Institutional individualism and institutional change: the search for a middle way mode of explanation

After noting the lack of enthusiasm of several well-known scholarsconcerning the adoption of both methodological holism and methodologicalindividualism in its several versions, this paper shows thatinstitutional individualism is a different mode of explanationfrom both of these and also that it is not the same thing asthe so-called Popperian programme of situational analysis. Institutionalindividualism is a mode of explanation that yields non-systemicand non-reductionist explanations at the same time as it allowsfor the incorporation into economic theories and models of themany formal and informal institutional aspects surrounding allhuman interactions, whether these interactions take place withinstable structures of legal rules and social norms or whetherthey attempt to change the said rules and norms. Finally, thepaper shows that it is possible for old institutionalists tomake institutional individualist analyses of institutional changeswhile retaining the remaining methodological assumptions ofthe school. The same is true for new institutionalists. Someexamples are offered from both camps.     

What If There Are No Conventional Price Mechanisms?

Inspired by Frederic (“Fred”) S. Lee’s theoretical contribution to institutional-heterodox economics, I make the case that the neoclassical price mechanism is not only flawed, but also irrelevant for the study of actual coordination mechanisms, hence the price mechanism — as a theory as well as a way of thinking — should be discarded. While this position was addressed by early institutionalists, starting with Thorstein Veblen, later institutionalists have not completely rejected the price mechanism. The sympathy for the price mechanism has prevented institutionalists (and other heterodox economists) from fully developing an alternative theoretical framework concerning how actual economic activities are organized. I, therefore, provide an institutionalist-heterodox framework of the provisioning process focusing on business enterprise activities. This framework shows how institutional economics becomes more refined and useful when it is married to other traditions in heterodox economics, in particular, Marxian, social, and post-Keynesian economics. Such an integrative approach is what Fred Lee showed through his work toward producing a better theory and policy for the underlying population.     

Conventionalism,coordination, and mental models: from Poincaré to Simon

This article focuses on the conventions that sustain social interaction and argues that they are central to Simon's decision-making theory. Simon clearly identifies two kinds of coordination by convention: behavioral mores that shape human actions, and shared mental models that govern human perceptions. This article argues that Poincaré–Carnap's conventionalism provides powerful support for Simon's theory; it contends that this theory offers a more convincing account of decision and coordination than Lewis' concept of convention. Simon's approach to applying conventionalist logic to social interaction emphasizes the normative role played by mental models in solving coordination problems and considers rationality in terms of both cognitive and moral considerations. By connecting conventional phenomena to social identifications, Simon stresses the resulting complexity of coordination problems     

Institutionalism,Critical Theory,and the Administered Society

Paul Krugman recently suggested that John Maynard Keynes helped economists study and resolve mass unemployment at a time when few of them could understand the problem and institutionalists seemed unable to articulate a clear policy strategy. This article responds by outlining John R. Commons' case for full employment with liberty and his three-part strategy (addressing money, people and politics) for curing joblessness while saving capitalism. Commons' argument and recommendations offer insights that extend beyond Keynesian economics in important ways, and his contributions have special relevance today in light of the recent global financial crisis and still ongoing Great Recession.     

Public Policy Adrift: Veblen’s Blind Drift and Neoliberalism

This paper considers the factors that currently shape and direct public policy formation in the United States. The paper begins by articulating the general position of institutionalists with regard to the purpose of public policy analysis and formulation. Next, a discussion of Thorstein Veblen’s view is presented focusing on his rejection of meliorative tendencies in the economy and the meaning of his concept of blind drift as applied to the likely direction of ongoing social processes. Then, we explore a contemporary analysis of the belief in the role of meliorative trends in contemporary social and economic policy analysis and discussions by James K. Galbraith. Then, we examine Philip Mirowski’s recent analysis of the shaping of the direction of public policy debate by what he refers to as the neoliberal thought collective as a mitigating factor to the blind drift suggested by Thorstein Veblen.     

American institutionalism and its British connections

Abstract

This paper examines the connections between American institutionalists and a number of ‘non-Marshallian’ British economists and social scientists, several of whom were associated with the Fabian Society or the London School of Economics or both. Specifically, the links between institutionalists such as Walton Hamilton and Wesley Mitchell and British social scientists such as John A. Hobson, Henry Clay, R.A. Tawney, William Beveridge and Graham Wallas. It is argued that these connections were related to common views on the importance of institutions, compatible methodological views, common interest in questions of social value, shared policy concerns (particularly unemployment and the coal industry), shared interests in the development of new institutions for education and research in economics and shared connections with the funding activities of the Rockefeller Foundation. These connections were much more extensive than has usually been realized. Some reasons for this British group not to form into a movement similar to American institutionalism are explored.     

Creationism versus Evolutionism in Economics: Societal Consequences of Economic Doctrine

In the 1940s and 1950s, institutionalist economists rapidly lost their influence over American economics. In parallel, a new mainstream emerged, and the institutionalists were extremely dissatisfied with the path taken by the economic science. We analyze the opinions and feelings about this context to shed light on the institutionalists’ understanding of the new mainstream economics. We construct a historical account of the institutionalists’ dissatisfaction with post-war economics based on archival material from the personal papers of Allan Gruchy, John Gambs, John Blair, and Clarence Ayres. In the period analyzed, the economists, who would later found the Association for Evolutionary Economics, acted as dissenters rather than institutionalists. In part, this explains the pluralistic path that the association has followed ever since its foundation.     

The Role of Nonattenuated Rights in Positive Economics: A Critical Appraisal

This article assesses the institutionalist elements of Friedrich Hayek's neoliberal political economy by presenting his views on the entangled relations between the state and markets in capitalism. Through the analysis of Hayek's work, the article contributes to further consolidating the view that neoliberalism is an ideological project of institutional transformation which, despite some enduring myths, has an irreplaceable role for a state with many important functions in a more limited democracy. Markets, for their part, are politically contested social constructions that depend on previous non-market institutions for their existence and legitimation. This paper argues that Hayek's work corroborates this institutionalist claim.     

Stanfield’s Concepts of Social and Political Economy: Introduction to the Special Issue

This paper examines the contributions of James Ronald Stanfield to social and political economy. We start the analysis with Stanfield’s contribution to institution building through his education of PhD students, building a graduate program in political economy, and through the associations of social and political economy. Then we go on to scrutinise his creative developments and applications of the notions of economic surplus and social reproduction. This is followed by his extensive work on Karl Polanyi and the disembedded economy. Finally we explore his path-breaking analysis of the great capitalist restoration, the nurturance gap and love. Stanfield was one of the greatest institutionalists and social economists of the last hundred years, and these four areas of energetic creativity are his prime achievements in the area.     

Economic Surplus,Social Reproduction,Nurturance and Love

This paper examines the contributions of James Ronald Stanfield to social and political economy. We start the analysis with Stanfield’s contribution to institution building through his education of PhD students, building a graduate program in political economy, and through the associations of social and political economy. Then we go on to scrutinise his creative developments and applications of the notions of economic surplus and social reproduction. This is followed by his extensive work on Karl Polanyi and the disembedded economy. Finally we explore his path-breaking analysis of the great capitalist restoration, the nurturance gap and love. Stanfield was one of the greatest institutionalists and social economists of the last hundred years, and these four areas of energetic creativity are his prime achievements in the area.

     

The 2017 Veblen-Commons Award Recipient: John F. Henry: “Brutus Is an Honorable Man”

The question I pose in this article is just why, from its egalitarian foundations, inequality first arose. There is good information regarding how inequality has been defended over the millennia, but no answer as to why, from an egalitarian ideological foundation, some began to assert a superior position, while others — the vast majority, in fact — accepted this. In this historic process that leads to the current period, it appears that those asserting a superior position are of an “honorable” nature. That is, they tend to be mass murderers, fundamentally dishonest, hypocrites, and generally anti-social. Just why is this? Why are these “honorable men” of the Brutus type at the top of the social hierarchy? While Thorstein Veblen and Karl Marx have developed cogent analyses of inequality itself, neither has explained the origins of inequality in its break and separation from the original state of equality. I propose that this is a task for institutionalists, basing their argument on Veblen’s understanding of “institutions.”     

Marx and Schumpeter: A Comparison of their Theories of Development

This paper challenges Paul Samuelson's claim that the development theories of Marx and Schumpeter have little in common. There are indeed broad similarities between the two theories, arising principally from Schumpeter's use of Marx's method (with some interesting modifications), which he calls the ‘economic interpretation of history’. This discussion leads us to ask if we can incorporate into Marx's method some of the insights suggested by Schumpeter's modifications. We show that Marx's method is enriched by the insertion into it of an explicit, although limited, role of the individual (human agency). The paper then turns to the differences between the two theories, concerning the theory of value and the analysis of social classes. We find an unresolved tension in Schumpeter's system of thought, between his attempt to construct a model of a dynamic, evolving economy on Marxian lines (albeit an alternative to Marx's model), and his emphasis on the role of the individual, which he inserts into an essentially static, Walrasian model.     

Joseph Schumpeter and Thorstein Veblen on technological determinism,individualism and institutions

This article investigates Joseph Schumpeter's affinities with Thorstein Veblen with respect to technological change and determinism, the future of capitalism, individualism and institutions. From a methodological point of view, a common point in their analysis is their anti-teleological view regarding economics as a discipline. Also, in the Schumpeterian system, technology is the cornerstone of economic evolution and appears as the making of new combinations. In the Veblenian theoretical framework, the bearer of change is to be found, inter alia, in technology, just like in Schumpeter's works, although not without differences. They also share the opinion that technology revolutionises capitalism and has serious implications for its future as a system. Furthermore, regarding individualism, in his work Schumpeter stresses the importance of the social milieu on individual action, a fact which bears strong resemblance to the Veblenian notion of evolution as ‘depersonalized evolution’. In this sense, Schumpeter is very close to Veblen, although Schumpeter's approach could be classified in what is called institutionalist individualism, whereas Veblen could be classified as holist. Undoubtedly, the role of institutions is of great importance in both Schumpeter and Veblen. Ιnstitutions in the Schumpeterian schema play a central role closely related to the future of capitalism. Institutional and non-institutional factors enter into complex forms of interaction just like in Veblen's approach. There, institutions are part of the social milieu and their underlying framework, much wider than mere economic and social. Of course, the theoretical analyses of Schumpeter and Veblen are not devoid of differences springing mainly from their methodological approach such as the role of the individual in the capitalist process which is probably the most significant difference regarding the importance attributed to it in Schumpeter's early works. Also, the way technical change appears constitutes another difference. However, his views are quite close to Veblen's. After all, Schumpeter began to write in a social, political, theoretical and ideological environment at a time when evolutionary ideas dominated social thought.     

A History of the Founding and Early Years of AFEE

During the late 1950s, institutionalists started organizing themselves amid the decline of institutional economics, leading to the 1965 founding of the Association for Evolutionary Economics (AFEE). We analyze the history of the movement to found AFEE and its early years. We use archival evidence, much of it previously unpublished, to provide a detailed history of these early years. We also present an account of AFEE that highlights the role of different interpretations of institutional economics in building the association. In addition, we provide a brief history of the early years of the Journal of Economic Issues (JEI).     

The Emergence of Money in Commodity Exchange,or Money as Monopolist of the Ability to Buy

Abstract

Money's emergence in commodity exchange remains an unresolved issue within economic theory. Current general equilibrium models offer an explanation that rests on the economic advantages of a universally accepted means of exchange that is partly established through social custom. These models neither fully explain money's unique ability to buy, nor theorise the customary practices required for money's emergence. They are dominated by Menger's earlier analysis of money's emergence, which pays more attention to the social foundations of money but is still hampered by Austrian individualism. An alternative explanation is given here, drawing on Marx's theory of value but involving a thorough reworking of it. An analytical process is established through which money finally emerges as monopolist of the ability to buy. Particular social custom, whose determinants are consistent with the social underpinnings of commodity exchange, plays a vital role in money's emergence.     

Malthus versus Condorcet revisited

The article poses some counter-factual questions concerning the intellectual relationship between Condorcet and Malthus in the light of the latter's attack on Condorcet's Esquisse, bearing in mind the common ‘Smithian’ basis of their thinking and their background as ‘social Newtonains’ with an interest in placing the science of morals and politics on a rational basis. Malthus's reasons for opposing Condorcet's solutions to the population problem and their divergence over redistribution of income through social insurance are considered. Some stereotypical and ideological interpretations of Malthus as a bioeconomic determinist with demoralizing and reactionary tendencies are also discussed.     

Depoliticisation,the Management of Money and the Renewal of Social Democracy: New Labour's Keynesianism and the Political Economy of ‘Discretionary Constraint’

Pointing to its radical underpinnings in so-called ‘Open Marxism’ and its theory of the state (one that subsumes the state in the capital relation), this article critically scrutinises Peter Burnham's thesis of ‘depoliticisation’ as a dominant accumulation strategy and regime. The article identifies ambiguities around Burnham's depiction of New Labour in power as committed to depoliticisation. It addresses these by drawing a distinction between regime of accumulation and mode of regulation, characterising New Labour's political economy in terms of the latter as a form of depoliticised Keynesianism framed by ‘discretionary constraint’. Contra-Burnham, the article points to the continued efficacy of Keynesian and social democratic political agency in the context of a dialectic of depoliticisation and repoliticisation focused on the role and power of the state. This dialectic is symptomatic of the contested regulation of capitalism around the defence of the value of money, on the one hand, and its broader management and redistribution, on the other.     

Thinking Things Through: The Value and Limitations of James Buchanan's Public Choice Theory

Abstract

James Buchanan, one of the founders of Public Choice theory, applies the conceptual apparatus of economics to the public domain. This article investigates which assumptions are crucial to Buchanan's project, concentrating on methodological individualism and the Homo Economicus model. It shows that Buchanan from time to time moves away from these economic concepts, though only in minor ways. The article also focuses on Buchanan's normative emphasis on the role of institutions in coordinating self-interested individual actions in mutually beneficial ways. Criticizing Buchanan's analysis, the article argues that a broader view of the individual and of the role of institutions is necessary in a theory of constitutional choice.     

Inequality: The original economic sin of capitalism? An Evaluation of Thomas Piketty's "Capital in the twenty-first century"

This is a review article of Thomas Piketty's book “Capital in the twenty-first century”. Piketty promotes the old theme that, under capitalism, the rich tend to become richer and the poor become poorer, at least in relative terms. We consider whether the data really shows that wealth and income are becoming more concentrated; the role of income transfers (Piketty's data is for pre-tax and pre-transfer income) and other influences on inequality such as real estate prices; the implications of social and economic mobility; the role of the state in fostering inequality; and the determination of socially acceptable inequality. We conclude that Piketty has not succeeded in showing that the inequality r > g (the rate of return is greater than the rate of growth) is the principal determinant of inequality. Piketty offers neither an accompanying theory of social justice nor a theoretical framework to support his case. In particular, lacking is a revealed appreciation of the effects of high marginal tax rates on growth and efficiency.     

Enrico Barone's ‘Ministry of Production’: Content and Context

Abstract

Enrico Barone's famous article on economic planning, ‘Il Ministro della Produzione nello Stato Collettivista’ (‘The Ministry of Production in the Collectivist State’), which showed the theoretical possibility of an economically efficient collectivist planned economy, was published in Giornale degli Economisti in 1908. Barone's article has been widely cited, particularly in the comparative economic systems literature, but it has not been very widely read or analysed in recent years, and there is not much literature that places Barone's ‘Ministry’ model in the context of his other works or in its historical, social, or ideological context. The aims of this article are: (a) to analyse and clarify Barone's model in depth; (b) to place it in the context of Barone's other writings and the literature on the subject; and (c) to examine the apparent contradiction between Barone's hostility to socialism and his attempt to formulate the pure theory of the collectivist economy.