Heterodox theoretical convergence: possibility or pipe dream?

Author:Ranson, Baldwin
Position:Notes and Communications - Report

A substantial number of papers presented at the 2006 AFEE meetings and published in the Journal of Economic Issues (JEI) in June 2006--10 out of 30--recognized the continuing proliferation of heterodox schools in our discipline. Most of these papers expressed regret at the absence of, and a desire for, "centrality and integrative discipline" within evolutionary social analysis (Stanfield 2006, 250).

Ron Stanfield (250) foresaw the merger of "Old Institutional Economics" and "New Institutional Economics" into a comprehensive "Evolutionary Economics." Kenneth Jameson (2006, 370) called for combining the "New Old Institutional Economics" with the "New New Institutional Economics" to create a "Modern Institutionalism of Development." Chris Niggle (2006, 405) compared and contrasted "Evolutionary/Institutionalist" and "Post Keynesian Economics," the synthesis of which he proposed calling "Evolutionary Keynesianism." Emre Ozcelik, and Eyiip Ozveren (2006, 418) proposed an institutionalist synthesis of political economy based on the work of Polanyi, Schumpeter, and Braudel. Richard and June Brinkman (2006, 439) tried to advance toward a "grand union" of all knowledge, embracing the hard sciences, the soft sciences, and ethics. Wolfgang Kerber (2006, 457) analyzed competition, knowledge, and institutions, in part to promote greater integration of institutional and evolutionary economics. Robert Waters (2006, 471) urged bringing the insights of Kenneth Boulding back into the dialogue about evolutionary models and development. David Dequech (2006, 473-79) compared how sociologists and institutionalists use the terms institutions and norms. Mary Wrenn (2006, 489) argued that five groups of heterodox analysts share a "common theoretical ground with respect to the conceptualization of the individual." And Olivier Brette (2006, 493) suggested using Veblen's methodology as a framework for dialogue to promote convergence between institutional economics and contemporary evolutionary economics.

This is a mass of energy seeking convergence. Does it mean there is an active possibility of achieving "centrality and integrative discipline" among these heterodox schools, or is it an idle pipe dream? The answer to this question resides largely in the preconceptions on which divergent theories rest. Veblen rejected the preconceptions of other theoretical positions, and any convergence with Veblenian theory requires theoretical preconceptions compatible with his. In this paper, we seek to reveal alternative preconceptions by summarizing the positions of Thorstein Veblen and his heirs on three other questions and comparing those answers with the positions of Douglass North, Oliver Williamson, Richard Nelson, and Geoffrey Hodgson whose works are often cited as grounds for convergence. The questions are:

  1. How should institutions be defined?

  2. How do institutions adjust?

  3. How should institutions be evaluated?

    The less compatible the answers to these questions are, the more confidently we can conclude that theoretical convergence between current alternatives and "Original Institutional Economics" is a pipe dream. (1)


    How should institutions be defined?

    The opening sentence of Veblen's Instinct of Workmanship seems to make institutions a primary unit of analysis, but gives no promise of careful definition. He expressed his intention to analyze "such correlation as is visible between industrial use and wont and those other institutional facts that go to make up any given phase of civilisation" ([1914] 1941, v). Rather than provide a definition, he used many synonyms to refer to institutions: "habits and conventions," "bonds of custom, prescription, principles, precedent," "habitual schemes of ways and means," "routines of group life," etc. He distinguished such "bodies of derivative standards and canons of conduct" from a second unit of analysis, the cumulative body of knowledge known as technology ([1914] 1941, 39).

    Clarence Ayres accepted institutions as an intermediate level of social analysis, but avoided the term as vague and confused ([1944] 1978, 178-79). He identified technology and ceremonialism as two forces that constantly shape human behavior. His use of the term ceremonialism seems to include patterns many would consider institutions, manifesting itself as status systems, mores, ideology, and rites and ceremonies--all of which he judged deleterious ([1944] 1978, xvi; Ranson 2004).

    Ayres' student, John Fagg Foster, proposed a succinct definition: institutions are "prescribed patterns of correlated behavior" (1981, 908, 859). He held that all such patterns serve two functions in varying degrees. First, they correlate behavior instrumentally, producing real income; and second, they correlate behavior ceremonially by establishing invidious distinctions among persons (1981, 908). This appears closer to Veblen's usage than Ayres', applying Veblen's distinction between instrumental matter of fact and ceremonial matter of convention to every institution rather than implying that correlated behavior is only conventional.

    How do institutions adjust?

    Veblen was clear that institutional adjustment is a constant process.

    Changes are going forward constantly and incontinently in the institutional apparatus, the habitual scheme of rules and principles that regulate the community's life, and not least in the technological ways and means by which the life of the race and its state of culture are maintained; ... ([1914] 1941, 35) He was much less clear on the mechanisms that bring about such adjustments. Nevertheless, the above quote suggests the direction of his thinking. First, that changes go forward "incontinently" implies that institutional adjustment is a response to some environmental pressure to adapt rather than a product of individual initiative. Second, specifying technological change as a constant implies that it might be the source of environmental pressure to adapt.

    Ayres developed these implications with four principles of economic development. He argued "that every economy, however simple, is technologically based" and that technology is the propelling force of economic development ([1944] 1978, xxiii and xxvi). Where Veblen said changes go forward constantly and incontinently, Ayres said the process of economic development is indivisible and irresistible; it spreads through any community in inverse proportion to institutional resistance and in direct proportion to the community's educational level; and technological advance and economic development are universal values ([1944] 1978, xxvi-xxxii).

    As he did with the definition of institutions, Foster sharpened and clarified positions taken by Veblen and Ayres. (2) Rather than presenting principles of economic development, he proposed three principles of institutional adjustment--directly answering our second question. His first principle, called technological determination, is Foster's development of Veblen's instinct of workmanship. It asserts that a social problem arises when disrapport becomes widely recognized between the efficiency with which an institution performs its instrumental function and the efficiency made possible by advancing technology. A problem is resolved when a technically competent new pattern of behavior becomes prescribed. His second principle, recognized interdependence, asserts that communities respond to technologically induced stresses by seeking efficient ways to correlate behavior within the constraints of understanding which correlations are relevant to solving a social problem. Minimal dislocation, Foster's third principle, asserts that the smaller the adjustment attempted, the more easily it can be incorporated into parts of the institutional structure unrelated to the specific inefficiency being addressed (1981, 929-35; Tool 2000, Chapter 5).

    How should institutions be evaluated?

    Veblen frequently denied that he made judgments of good and bad. We accept the literal correctness of his denial, but still find his analysis provides a universal criterion of judgment. It inheres in his understanding of natural selection.

    Veblen understood Darwin's natural selection to be an endless process of preserving favorable biological variations and eliminating unfavorable ones. It has no purpose or intelligent design, displaying only "idle concomitance and sequence of phenomena" rather than cause and effect ([1914] 1941, 260, 326). He assumed an observer could impute direction and purpose to the process since it maintains species that successfully adapt to changing environments, and eliminates those that do not. Adaptive patterns look "directly to the continuation and welfare of the race" ([1914] 1941, 49) and may be said to have the ulterior purpose of enabling species viability.

    Applying the same logic to social and biological adaptations, Veblen-the-observer could say that institutions that adapt a community efficiently to its environment contribute to that purpose, without personally endorsing that purpose. Thus, he could write of imbecile institutions that are "at variance with the continued life-interests of the community or the civilisation in question" ([1914] 1941, 25), and claim that the adjective "imbecile" was merely descriptive.

    Ayres completely rejected Veblen's stratagem. He embraced progress and the principle of continuity as universally desirable, and made contributing to the technological continuum his criterion of judgment ([1944] 1978, 220).

    Fagg Foster made Ayres's criterion more general, while maintaining its technological basis. He took Veblen's imputed purpose of species continuity and made it operational. Early in his career he called the universal criterion of judgment "instrumental efficiency" (1981, 860; Tool 2000, 77), later he called it "developmental continuity." Its current popular expression is the quest for sustainability. Both of Foster's expressions require judgments of fact. Relatively easy to judge...

To continue reading