European contributions to evolutionary institutional economics: the cases of 'cumulative circular causation' (CCC) and 'open systems approach' (OSA). Some methodological and policy implications.

Author:Berger, Sebastian

This paper reconsiders the pioneering contributions to evolutionary institutional economics (EIE) by the European institutionalists Nicholas Georgescu-Roegen, Gunnar Myrdal, and Karl William Kapp, namely the conception of circular cumulative causation (CCC) and the open system approach (OSA). First, we briefly reconstruct the basic ideas. Then we discuss whether these have been adequately appropriated by modern EIE, or whether their original meanings may have been partly "lost" and thus recent references to these authors may not grasp the main thrusts of their concepts, substantially and methodologically. Finally, we show how the approaches imply a "political-economic" EIE which is more critical and radical vis-a-vis the "market" and the private enterprise, and consider their policy implications for preventing "social costs" of the "market" economy.

Circular Cumulative Causation (CCC)

There is widespread understanding among evolutionary institutional economists that the CCC was directly derived from Veblen's concept of "cumulative change" (e.g., Argyrous and Sethi 1996, 485) and that the two are more or less identical (e.g., Mayhew 2001, 243). In fact, approaches dealing with "cumulative" effects were common in England, Germany and Sweden in the 1920s. Suffice to mention the work of Adolph Lowe and the "Kid School" on the causes of the trade cycle (e.g., Forstater 2003 309ff.) as well as Knut Wicksell's work on inflation and Myrdal's work on the dynamics of savings and investment rates (e.g., Sandelin 1991, 186ff.). Myrdal formulated the fully developed CCC for the first time in Appendix 3 of his "American Dilemma--The Negro Problem and Modern Democracy" (1944) and used it as a research hypothesis to explain the circular (reinforcing) causation between prejudices, i.e., social norms and institutions in general, and poverty, triggering a vicious circle or "cumulative effect." The latter is manifest in increasing inequalities, instabilities and even a major crisis of the whole socioeconomic system. Myrdal derived the concept from his earlier models in "Monetary Equilibrium" (1939) and considered Wicksell a forerunner of the CCC (Myrdal 1944, 1065, fn. B; see also Wahid 2002, 85). The two distinct elements of the CCC are circular (reinforcing) causation and its cumulative effect. Myrdal gave a clear statement of circularity and cumulation in "Asian Drama--An Inquiry into the Poverty of Nations" (1968):

[...] circular causation will give rise to a cumulative movement only when [...] a change in one of the conditions will ultimately be followed by a feed-back of secondary impulses [...] big enough not only to sustain the primary change, but to push it further. Mere mutual causation is not enough to create this process [...] (Myrdal 1968, 1875). Elsewhere he had formulated:

Because of such circular causation a social process tends to become cumulative and often to gather speed at an accelerating rate (Myrdal 1957, 13). However, without delving into the details of Veblen's "cumulative change," there appears to be some difference between Veblen's and Myrdal's understandings. Veblen's definition of cumulative change has been:

For the purpose of economic science the process of cumulative change that is to be accounted for is the sequence of change in the methods of doing things--the methods of dealing with the material means of life (1898, 387). Veblen used the conception to stress causal inquiry that is based on factual givens and historical processes:

The economic life history of the individual is a cumulative process of adaptation of means to ends that cumulatively change as the process goes on [...] (1898, 391). According to Veblen, the main characteristic of an evolutionary economist is that

he insists on an answer in terms of cause and effect [...] the notion of cumulative causation (1898, 377). Of course, Veblen was aware of the potential reinforcing nature of institutions in relation to non-institutional factors, and thus the frequently self-reinforcing nature of the whole socio-economic process. However, his concept of cumulation, per se, does not contain the idea of a self-reinforcing positive feedback and even states that there is "no trend" in cumulative causation (Veblen 1907, 304). This might even be the reason why Myrdal did not explicitly mention Veblen's concept in this context in his "Remarks upon Receipt of the Veblen-Commons Award" (Myrdal 1976, 215). Thus, Myrdal's CCC cannot simply be read as a theoretical module introduced and already used by Veblen. Recent studies have stressed the difference between the two understandings as well (see Bellets and Sosthe 2006; Angresano 1997, 85).

In fact, CCC is an empirically oriented heuristic, much more specific than Veblen's "cumulative change," to detect and specify critical processes, vicious circles and cumulative crises of socioeconomic systems. Myrdal's CCC appears to be the first scientific application of the ancient idea of a vicious circle to socioeconomic problems. Positive feedback loops apply the idea of the CCC in more formal system dynamics models (e.g., Richardson 1991, 77) so that an integration of the two should be based on the CCC rather than Veblen's concept. This said, it nevertheless appears completely consistent with Veblen's original "research program" for a radical...

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