illegally while running late for a doctoral student’s oral examination, realized that both he and the parking authorities had likely done a similar cost-benefit analysis in deciding how to punish (for the parking authorities) and deciding whether to park illegally (for Becker). He writes that he entered the examination and asked the student to work out the optimal behavior for the concerned parties, which was, of course, something that had just occurred to him. 

Crime, Becker argued, could be understood using the tools of economic analysis. Raising the expected cost of crime, for example, would make legal work more attractive. The authorities could, he argued, reduce crime by increasing the probability of punishment or the severity of punishment. Becker’s work opened a new window on the world of human action. His work was (and remains) controversial because people have an unfortunate tendency to ridicule a strawman version of the rational-choice argument. When we ask whether people are rational, we often ask whether people do calm, disinterested, and accurate cost-benefit calculations before deciding how to act. This clearly isn’t the case when we are talking about crimes of passion. 

To use economics to understand crime and (importantly) to make predictions about how people will respond to changes in incentives, you just need to know that there is someone out there for whom it is just barely worth it to commit a crime who would do something else instead were the penalty only slightly higher. If you don’t believe me, look at your own behavior when you pass a cop while rocketing down the freeway. Do you tap your brakes or at least let off the gas? Even if you don’t, does someone? If you’re nodding and if you understand this, then you intuitively understand the economics of crime.

In 1981, Becker turned his attention to that most ancient of institutions, the family. He wanted to understand why families do what they do, why people leave bequests (or don’t), and why children cry or act cute in an effort to attract their parents’ attention. Furthermore, he wanted to understand the observed patterns we see in households, where women tend to do the lionesses’ share of household labor and child-rearing. He describes “writing A Treatise on the Family” as “the most difficult sustained intellectual effort I have undertaken,” “that left me intellectually and emotionally exhausted.” 

Of course, not everyone has been convinced by Becker’s work  — the very first issue of the journal Feminist Economics, for example, contains a blistering criticism of Becker from the economist Barbara Bergmann. However, a lot of things that economists today think are “obvious” simply weren’t before Gary Becker came along.

For Becker (and so many after him), economics wasn’t just about stock markets, exchange rates, and the money supply. It was a field of study that carries us to a better understanding of just about everything in the infinitely complex patterns of human action, even a lot of things that don’t look like they’re really economics at first. They are, though, and many of his insights, I think, will stand the test of time.

Art Carden

Art Carden

Art Carden is a Senior Fellow at the American Institute for Economic Research. He is also an Associate Professor of Economics at Samford University in Birmingham, Alabama and a Research Fellow at the Independent Institute.

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