CHICAGO — A remarkable conjunction occurred here last spring, somewhere between a concatenation and coincidence. Gary Becker, of the University of Chicago, died unexpectedly, in May, at 83, from complications following ulcer surgery.
In June, Glen Weyl, 29, anointed Becker’s successor as expositor of Chicago’s most distinctive tradition, published a prospectus for “A Short Summary of Price Theory.”
That same month, the Department of Economics moved from hand-me-down quarters to a newly refurbished building of its own, complete with cloud-capped tower, nevertheless dwarfed by the gleaming Booth Graduate School of Business kitty-corner across the street.
Price Theory is Dead! Long Live Price Theory!
At a two-day conference last month convened to celebrate Becker’s life and work, the emotional tumult of the moment was on full display. It is hard to exaggerate the extent to which Becker was admired as an exemplar of the Chicago style. Not only had he converted the world to his point of view; he had stayed the course.
Others had died or moved away; Becker conducted a successful battle against cancer and, when Business Week shut down a popular monthly column he had written for nearly twenty years, he effortlessly moved to the Web and conducted an even more successful weekly colloquy, the Becker-Posner Blog, with his friend and neighbor US Seventh Circuit Court Judge Richard Posner. His physician had told him on the eve of surgery to expect to live another decade.
Papers, panels, a downtown dinner, a distinguished lecture and a memorial service in Rockefeller Chapel testified to Becker’s personal qualities and professional influence. He arrived in Hyde Park from Princeton as a graduate student in 1951, and returned, from Columbia University, as a full professor, in 1970.
“Gary Becker is the greatest social scientist who has lived and worked in the last half century,” Milton Friedman declared when he introduced Becker at a university award ceremony in 2001. George Stigler, who knew the history of economics better than Friedman, is said to have agreed, adding only that it wasn’t much of a century. James Heckman, conference co-organizer (with Edward Lazear, of Stanford University), went further in a talk a couple of years ago, comparing Becker to Sir Isaac Newton. (More of that in a moment.) Friedman, Stigler, Becker and Heckman all received the Nobel Prize in economics.
Becker was leader of the third distinct generation of Chicago price theorists, “price theory” being a proud Chicago term. Microeconomists, as they are known in the more widely-used parlance of the profession, are those who study why particular prices and particular markets are what they are, as opposed to macroeconomists, who concern themselves with the overall performance of the whole. Robert Lucas, Chicago’s preeminent macroeconomist? He’s another story.
The first generation of Chicagoans, dating from the 1920s and ’30s, was dominated by price theorists Frank Knight (1885-1972) and Jacob Viner (1892-1970), legends of the university whose Chicago years are all but lost to living memory Separately, they sought to sort through the contradictions in Alfred Marshall’s Principles of Economics, the great Victorian text that dominated economics for THE fifty years after 1890. The cantankerous Knight assigned a central role in economic life to entrepreneurs; the erudite Viner emphasized the smooth interplay of the forces of supply and demand.
The second generation, from the ’50s and ’60s, featured Friedman and Stigler. Friedman enlarged the profession’s appreciation of the role of money. Stigler developed an extensive theory of regulation that highlighted the tendency of the regulated to “capture” their regulators and bend them to their will. From the Chicago Law School, Ronald Coase, another Nobel laureate, devised (and Aaron Director taught) a parallax perspective that was proved influential in bringing economic analysis into law. .
The third generation, represented by Becker and Sherwin Rosen, who died, at 62, in 2001, extended Chicago’s influence deeper into labor markets and the nooks and crannies of everyday life. Beginning in 1957, with a landmark study of the economics of racial discrimination, Becker pursued the logic of choice into many non-market areas: the study of schooling (and what came to be called human capital; marriage; the family; crime and punishment; the role of preferences; and religion. He taught sociology as well as economics. The Economist called him the Great Trailblazer.
Meanwhile, his colleagues Heckman and Robert Fogel (also a Nobel laureate) plunged deeper into cognitive psychology, physiology and medicine, building out Chicago’s well-established taste for empiricism. Economists will be passing through the newly-created (and well-funded) Becker-Friedman Institute in growing numbers. Becker, never averse to speaking plainly about the Chicago perspective, often used to put it this way: free markets do a good job.
What about the fourth generation? In addition to Weyl, representatives include Kevin Murphy, an all-rounder who co-taught with Becker for many years; Steven Levitt, author of Freakonomics, and John List, a pioneer in the new art of field experiments, carefully designed investigations of various interventions in the real world. But it is Weyl, a prodigy Chicago hired out of Harvard University’s Society of Fellows, who is expected to have the greatest impact on price theory itself.
How? There’s neither time nor space for that here. Besides, that working paper Weyl put up on the Social Science Research Network is little more than a summary of an article five times as long that he is preparing at the request of the Journal of Economic Literature. But here’s a taste of how he proposes to unify price theory by showing how Chicago-style empiricist methods and game-theoretic “reductionist” methods amount, in the end, to the same thing.
This emphasis on simplification through aggregation is familiar from other sciences, particularly thermodynamics in physics. While the “reductionist” classical mechanics developed by Newton (1687) are widely acknowledged to have revealed the mechanisms exploited productively during the industrial revolution, his techniques were only capable of analyzing the behavior of one- or two-body systems. To optimize the extraction of power from bodies with many interacting particles, like the steam engines discovered through “empiricist” experimentation in the 18th century by James Watt, Carnot (1824) devised thermodynamics. This field summarized many of the detailed “micro-states” of such systems into a small number of “macro-states” sufficient for determining the energy that could be extracted by such a heat engine. Price theory originates in the work of Jules Dupuit, a schoolmate of Carnot’s. Dupuit (1844) defined similarly parsimonious summaries (such as consumer surplus and deadweight loss) sufficient to determine the maximum social value that could be achieved by placing the bridges over which railroads powered by Carnot’s engines would travel.
The mathematics of thermodynamics, as devised by Willard Gibbs and others in the late nineteenth century, has been a staple of economics as practiced at the Massachusetts Institute of Technology (and, soon thereafter, by most everywhere else but price-theoretic Chicago) for nearly 75 years. And set theory, as applied by John von Neumann to describe quantum mechanics, was adapted by John Nash in 1951 to illuminate the sorts of choices that interested Becker, albeit at a very high level of abstraction. (Oskar Morgenstern, von Neumann’s collaborator on their 1944 Theory of Games and Economic Behavior, was among Becker’s Princeton teachers.) So fasten your seat belts. The history of economics – and the history of Chicago economics, in particular – is about to take another turn.
What will it look like when it has been worked through and boiled down to columns in newspapers and magazines? Chances are it will still resemble the Chicago that we know. In a recent issue of The New Republic, Weyl and Chicago law professor Eric Posner (yes, he is the judge’s son) propound A Radical Solution to Global Inequality: Make the US More Like Qatar.
Open immigration seems unlikely to take the US by storm any time soon. But then they all laughed at Gary Becker, too.
Robert Solow, of the Massachusetts Institute of Technology, was chosen by President Barack Obama to receive the Presidential Medal of Freedom, the United States highest civilian honor – along with actress Meryl Streep, singer Stevie Wonder, and sixteen other worthies. Becker received the same award, from George Bush in 2007, with novelist Harper Lee and molecular biologist Francis Collins, among others. Both Solow and Becker graduated, eight years (and worlds) apart, from Brooklyn’s extraordinary James Madison High School.