Institutional economics in the United States is generally considered to have developed in and through two main eras. These eras correspond to differing assumptions concerning human nature, specifically with regard to the bases for institutional behavior. The first, associated with Thorstein Veblen, represents instinct psychology. The second, associated with Clarence Ayres, represents cultural learning. Recent advances in the cognitive sciences have furnished the groundwork for a different perspective on human nature, and it is emerging as a basis for understanding institutional behavior. This perspective highlights the evolved nature of the brain and views the mind as a suite of adaptive cognitive responses.
Of particular import for institutional analysis, the cognitive science approach does not displace insights into institutional behavior gleaned from the earlier instinct or culture frameworks. Instead, this approach incorporates both influences, albeit using somewhat different interpretations and terminology. What Veblen knew as instinct is roughly similar to what cognitive scientists know as modularity, which involves specific brain structures with specialized cognitive functions. The concept of modularity weighs against cultural determinism, in the particular sense of a tabloa rasa, or blank slate (Pinker 2002; Cosmides and Tooby 2002). However, it is quite compatible with the notion that certain modules have as their purpose the acquisition of specific cultural characteristics, such as language.
The paper outlines areas of compatibility between cognitive science research and aspects of the instinct-based institutional tradition as well as the culture-based institutional tradition. The paper also discusses the relationship between modularity, cultural transmission, and group-level selection in evolutionary processes.
Instincts are genetically inherited proclivities which favor specific responses or behaviors. As such, they represent the biological realm. Like other genetically heritable traits, instincts were produced by variation and, if favorable, promoted through the process of natural selection. In the latter part of the nineteenth century, many scientists and philosophers held the view that significant portions of human behavior could be explained by instincts. This instinct psychology was influential in the thinking of Veblen, who used the conceptualization to account for the widespread presence of certain behaviors.
Along with the pragmatic philosophers, such as William James and John Dewey, Veblen sought to incorporate Darwinian understandings into human psychology and the social sciences. In so doing, Veblen's interest was drawn to commonalities, that is, features of human nature which appeared across societies. The assumption was that commonality on such a scale could only be accounted for by genetic inheritance, in other words, as a product of evolution. Veblen considered several instincts in his institutional analyses: emulation, acquisition, self-regard, workmanship, idle curiosity, parental bent, and a "habitual bent" which makes habituation possible (Jensen 1987; Hodgson 2004; Edgell 2001). These were not rigid and autonomic but were proclivities, subject to self-control and modification (Veblen 1914).
For present purposes, it is of interest to note that these instincts were conceived as being of a purely psychological character. That is, they were conceptualized as heritable influences on thought processes but without associated assumptions concerning specific structures of the brain. It is the centrality of brain structures which distinguishes the modern cognitive science approach from the earlier understanding. A growing number of scientists now believe that the human brain is not analogous to a general-purpose computer but rather is composed of specialized areas with dedicated functions. These are brain structures which have been produced through evolutionary processes and which serve to respond to long-standing adaptational problems (Cosmides and Tooby 1992). This is commonly called modularity but is also known as domain-specificity, functional specialization, or adaptive specialization.
Natural selection does not operate in response to unique events or circumstances, but rather on recurrent ones. For a genetic variation to proliferate in a population, it must have a positive impact on the fitness of the carrier and continue to do so over subsequent generations. The evolutionary path of modern homo sapiens gave us a brain very different from other species, required millions of years to develop, and represents an accumulation of small changes (Kennair 2002). It was a long, slow ratcheting-up of mental capabilities with the effect of greater fitness, specifically in a social setting. Hence many evolved features of the brain have the function of responding to recurrent problems of group living such as organizing cooperative action, sharing information, and detecting cheaters. The brain is hard wired to navigate in a group setting because individuals who inherited these traits had higher fitness. Implications of the group setting for evolutionary selection are discussed in a subsequent section.
As with any adaptation produced by evolution, modules are a fitness-increasing response to recurrent situations. The number of modules in...