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Home | Library | The Economist as Detective: Reflections on Gary Becker's Nobel Prize

The Economist as Detective: Reflections on Gary Becker's Nobel Prize

February 16, 2010

Tags EducationFree MarketsGlobal EconomyMonetary Theory

[Austrian Economics Newsletter, Fall 1993]

Professor Gary S. Becker, the winner of the 1992 Nobel Prize in Economic Sciences, is like Professor Moriarty of Sherlock Holmes fame. Holmes said of Moriarty, "Again and again in cases of the most varying sorts — forgery cases, robberies, murders — I have felt the presence of this force."

In like manner, Dr. Becker has cast his hand into virtually every nook and cranny of not only economics, but also social science in its broadest definition. And just as the fictional victims in Arthur Conan Doyle's novels trembled when Professor Moriarty was about town, almost no scholar is safe in the fields of history, law, sociology, psychology, criminology, political science, or philosophy while Gary Becker's word processor is turned on.

Becker's career of blazing new paths for the "dismal science" began with his 1957 book, The Economics of Discrimination. Before this work, the study of prejudice and discrimination had been the exclusive domain of sociologists and psychologists. Becker showed that demand and supply, cost and benefit, and profit and loss could shed profound light on the subject.

Thanks to his efforts, we know that people pay a price for discrimination, whether on the basis of race, sex, or any other criterion. Those who indulge in such preferences tend to lose out in the competitive struggle of the marketplace, as they must pay more for equally able factors of production. The market rewards people who are color blind. Capitalism, then, far from being the racist, sexist enterprise Marxists believe it to be, is actually a rather humane endeavor.

When the state takes over large parts of the economy, the liberating process of the market — that of penalizing bigots — is confined in scope. It cannot work in the public sector, due to the absence of profit and loss.

Nor will Becker's work on the family give aid or comfort to those who attempt to denigrate that traditional institution. He has applied the insights garnered from the study of international trade to marital relations.

Take absolute advantage, for example. This is the doctrine that shows how countries can benefit from worldwide specialization and the division of labor, as some can produce one item more cheaply, while others are more productive with another. This is why bananas are not produced in Canada, nor maple syrup in Costa Rica: each nation specializes in what it does best, and trades for the specialty of another.

But this is part and parcel of the economic explanation of marriage. The husband typically earns a living specializing in market activities, while he is often "all thumbs" when it comes to the kitchen, child rearing, and the like. The wife, due to job interruption and perhaps different interests, may be less productive than her spouse outside the home. As a result, her earnings tend to be less than his. Instead, she complements his efforts with her own. Together, they are stronger economically, precisely as in the case of a business partnership where one member charms the customers while another takes care of manufacturing and bookkeeping.

Gary S. Becker

Becker's "economic imperialism" (applying microeconomic theory to problems traditionally monopolized by other social sciences) knows few bounds, if any. He has applied microeconomics to life-cycle patterns, criminal activity, politics, voting behavior, immigration, education, divorce, and allocation of time. The list goes on and on.

By choosing Becker, the Stockholm committee has continued a fine tradition of awarding the Nobel Prize to free-market economists who, whether by accident or design, have studied or taught at the University of Chicago. The list up to now includes Milton Friedman, F.A. Hayek, Theodore Schultz, George Stigler, and James Buchanan. Gary Becker is a worthy addition to this all-star cast. The wonder was not that he won the Nobel Prize but that the event took so long in coming. Indeed, I was not the only former student of his who lost money over the past several years by betting that he would receive the award.

I first met Gary Becker when I was a graduate student at Columbia University in 1965. Already enjoying a reputation as an enfant terrible, his courses were well known in the local scholarly community. He was a member of my orals committee, and he later honored me by agreeing to serve as my dissertation advisor. Halfway through my graduate studies, however, he left Columbia to join the faculty at the University of Chicago. For years I have joked that Columbia wasn't big enough for the both of us.

In subsequent years, I have been fortunate enough to be able to interact with him at several Mont Pelerin Society meetings and Liberty Fund conferences. Very loyal to all his colleagues and former students, he has been a warm supporter of mine through the years. I was personally delighted at the recognition he received from the Nobel Prize committee.

What are the implications of this award for Austrian economics? There will be some positive benefit, but not much. This recognition of him will enhance the Austrian tradition no more than that of Friedman, Stigler, or Coase. The beneficial effects on praxeology will be indirect — not direct, as they were to a small degree in the case of Buchanan, and to a large degree in that of Hayek.

Some benefits will accrue because the Chicago and Austrian Schools are the only two free-enterprise-oriented schools of economic thought. Consider, first, normative economics. What helps one school is bound to help the other, insofar as they share this commonality.

"The 1992 Nobel Laureate is a neoclassical micro theorist through and through. He is fully immersed in the positivist tradition."

The direction of influence is mainly one-way, of course, from the Chicago School to the Austrian School, and not the other way around. As the joke about the elephant and mouse indicates (said the mouse, perched on the shoulder of an elephant crossing a bridge, "Boy, we sure made that bridge shake!"), this is because the one is so much larger and more visible than the other.

To the extent that Becker opposes minimum-wage laws, rent control, tariffs, socialism, nationalization of industry, licensing, and the like, and to the extent that he favors markets, privatization, and property rights, this cannot but help the Austrians in their quest for a freer society.

In contrast, with regard to positive economics, there will be no spillover whatsoever; if anything, the impact will be negative. This is because the Chicago methodological approach is so close to (indeed, is indistinguishable from) that of the rest of the profession. This is in sharp contrast to Hayek, whose receipt of the prize has correctly been given credit for a large part of the Austrian revival. I know Gary Becker; Gary Becker is a friend of mine; and believe me, he's no Friedrich Hayek. Nor is he even a James Buchanan, who took a position on the subjectivism of costs compatible with that of the praxeological school.

As far as Becker is concerned, the Austrian School might as well not exist. In none of his writings is there even the slightest hint or evidence of any familiarity or interest in the subject. The names of Menger, Böhm-Bawerk, Mises, and Hayek never passed his lips in the several years of his courses I attended.

No, the 1992 Nobel Laureate is a neoclassical micro theorist through and through. He is fully immersed in the positivist tradition: mathematical economics, indifference curves, hypothesis testing, falsifiability, econometrics, and so on. The only remarkable thing about him — what makes him stand out from virtually all others plying this particular trade — is the brilliance and imagination with which he utilizes these traditional tools of analysis.

But that does not make him an Austrian. It does not make him one whit more receptive to the Austrian tradition than any other, perhaps less talented, mainstream economist. Further, he has taken numerous positions that sharply diverge from those held by Austrian economists. Consider the following:

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  • He holds that rationality and purpose are not required to understand economic activity in general, nor downward-sloping demand curves in particular. (See his interchange with Israel Kirzner on the subject.)[1]

  • He takes the typical Chicago view that monopoly (defined as highly concentrated industry) is a violation of economic freedom and should be proscribed through antitrust law. He would perhaps radically reform, but not repeal, such legislation.

  • He maintains that politics is just as amenable to economic analysis as any other type of activity. By this he means that political parties are akin to business firms, ballot-box votes are like dollar votes, and being elected is analogous to earning profits. In short, the government is just one more institutional arrangement, alongside the church, the family, social clubs, the Boy Scouts, and the like. As part and parcel of this view, he advocated in one of his most recent Business Week columns the auctioning of US citizenship rights.

  • On a whole host of issues — the gold standard, repeal of the Federal Reserve System, fixed exchange rates — his views are indistinguishable from those of his colleague Milton Friedman.

All economists must give three enthusiastic cheers for this richly deserved Nobel Prize. In areas of normative economics, this event will give a sharp boost to many of the free-market views held by Austrians. But, as far as positive economic analysis is concerned, there is no help here for the praxeological school.

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This article originally appeared in the Austrian Economics Newsletter, Fall 1993.

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Notes

[1] Gary S. Becker, "Irrational Behavior and Economic Theory," Journal of Political Economy 70 (February 1962): pp. 1–13; Israel M. Kirzner, "Rational Action and Economic Theory," ibid. 70 (August 1962): pp. 380–85; Becker, "A Reply to I. Kirzner," ibid. 71 (February 1963): pp. 82–83; Kirzner, "Rejoinder," ibid. 71 (February 1963): pp. 84–85.


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