Becker’s Rational Theory

Gary Becker is both a sociologist and economist although he won the Nobel Peace Prize in 1992 for his rational theory for economics.  The lecture he gave for the Nobel was divided into six points: his economic approach to life, his view of the discrimination against minorities, his theories on crime and punishment, his understanding of human capital, his perspectives on family ties and how he believes people will accept the theories he had proposed. Becker’s ideas are refreshing, if not altogether new and worth understanding.

First of all, he distinguishes his analysis from the Marxian perspective.  He explained that the communist concept is purely based on utilitarian terms while his concept of rationality is a method of analysis and not an “assumption about particular motivations.” (38) His approach is founded on the idea that time has its own cost.  He argues that many human developments have been made to extend life expectancy but no one can alter the pace of time from twenty-four hours to another pattern.  Thus, time has its cost and also affects the choices that people make because of its price.

Becker takes hiring of workers and discrimination into a new light with his idea that the employers may usually be the source of discrimination but in truth, the employees and customers of a company also contribute to the decisions being done on employment. He cites that some workers refuse to be assigned under a woman and certain clients may prefer to deal with white instead of black sales agents.

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Becker also controversially cites that the popularized beliefs of employers, teachers and other persons of influence on the community can create stereotypes that are harmful or counter-productive.  He bases his assumptions on the premise that education is an investment because previous studies show that putting more time and money in getting academic training boosts a person’s chances to become economically successful. Stereotyping people causes these minorities to lessen their educational investments both academically and career-wise.  This makes them less productive to society. It is worthy to note that Becker highly believes that education is a very good investment for the economy and that learning can be hindered by prejudice.

Another institution Becker chose to analyze is society’s view on crime and punishment.  Becker sought to explain that crimes like stealing may not seem to cost the society very much but criminals also invest on weaponry and premeditated planning which could have been put to better communal use.The Nobel winner explained that in the mid-twentieth century, crimes were viewed as originating from mental illness and social oppression to the point that criminals were made to look like victims of society.

These, therefore, affected social policies by giving criminals more rights, reducing the chances of apprehending and convicting criminals while lessening the security of the rest of the innocent. In his economic point of view, Becker believes that policies must be geared towards higher costs of punishment for criminals to deter them from making their crimes a livelihood.  He believes that to lessen crime, the economic and social environment formed by public policies (e.g. expenditures for punishments, employment opportunities, educational programs) must be taken into consideration.  If the legal jobs were paying much higher than what would have been gotten from a quick crime, then it would lessen the probability of criminal acts.

It was Becker’s ideas that have inspired Law Professor, David Friedman (1995) to propose other ways of fighting and preventing crime.  Based on the Nobel awardee’s theory, the professor suggests that instead of paying policemen regular salaries, these officers should just get what has been collected from the criminals he had apprehended and caused to be convicted.

In this scenario, the victim shall pay for the investigation of the crime to the police so that investigative jobs will be allocated well to the uniformed men. According to Friedman, this will lessen the cost of taxes that ordinary law-abiding citizens pay for protection and judicial courts. When the criminal is able to pay the damages he had brought about, then the victim and police have been paid. In this way, the policeman are not  tempted to accept bribes from criminals while the cost of implementing justice is greatly lowered.

Another point of view was given by Dr. Mark Thornton, Senior Fellow at the Ludwig von Mises Institute, this time contradictory to Becker’s.  After his winning the Nobel, Becker became a staunch believer in the legalization of drugs to lessen its harmful impact on society.  On the other end is Dr. Thornton who made a paper entitled, Harm Reduction and Sin Taxes:

Why Gary Becker is Wrong, to state his points.  According to Becker, legalizing drugs would bring in positive results if excise taxes will be created to make the price of these drugs less affordable.  However, according to Dr. Thornton, the taxes will still not eliminate the consumption of dangerous drugs but will only encourage production and consumption of more potent forms of these drugs.  Marking legal drugs as harmful will only make these even more attractive to young teens and adults.  Putting excise taxes will make the drug too costly for those who truly need it which might lead to consumers preferring a less expensive yet more harmful kind of solution and the formation of a black market.  Thornton further argues that there is no proper way to calculate the tax rate. (12) I

In Thornton’s light, he reveals that Becker’s ideas may be highly theoretical but not practical because it does not take its effects on society as critically as it should.

One subject that may give Becker a Marxian link is his use of the term “human capital.”  Although the term he uses is Marxist, he does not intend it to mean something utilitarian.  Instead, Becker chose to use the term as a name for an analysis that bases its assumptions on how individuals choose their education, career training, medical care and other additions to knowledge and health by weighing the benefits (cultural and non-financial) and costs (value of time spent on these founding investments). (43)

Becker identifies two theoretical concepts used in human capital analysis which are the general and specific training or knowledge.  Becker believes that general training is simply knowledge of how to make things work but specific training or knowledge refers to an individual’s skill in climbing up and down the authority structure of the company he or she works for and includes the talents that may be necessarily giving this employee more value to the company. With this proposition, human capital becomes an asset of a company as part of accounting principles.

He further explains human capital investment in the light of marital relationships. He believes in the idea that marriages are unions that are based on the theory that putting together two people’s resources would make them stronger economically. Thus, divorce rates are affected by the financial stability of husbands and wives.  This also explains why the rich have lower divorce rates compared to couples who are problematic in their finances. Although romantics may want to challenge this idea, the statistics will provide Becker with more evidence rather than refute his contentions.

Human capital is founded on the idea that education is an investment. Becker offers his human capital analysis to explain the gender gap in earnings of men and women.  Traditionally, women were more likely to get poorly-paid jobs because they spend time taking of children first before they can invest more attention to getting better education or training.  However, the decline of family size in the past decades, growth of divorce rates that leave single mothers to work for a living, increase in the fulfillment of job vacancies brought about by industrialization and legislation has been able to give women more opportunities for career and financial stability.

Becker believes that his rational choice way of analyzing life can also explain the formation, dissolution and structure of families. The family is the oldest and most basic of all institutions. Becker already mentions that marriage is a union that is made between individuals who believe that staying together would benefit them both. Divorce, then, would be made if the two individuals believe that economic stability would be achieved without the other.

One of the controversial principles regarding family and economics came from Malthus who believes that fertility would rise as incomes increase and would decline as incomes decrease.  This theory failed when the modern era showed that as industrialized countries were becoming super economic powers, birth rates started to dwindle. According to Becker, the only problem with the Malthusian principle is that it was not adaptable to modern life.

Modern people put great value in time and so taking care of children costs greatly. Parents also recognize that the success of their children are based on the good quality education and training they are able to get. This raises the cost of investments even more which leads to couples having fewer children. This explanation also addresses why more and more women are entering the labor force. With fewer children to tend to, women are freer to pursue their careers.

Becker also sought to analyze why there are societies wherein gender roles seem to attribute to women the child-rearing and agricultural activities compared to the men who are delegated to do the fighting and market work.  He believes that these are because of biological differences and cultural conditioning. He incorporates his human capital analysis by saying that any investment in education requires practice and that since men have more time to delve into the sporty and marketing skills, they are the ones given the gender role.  Women, on the other hand, are too busy with children to develop their own talents and skills and would do better in simply doing what else should be done to uphold the family.

Becker believes that the way one is raised has a lot of bearing on how one thinks and acts as an adult.  Choices adults make in life are based on their childhood experiences.  Therefore, the family is a very important institution in society because the preferences that are at work in his rational theory are formed when people are growing up.

Another aspect of family life Becker chose to single out was the issue of altruism.  Based on the “Rotten-Rid Theorem,” selfish individuals use altruistic behavior to ensure their own welfare. Therefore, parents and children can strive to uphold altruism within their families because of their own selfish purposes.

For example, parents who are not planning to leave bequests to their children strive to uphold love, guilt and assistance among family members to ensure their welfare once they grow old.  By imbibing values such as caring, older children are made to feel guilty when they cannot take good care of their old parents.

Parents who do not plan to leave bequests to their kids tend to strive to work or assist their children in housekeeping to compensate for their lack of financial contribution. With children who have been taught to give back something in return while they were young, the kids will be obliged to take good care of the old parents. Parents who are not planning to leave bequests can also give their children the best investment they can have – education – to ensure that when they are already old, the young ones will be able to provide for their needs. With these in mind, Becker makes a funny proposal for parents to have contracts with their children to oblige them to take care of the old couples once they are too weak to work.

With his analysis of familial relationships, Becker also realizes that social institutions like homes of the aged are contributing to the breakdown of families. With the government taking care of what could have been someone’s responsibility, the family members communicate less and become estranged from each other.

Other sources of this problem are greater geographical mobility, increased wealth due to better national economy, better capital and insurance markets that create financial endowments for these responsibilities, higher divorce rates that separate family members from each other and even health care which also takes care of things so that people can continue to work instead of taking care of each other.

Becker concludes his lecture by summarizing the main points he had so far mentioned.  He also predominates any oppositions to his claims by saying that since his concepts are based on economic or rational choices towards behavior, many critics have already raised issues about individuals not acting consistently all the time and that behaviors are not always forward-looking (especially the ones of criminals).

Becker counters these allegations also by explaining that his rational choice theory is not simply an economic approach limited to the micro level.  He believes that the theory can be a very good and powerful tool to use to understand and derive implications on the macro level. Backer believes that using assumptions about technology and other determinants of opportunities, market and non-market situations, laws, norms and traditions can help obtain better results about group behaviors.

Becker’s ideas are truly remarkable. Some are simply a review of what has been happening to society (e.g. family dissolution) while others like his view of crime and punishment are refreshing and obviously revolutionizing social policies and perspectives. His view on crime, particularly, raises many controversial questions towards practicality especially because it concerns the security of many innocent people. Controversial or not, his rational choice theory shines a new light towards how humans keep adapting to the society he is forming at every moment and this makes him worth of the Nobel Prize.

Works Cited

Becker, Gary. “The Economic Way of Looking at Life.” Nobel Lecture. 09 December 1992

Economic Sciences.(1992): 38-58.

Friedman, David. “Rational Criminals and Profit-Maximizing Police: Gary Becker’s

Contribution to the Economic Analysis of Law and Law Enforcement.” 23 March 2008.

< http://www.daviddfriedman.com/Academic/Becker_Chapter/Becker_Chapter.html>

Thornton, Mark. “Harm Reduction and Sin Taxes: Why Gary Becker is Wrong.” 23 March 2008.

<http://www.mises.org/journals/scholar/Thornton9.pdf>

 

 

 

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