Sveriges Riksbank Prize in Economic Sciences /Nobel Prize in Economics: 1992
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1992 was awarded to Gary S. Becker "for having extended the domain of microeconomic analysis to a wide range of human behavior and interaction, including nonmarket behavior."
Gary Becker applied economic theories and approaches to areas that had previously only been addressed in sociology, demography, and criminology. His starting point was that actors act rationally to maximize specific goals, like advantage or wealth. In the 1950s and 1960s he applied his models in several areas: investments in people's competence (or human capital), behavior in households and families, crime and punishment, and discrimination in labor and other markets.
[Curator’s note: The following material quotes and paraphrases extensively from articles posted by the Nobel Prize Committee and the Princeton Alumni Weekly; see Sources below for details.]
Gary Becker was born on December 2, 1930 in Pottsville, Pennsylvania, a coal mining town in Eastern Pennsylvania, where his father owned a small business. However, when Gary was four or five, his family moved to Brooklyn, New York, where his father became a partner in another business.
His father had left school in Montreal after the 8th grade because he was eager to make money. His mother – whose family emigrated from Eastern Europe to New York City when she was six months old – also left after the 8th grade because girls were not expected to get much education. There were only a few books in the house, but his father kept up with the political and financial news, and his older sister read a lot. After his father lost most of his sight, Gary had the task of reading him stock quotations and other reports on financial developments.
Princeton opens the door into economics
By the time Gary finished high school, his interest in mathematics was beginning to compete with a desire to do something useful for society. These two interests came together during his freshman year at Princeton, when he accidentally took a course in economics, and was greatly attracted by the mathematical rigor of a subject that dealt with social organization. During the following summer he read several books on economics.
To become financially independent more quickly, he decided at the end of his first year to graduate in three years, a seldom used option at Princeton. He had to take a few extra courses during the next year and chose reading courses in modern algebra and differential equations for the summer afterwards. For the equations course, he was given a set of unpublished lectures that emphasized existence proofs and uniqueness of solutions to differential equations. He learned a lot about such proofs, but very little about solving these equations. Still, his heavy investment in mathematics at Princeton prepared him well for the increasing use of mathematics in economics.
Becker goes to the University of Chicago
Gary began to lose interest in economics during his senior (third) year because it did not seem to deal with important social problems. He contemplated transferring to sociology, but found that subject too difficult. Fortunately, he decided to go to the University of Chicago for graduate work in economics.
His first encounter in 1951 with Milton Friedman’s course on microeconomics renewed his excitement about economics. He emphasized that economic theory was not a game played by clever academicians, but was a powerful tool to analyze the real world. His course was filled with insights both into the structure of economic theory and its application to practical and significant questions. That course and subsequent contacts with Friedman had a profound effect on the direction taken by Gary’s research.
While Friedman was clearly the intellectual leader, Chicago had a first-class group of economists who were doing innovative research. Especially important were Gregg Lewis’s use of economic theory to analyze labor markets, T.W. Schultz’s pioneering research on human capital, Aaron Director’s applications of economics to anti-trust problems, and industrial organization more generally, and L.J. Savage’s research on subjective probability and the foundation of statistics.
Becker published two articles in 1952, based on his research at Princeton. But he realized shortly after arriving in Chicago that he had to begin to learn again what economics was all about. He published nothing else until an article written with Friedman and a book based on his Ph.D. dissertation came out in 1957. The book contained the first systematic effort to use economic theory to analyze the effects of prejudice on the earnings, employment and occupations of minorities. It started him down the path of applying economics to social issues, a path that he continued to follow.
The book was very favorably reviewed in a few major journals, but for several years it had no visible impact on anything. Most economists did not think racial discrimination was economics, and sociologists and psychologists generally did not believe he was contributing to their fields. However, Friedman, Lewis, Schultz, and others at Chicago were confident Becker had written an important book. Support by the people he respected so highly was crucial to his willingness to persevere in the face of much hostility.
After his third year of graduate study, he became an Assistant Professor at Chicago. Becker had a light teaching load and could concentrate mainly on research. However, he felt that he would become intellectually more independent if he left the nest and had to make it on his own. After three years in that position, he turned down a much larger salary from Chicago to take a similar appointment at Columbia combined with one at the National Bureau of Economic Research, then also located in Manhattan. He always believed this was the correct decision, for he developed greater independence and self-confidence than seems likely if I remained at Chicago.
Columbia, The National Bureau of Economic Research and back to Chicago
For twelve years, Becker divided his time between teaching at Columbia and doing research at the Bureau. His book on human capital was the outgrowth of his first research project for the Bureau. During this period, he also wrote frequently cited articles on the allocation of time, crime and punishment, and irrational behavior.
In 1970, he returned to Chicago, and found the atmosphere there very stimulating. The department was still powerful, especially after it had added George Stigler and Harry Johnson. Stigler and he soon became close friends, and he had a very large effect on his subsequent intellectual development. We wrote two influential papers together: a controversial one on the stability of tastes, and an early treatment of the principle-agent problem. Stigler also renewed his interest in the economics of politics; he had published a short paper on this subject in 1958. In the 1980s he published two articles that developed a theoretical model of the role of special interest groups in the political process.
But mainly Becker worked on the family after returning to Chicago. He had much earlier used economic theory to try to understand birth rates and family size. He now began to consider the whole range of family issues: marriage, divorce, altruism toward other members, investments by parents in children, and long term changes in what families do. A series of articles in the 1970s culminated in 1981 in A Treatise on the Family. Since he continued to work on this subject, a greatly expanded edition was published in 1991. He tried not only to understand the determinants of divorce, family size, and the like, but also the effects of changes in family composition and structure on inequality and economic growth. Most of his research on the family, and that by students and faculty at Chicago and elsewhere, was presented at the Workshop in Applications of Economics.
Until 1985, he had published only technical books and technical articles in professional journals. At that time, he was surprised by being asked to write a monthly column for Business Week magazine. Becker agreed to do some columns on an experimental basis. It was a wise decision, for he was forced to learn how to write about economic and social issues without using technical jargon, and in about 800 words per column.
A Nobel laureate who pushed the boundaries of economics
Before Gary Becker, economists didn’t spend much time thinking about how economic methods could be used to study racial discrimination, or to predict how many children a couple might choose to have. But a Nobel Prize and a Presidential Medal of Freedom later, had thoroughly changed the landscape of the economics profession.
In his 1957 book, The Economics of Discrimination, Becker explained how patterns of discrimination could outlast powerful market forces as long as people maintain their preferences for prejudice. In 1964, he published Human Capital, which explained how workers accumulate skills over the course of their careers, and at what cost.
In 1981, Becker published A Treatise on the Family, which argued that as women enter the workforce, their desire to have children declines because their time is suddenly more valuable. This means, Becker concluded, that the most effective way to reduce population growth is to provide girls with education — a view that “now informs development policy throughout the world,” says Stanford economist Edward P. Lazear.
Becker, who taught for decades at the University of Chicago, “pioneered the application of economics to fields that had traditionally been outside the purview of the discipline,” says Princeton economist Harvey S. Rosen. “At first, some of his ideas were met with resistance, and even ridicule. But today they are widely accepted by economists and have influenced the other social sciences as well.”
Edward Glaeser ’88, a Harvard economist and former teaching assistant for Becker, goes so far as to say that his mentor did “no more or less than redefine the field of economics.” President George W. Bush, in awarding the Medal of Freedom, called Becker one of the most influential economists of the last century.
Using an analysis of academic citations, Steven D. Levitt, the co-author of the economics blog Freakonomics, concluded that Becker was the most widely influential economic theorist of his time — by far. Becker’s record of publishing seminal papers since the 1950s until recently reflected “incredible longevity,” Levitt has written. Becker’s legacy can be seen in fields as far-flung as neuroeconomics and behavioral economics, and in popular media outlets. His restless mind sometimes led him to take heterodox positions, such as backing the legalization of marijuana, salaries for college athletes, and an end to the United States’ embargo on Cuba.
Becker remained active into his 80s, blogging and publishing papers. “While people 40 years his junior were dozing in seminars,” Lazear recalls, “Gary was always alert, intense, and involved.”
Gary S. Becker died on 3 May 2014. Friends, colleagues, and family members paid tribute to Nobel Prize-winning economist in a ceremony at the University of Chicago, where Becker was a faculty member for 46 years.