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Prof. Zhaofeng Xue: In Memory of Prof. Gary S. Becker

Jun 12-2014   



Becker

Perhaps the best way to commemorate Professor Becker, a pioneer in Economics, is to explore, spread, comprehend, examine, and continue his work.

Professor Gary S. Becker (Dec. 2, 1930 - May 3, 2014) is a well-known economist who passed away on May 3, 2014. Although Professor Becker died at the age of 83, he was among the youngest of the economists of Chicago School who died last year. These economists include Professor Ronald Coase, Professor Armen Alchian and Professor James Buchanan. I met Professor Becker twice during the last several years, and he looked lively back then. In 2009, University of Chicago held a seminar to celebrate Professor Coase's 100th birthday. Professor Becker was a bit late to the seminar and looked around for open seats; in 2011, Professor Justin Yifu Lin invited Professor Becker to visit Langrun Garden, and they had a heated debate at Wanzhong Building about the best approach for government to adopt in public education. Today, I can still hear their voices in my head, yet Professor Becker is no longer with us. The sudden decease of a great economist like him was truly a loss to the entire world.

Professor Becker was the founder of “Economic Imperialism” — he believed that all human behaviors could be explained by Economics. When he was still a graduate student, enlightened by his mentor Professor Milton Friedman, Becker became interested in the issue of discrimination. He believes that discrimination has a cost, and this cost is incurred when business owners decide to practice discrimination among their employees. Therefore, the problem of discrimination could be analyzed using profit maximization and market principles. For example, an employer who seeks to maximize profit is less likely to discriminate among his employees.

Professor Becker’s theory follows the basic principles of Economics — any attempt of maximization is about the change of a single factor under status quo. By allowing the practice of discrimination in gender, appearance, race, party or religious belief, a person has to suffer a loss in the other factors. However, Professor Becker’s theory was so innovative that even Professor Friedman, a Jewish scholar who worked as a taxi driver and suffered from racial discrimination, considered it as unacceptable at the beginning. Nevertheless, as a sophisticated thinker of Economics, Professor Friedman soon changed his mind and expressed support for Becker to continue along his path.

In 1955, young Becker earned his Ph.D. degree with a thesis, The Economics of Racial Discrimination. Professor Alchian spoke highly of this thesis and told his daughter that Becker would win the Nobel Prize in Economic Sciences in the future. His daughter replied, "But Nobel Prize doesn’t have an award in Economic Sciences!" In fact, the Nobel Prize in Economic Sciences was not established until 1968, and Becker became the winner in 1992. Before becoming Nobel Laureate, Professor Becker and his Economic Imperialism was teased and rejected. For example, Robert Solow, a contemporary economist who brought forth the Theory of Economic Growth, dismissed Becker's idea. Nevertheless, Becker earned the support of Professor Friedman and Professor Alchian, which was more than enough for him.

When people perceive the value of goods differently, trade occurs; when people are able to choose from options, opportunity cost occurs; when people recognize the passage of time and the concept of durable goods, investment occurs. These observations lead to the study of Economics. Based on this idea, Professor Becker published The Economics of Discrimination in 1957, Human Capital in 1964, A Theory of the Allocation of Time in 1965, Crime and Punishment in 1968, The Economic Approach to Human Behavior in 1976, A Treatise on the Family in 1981 and An Empirical Analysis of Cigarette Addiction (with Kevin Murphy) in 1994. Professor Becker demonstrated that Economics could be used to study subjects that only sociology, anthropology, politics, moral philosophy and the science of law were previously considered to be applicable.

When Professor Becker first said that children are investments, people thought he was joking. However, data has proven that women who receive higher level of education and higher wage tend to have lower birth rate. This is true even in Catholic countries where contraception has always been rejected. Outsiders may think that the power of religion defeats cost accounting while Catholics suppose their secret contraception will never be noticed. However, economic analysis and principles tell the truth. Despite of difference in religion and location, people have always been acting based on their perceived cost and benefit.     

During his lifetime, Professor Becker applied his economic theories to explain many of the controversial topics in the American society. Since 1985, he served as an economic columnist of Business Week, writing articles that are easy to understand for the public. In his column, Professor Becker explained the reason behind his opinions on many social issues. For example, he explained the reason for higher minimum wage to cause higher unemployment rate; he insisted that voluntary military service should replace compulsory military service; transaction of human organs and drugs should be legalized; school vouchers should be used to break the rigid public school system; state-owned enterprises should be transformed into private companies; outcome of antitrust laws should be criticized; actions of the US government to control oil price as well as agricultural subsidies should be stopped… He showed readers the beauty of Economics with plain words, accurate demonstration, and real-life examples — Economics is a social science that is closely tied to daily lives of people and useful in studying the mechanism behind social phenomena.

However, Economic Imperialism is not perfect. Any social phenomenon can be explained by various disciplines from multiple perspectives. These different explanations should be supplementary instead of exclusive.

Professor Becker once worked with Professor George Stigler, another Nobel Laureate, in a thesis about economic methodology. The title is “De gustibus non est disputandum,” meaning, “Of taste, there is no arguing”. The thesis demonstrates that economic analysis must assume that people’s preferences are the same. For example, if an economist claims that high birth rate is the result of “women enjoying having more children,” he may simply explain the occurrence of low birth rate as “a change of personal preference,” which is clearly not an acceptable explanation. In order for economic analysis to be meaningful, economists must assume that human preference is consistent. Only then, economists can study and explain the change in human behavior by changing independent variables. This assumption of consistency is one of the fundamental principles of Economics.

However, human beings do have different preferences. We have different genes, talents, propensities and ambitions, which can be clearly noticed not only from person to person but also among people of different genders, ages and races. For example, does unstable emotional state affect study, work or income level? The answer is clearly positive. However, if an economist considers emotional state as a factor that determines income level and explains emotional state by physiological factors, it is impossible for him to assume that all men are the same, yet produce meaningful economic research.

In other words, because economic models assume that human preference is consistent, they may overlook the diversity in personality and other factors despite of their aim to consider all factors. Therefore, it is sometimes reasonable for other social scientists to criticize Economic Imperialism. In order to overcome this drawback, economists need to study the outcomes and research approaches of sociology, anthropology, politics and the science of law while giving full play to economic laws. Only by doing so, economists can provide thoughtful explanations to social phenomena.

Adam Smith and his contemporary economists were known for their well-rounded knowledge. However, as a result of academic specialization, economists became to focus more and more on monetary, macroscopic issues. Professor Becker, however, pointed out a new approach; his microscopic study on human behavior helped to expand the scope of Economics to an unprecedented broadness. Therefore, the best way to commemorate Professor Becker, the true pioneer of Economics, is to explore, spread, comprehend, examine, and continue his work.

Law, Control and Economic Growth Column (46), The Economic Observer

 

Prof. Zhaofeng Xue: In Memory of Prof. Gary S. Becker

Jun 12-2014   



Becker

Perhaps the best way to commemorate Professor Becker, a pioneer in Economics, is to explore, spread, comprehend, examine, and continue his work.

Professor Gary S. Becker (Dec. 2, 1930 - May 3, 2014) is a well-known economist who passed away on May 3, 2014. Although Professor Becker died at the age of 83, he was among the youngest of the economists of Chicago School who died last year. These economists include Professor Ronald Coase, Professor Armen Alchian and Professor James Buchanan. I met Professor Becker twice during the last several years, and he looked lively back then. In 2009, University of Chicago held a seminar to celebrate Professor Coase's 100th birthday. Professor Becker was a bit late to the seminar and looked around for open seats; in 2011, Professor Justin Yifu Lin invited Professor Becker to visit Langrun Garden, and they had a heated debate at Wanzhong Building about the best approach for government to adopt in public education. Today, I can still hear their voices in my head, yet Professor Becker is no longer with us. The sudden decease of a great economist like him was truly a loss to the entire world.

Professor Becker was the founder of “Economic Imperialism” — he believed that all human behaviors could be explained by Economics. When he was still a graduate student, enlightened by his mentor Professor Milton Friedman, Becker became interested in the issue of discrimination. He believes that discrimination has a cost, and this cost is incurred when business owners decide to practice discrimination among their employees. Therefore, the problem of discrimination could be analyzed using profit maximization and market principles. For example, an employer who seeks to maximize profit is less likely to discriminate among his employees.

Professor Becker’s theory follows the basic principles of Economics — any attempt of maximization is about the change of a single factor under status quo. By allowing the practice of discrimination in gender, appearance, race, party or religious belief, a person has to suffer a loss in the other factors. However, Professor Becker’s theory was so innovative that even Professor Friedman, a Jewish scholar who worked as a taxi driver and suffered from racial discrimination, considered it as unacceptable at the beginning. Nevertheless, as a sophisticated thinker of Economics, Professor Friedman soon changed his mind and expressed support for Becker to continue along his path.

In 1955, young Becker earned his Ph.D. degree with a thesis, The Economics of Racial Discrimination. Professor Alchian spoke highly of this thesis and told his daughter that Becker would win the Nobel Prize in Economic Sciences in the future. His daughter replied, "But Nobel Prize doesn’t have an award in Economic Sciences!" In fact, the Nobel Prize in Economic Sciences was not established until 1968, and Becker became the winner in 1992. Before becoming Nobel Laureate, Professor Becker and his Economic Imperialism was teased and rejected. For example, Robert Solow, a contemporary economist who brought forth the Theory of Economic Growth, dismissed Becker's idea. Nevertheless, Becker earned the support of Professor Friedman and Professor Alchian, which was more than enough for him.

When people perceive the value of goods differently, trade occurs; when people are able to choose from options, opportunity cost occurs; when people recognize the passage of time and the concept of durable goods, investment occurs. These observations lead to the study of Economics. Based on this idea, Professor Becker published The Economics of Discrimination in 1957, Human Capital in 1964, A Theory of the Allocation of Time in 1965, Crime and Punishment in 1968, The Economic Approach to Human Behavior in 1976, A Treatise on the Family in 1981 and An Empirical Analysis of Cigarette Addiction (with Kevin Murphy) in 1994. Professor Becker demonstrated that Economics could be used to study subjects that only sociology, anthropology, politics, moral philosophy and the science of law were previously considered to be applicable.

When Professor Becker first said that children are investments, people thought he was joking. However, data has proven that women who receive higher level of education and higher wage tend to have lower birth rate. This is true even in Catholic countries where contraception has always been rejected. Outsiders may think that the power of religion defeats cost accounting while Catholics suppose their secret contraception will never be noticed. However, economic analysis and principles tell the truth. Despite of difference in religion and location, people have always been acting based on their perceived cost and benefit.     

During his lifetime, Professor Becker applied his economic theories to explain many of the controversial topics in the American society. Since 1985, he served as an economic columnist of Business Week, writing articles that are easy to understand for the public. In his column, Professor Becker explained the reason behind his opinions on many social issues. For example, he explained the reason for higher minimum wage to cause higher unemployment rate; he insisted that voluntary military service should replace compulsory military service; transaction of human organs and drugs should be legalized; school vouchers should be used to break the rigid public school system; state-owned enterprises should be transformed into private companies; outcome of antitrust laws should be criticized; actions of the US government to control oil price as well as agricultural subsidies should be stopped… He showed readers the beauty of Economics with plain words, accurate demonstration, and real-life examples — Economics is a social science that is closely tied to daily lives of people and useful in studying the mechanism behind social phenomena.

However, Economic Imperialism is not perfect. Any social phenomenon can be explained by various disciplines from multiple perspectives. These different explanations should be supplementary instead of exclusive.

Professor Becker once worked with Professor George Stigler, another Nobel Laureate, in a thesis about economic methodology. The title is “De gustibus non est disputandum,” meaning, “Of taste, there is no arguing”. The thesis demonstrates that economic analysis must assume that people’s preferences are the same. For example, if an economist claims that high birth rate is the result of “women enjoying having more children,” he may simply explain the occurrence of low birth rate as “a change of personal preference,” which is clearly not an acceptable explanation. In order for economic analysis to be meaningful, economists must assume that human preference is consistent. Only then, economists can study and explain the change in human behavior by changing independent variables. This assumption of consistency is one of the fundamental principles of Economics.

However, human beings do have different preferences. We have different genes, talents, propensities and ambitions, which can be clearly noticed not only from person to person but also among people of different genders, ages and races. For example, does unstable emotional state affect study, work or income level? The answer is clearly positive. However, if an economist considers emotional state as a factor that determines income level and explains emotional state by physiological factors, it is impossible for him to assume that all men are the same, yet produce meaningful economic research.

In other words, because economic models assume that human preference is consistent, they may overlook the diversity in personality and other factors despite of their aim to consider all factors. Therefore, it is sometimes reasonable for other social scientists to criticize Economic Imperialism. In order to overcome this drawback, economists need to study the outcomes and research approaches of sociology, anthropology, politics and the science of law while giving full play to economic laws. Only by doing so, economists can provide thoughtful explanations to social phenomena.

Adam Smith and his contemporary economists were known for their well-rounded knowledge. However, as a result of academic specialization, economists became to focus more and more on monetary, macroscopic issues. Professor Becker, however, pointed out a new approach; his microscopic study on human behavior helped to expand the scope of Economics to an unprecedented broadness. Therefore, the best way to commemorate Professor Becker, the true pioneer of Economics, is to explore, spread, comprehend, examine, and continue his work.

Law, Control and Economic Growth Column (46), The Economic Observer