Profile: Economist of the mind: Using economic theory to explain individual motivation has won Gary Becker a Nobel prize. Richard Thomson reports

Click to follow
The Independent Online
YOU ARE a drug addict. You knew when you started taking heroin that you would become addicted, because your best friend had already been hooked for months. And you know that it may kill you, because one of his friends died of an overdose last week.

Nevertheless, you have made a rational decision to become a heroin addict, because the pleasure you get from the drug outweighs the dangers. You will probably die from it, but you decide it is worth the risk.

That, at least, is how Gary Becker, economics and sociology professor at Chicago University, explains the mystery of drug addiction. You may think it is nonsense, but theories such as these led Mr Becker last week to win the 1992 Nobel prize for economics.

Born 61 years ago in Pottsville, Pennsylvania, he now looks every inch the distinguished academic, with a sweep of grey hair above a huge forehead. There is a somewhat detached expression and a reserved smile. Yet he has, in his time, stirred up great controversy and incurred the disapproval of both the economics and sociology establishments in the US.

That was in the 1950s and 1960s, when his ideas were new. Since then, his position has changed. He is an energetic teacher with devoted former pupils scattered throughout the universities of the US and Europe. As his ideas grew familiar over the years, he exchanged his reputation as a maverick for real respectability. He now embodies an entire school of economic thought centred on Chicago University.

The Nobel prize confirms his position. He was dragged from his sleep last Tuesday by his Iranian wife Guity Nashat, a historian, to answer the call from Stockholm. He says he was surprised, because he had not expected to win the prize this year. 'But I knew I was in the running. My work has been getting a lot of attention lately. Perhaps more than it deserves.'

His father was a small-time businessman, who moved from Montreal to the US before Gary was born. 'He and my mother were not highly educated, but we often discussed political and sociological problems and that's where I started.'

Good at maths, he was attracted to economics but was even more drawn to sociology. 'As a young man I was a reformer. I wanted to tackle inequity, injustice, poverty, that kind of thing.' As an undergraduate he nearly gave up economics, because he could not see a way of fusing it with the study of sociology. Gradually he found a way, but the solution brought him ridicule. 'I remember giving a paper on economics and population at a conference in 1957 and people laughing at me.'

When he moved to Columbia University in the 1960s, he became convinced that the orthodox East Coast academic establishment was trying to freeze him out. 'Controversy is a problem, particularly when you're young and starting out. If I'd had a weaker ego, I'd have stopped.'

He is not a macro-economist obsessed with money supply, trade balances, exchange rates and gross national products. He is primarily interested in individual motivation. His achievement has been to extend the economic theory into interpretations of human behaviour as diverse as racial discrimination, marriage, fertility, education and crime.

Like other economists, Becker does the human race the honour of assuming that every individual is a rational person making rational choices. These choices are based on self-interest. Starting from this micro-level, he then tries to work out how all these individuals will behave in an interactive system (otherwise known as a market).

Becker is prepared to apply this methodology to almost any human situation. When he first started out, with a book about the effects of discrimination on society, he was reviled by sociologists as a blundering economist trespassing on their field. Economists, meanwhile, accused him of being a sociologist misusing economic theory.

Becker soldiered on regardless. Among his conclusions were that racial discrimination was economically damaging to companies, since good candidates of the 'wrong' colour might be rejected in favour of inferior ones of the 'right' colour. Only companies with a near-monopoly power over their market could afford such a wasteful policy. So the best way to end discrimination was to encourage more competition.

Becker's next target was 'Human Capital' - the value of education and training. Using the same methodology, he analysed why individuals were paid different amounts and how much their education contributed to this. Education was, in his view, an investment with a financial value in later life. This outraged educationalists in 1960s America, who insisted there was more to education than money.

Yet Becker's analysis led him to look at the whole labour market - questions such as what prompted people to change jobs, why companies hired one person and not another. Many of his conclusions sound like nothing more than common sense. For example, an individual is likely to change his job if he thinks a new one will pay more.

The fact that his work caused a stir says a lot about the limitations of American academic work at the time. 'His ideas have come to seem like common sense, but it was different then,' says Richard Freeman, economics professor at Harvard University and former Becker pupil. 'It changed labour economics, which used to be all about industrial relations, trade unions and so on. I read his papers on this as an undergraduate and it was like a horn blowing.' No one before, it seems, had looked at the labour market in terms of individual choice.

In the late 1960s, he turned to a study of crime. He assumed that criminals were sane and rational and that their law-breaking was based on rational decision-making. From empirical research, he concluded that the likelihood of getting caught weighed more strongly in their decisions than the type of punishment.

In the 1980s, he began - most controversially - to analyse family life and fertility in terms of economic theory. The rising divorce rate was, he decided, not surprising given the changing conditions in the marriage market.

As real wages rise, it becomes less economical for one parent to spend all his or her time looking after children. The family decides to transfer part of the task elsewhere, such as a nursery or day-care centre. This explains why married women in developed countries tend to go to work more.

As a woman earns more money, moreover, her husband must recognise his depreciating value as wage-earner by offering better value in other areas - doing the washing- up, say, or taking out the rubbish more often. It is a trade between 'selfish individuals'. If the man refuses to offer more, his wife will calculate that she is putting more into the marriage than she is getting out of it and make a rational decision to end the contract. Divorce.

This approach enabled Becker to explain why divorces had not rocketed in US states that had relaxed their divorce laws, enabling one party to file for divorce instead of requiring mutual agreement. He also successfully predicted that the loosening of the law would lead to lower financial settlements in divorces and more poverty-stricken children from marriage break-ups.

He then attempted to explain birth rates by analysing the cost and time invested in children. As family income rises, parents increase their investment in their offspring and produce fewer of them. This produces lower birth rates in industrialised countries.

Becker treats the use of his methodology almost as a crusade. He is something of an exercise fanatic - he jogs regularly and swims in the sea near his house in Cape Cod. Yet despite this and other distractions, such as his four children, he still works at a feverish pace. He is currently analysing the expansion of government, why some economies grow faster than others, and suicide.

What the Nobel judges found impressive was the way he had extended economics into new areas. To others, however, his approach is hopelessly limited. 'Everything he has looked at has made him more narrowly economic,' says Paul Ryan, a Cambridge labour economist. 'There is no thought of things like love, upbringing, prejudice in his approach.' Or, for that matter, the sheer irrationality of people.

His supporters insist that he is unlike the ivory tower economists who construct pointless economic theories that frequently fail to predict anything correctly. On the other hand, the narrowness of his analyses leaves the layman wondering just how useful his conclusions are.

It is not clear that his ideas have ever influenced the way individuals, businesses or governments behave. Many of his conclusions are little more than statements of the obvious. Their main value is usually to provide for the first time a rational analysis of familiar phenomena.

In the end, he has won his prize as much for playing the academic game as for contributing to a new understanding of the real world. You may think the point of economics is to help us to run the world better. Economists, however, do not see it that way. 'Maybe he uses a nice model to analyse things, and maybe it's wrong,' says Richard Freeman. 'But that's beside the point. What he did was to show how you could use economic theory in new ways.'

Meanwhile, the rest of us are likely to continue behaving rather less rationally than Becker's theories might suppose.

(Photograph omitted)

Comments