A modest proposal for institutional economics.

Author:Avio, Kenneth L.

A modest proposal for institutional economics As we know, it's true to say That, in a universal way, Approval's won, demerit shriven When love is pure and freely given. Sweet Reason copies Passion's art And Cupid's telos leads the heart, Lovers embrace so ardently Communicating-actively. -Valentine's Day Card This paper explores the relationship between discourse ethics and institutional economics through a comparison of Jurgen Habermas' principle of democracy and the instrumental value principle of institutionalism. Previous papers identified points of correspondence between institutional law and economics and discourse ethics (Avio 1999) and argued that certain general problems of social organization (the problem of social order, the legitimacy of the status quo ante, the legitimacy of society's transaction structure) may be clarified and resolved through application of discourse theoretic principles (Avio 2002). The current paper examines the central normative construct of institutionalism, the principle of instrumental value, in light of Habermasian ethical and moral theory.

With reference to the importance of the principle of instrumental value, Warren Samuels (1997a, 3) noted that "[u]ltimately [the instrumental value principle] has to do with the entire question of the nature, place and role of instrumental valuation, and valuation in general, in institutional economics." Therefore it is no surprise that much ink has been spilt on the topic. Indeed, institutional economics today, by which I mean economics in the Veblenian tradition, may be more or less defined by allegiance to the principle in one form or another. As might be expected there are related controversies in the literature, (1) but since the relationship of the principle to discourse ethics is the focus, and not the history and scholarly exegesis of the instrumental value principle itself, some simplification is in order. The discussion draws on Samuels' comprehensive treatment (1997a) as a guide to the interpretation of the principle and to its role within institutional economics.

The paper opens with discussion of the instrumental value principle, If it is considered to be one among several alternative principles to guide inquiry and not merely a matter of definition, then some criterion of choice must be employed to justify the chosen alternative. As Samuels noted, this "may well lead to tautological statements, in which value conclusions simply give effect to the basis of choice" (1997a, 3-4). I am assuming that the instrumental value principle requires justification. Why, after all, should we do what the words of the principle in their plain meaning exhort us to do? As argued here, justification of a nontautological sort may be found by interpreting the principle through the lens of discourse ethics.

The connection between discourse ethics and institutionalism is made with reference to the distinction between legitimation and valuation. This discussion begins with a consideration of Kenneth Boulding's writings on legitimacy. Discourse ethics advances beyond the institutionalist notion of a mere belief in legitimacy to legitimacy per se. This difference in perspective isn't as large as it might appear, once the discourse notion of "per se legitimacy" is understood. Such an understanding requires a theory of the pragmatics of communication in the background.

The paper then introduces the principle of democracy as an integral aspect of Habermas' linguistic-based theory of democracy. The distinction in this theory between the valuation of norms and their legitimation suggests emendation of the instrumental value principle in accordance with the principle of democracy. This emendation will require a linguistic turn by institutionalism, in the sense that the action theory of institutionalism must make way for communicative action--action oriented to mutual understanding-as a fundamental action type. Such a turn may strike some institutionalists as revolutionary and antithetical, but it represents a logical progression of the work of John Dewey and Boulding. Indeed, the degree of conflict between discourse ethics and institutionalism is small: the points enumerated by Samuels (1997a, 35-36) related to the principle of instrumental value all fit comfortably within the ambit of discourse ethics. However, there are differences, and these differences lie in certain qualifications related to communication which discourse ethics would impose on institutionalism.

The paper closes with a brief discussion of some pragmatist-tinged critiques of discourse ethics that may resonate with institutionalists, followed by concluding comments.

In short, I will argue that (i) institutionalism can and should acknowledge communicative action (and its corresponding form of rationality) as an action type distinct from strategic action; (ii) institutionalism needs to theoretically distinguish pragmatic and ethical questions from moral questions (that is, there is a need to distinguish prudence and goodness from rightness); (iii) a conceptual distinction must be drawn between valuation and legitimation; and (iv) as implied by (i)-(iii), institutionalism must take legitimation seriously as a normative process constituting a bona fide component of inquiry. Without these qualifications, the instrumental value principle is problematic as a blueprint for inquiry.

The Instrumental Value Principle

Some criterion of choice is implicit in every serious policy proposal. Therefore policy sciences must rest, in part, on normative foundations (Tool 1994, 406-407). A major distinction between schools of thought or intellectual paradigms concerns the value principles upon which policy decisions are based. Neoclassical economists generally treat the status quo as an existential given and advocate the pursuit of Pareto-improving or wealth-maximizing policies, or, as with the constitutional contractarians, policies which command Wicksellian unanimity. (2) Institutional economists argue, contra neoclassicists, that the status quo cannot be taken as a morally neutral constraint on the efficiency exercise, If the task is to assign rights of whatever category, then, to avoid circular reasoning, the initial constellation of rights cannot be the base from which the efficiency analysis begins (Samuels and Mercuro 1984). (3) Rather, the entire process of rights determination must be subjected to analysis. But what is the best way to proceed?

Institutionalism answers with reference to the ceremonial/technological dichotomy of Thorstein Veblen as a normative hinge and to Dewey's instrumental theory of social value as a method for inquiry. (4) The synthesis of Veblen and Dewey developed by institutionalists over the years has coalesced and sedimented into what has become known as the instrumental value principle. Marc Tool's formulation of the principle states:

[D]o or choose that which provides for the continuity of human life and the noninvidious recreation of community through the instrumental use of knowledge. (Tool 1994, 408-409; 1993, 121; 1995, 23; also see Tool 1979, 293) The precise meaning of "the continuity of human life and the noninvidious recreation of community," that is, the substantive content of the principle as opposed to its procedural aspect, need not detain us here except to note the triviality, in the sense of noncontentiousness, of this content. Nor will I consider the justification for including these particular values, and no others, in the statement. (5) Rather, at issue is the principle's "operative significance" (Samuels 1997a, 45): its meaning for the conduct of inquiry, its claim as to how social problems can and should be addressed. In this respect the validity of the theorem and its status in guiding inquiry are relevant.

As regards the rationale and source of the principle, Tool stated that it was formulated in an attempt to encapsulate the normative understandings of a tradition stretching back to Veblen and Dewey (1994, 408; also see Tool 1993, 120-121). (6) Tool noted that the principle "is derived from reflections on the continuum of human experience, the social process itself in all its complexity, the evolutionary development of cultures and peoples" (1993, 124). Moreover, "[t]he origin of the value principle is to be found in the historical application of reason to experience and is reflected in the creation of the technological continuum itself' (1993, 125). These somewhat enigmatic statements are brought into focus with Tool's claims that "the process of valuation that guides scientific inquiry is the process of instrumental valuation" (1993, 128, emphasis in original, with reference to Bush 1983, who stated "instrumentally warranted values are inherent in the processes of scientific inquiry" (37)) and "the process of instrumental valuation provides the primary judgmental standards for modern causal inquiry" (1993, 129, emphasis in original). (7)

From the foregoing, it appears that two interpretations may be placed on the principle. The "plain meaning" interpretation simply takes the principle as a directive as to how we should proceed, whereas an alternative but not necessarily inconsistent reading takes the principle as descriptive or definitional of successful inquiry. (8) In the latter interpretation, the principle points inquiry in a certain direction if inquiry is to succeed in solving social problems. That is, for inquiry to be successful, it must proceed instrumentally; the outcome cannot be judged independent of the process itself. This latter approach to the principle appears to be favored by Samuels (1997a, 5) and seems consistent with the statements made by Tool quoted in the preceding paragraph. In any event, some justification must be advanced: justification as to why we should "do or choose" as directed, or justification as to what qualifies as successful inquiry. The sense of oughtness or obligation, attached to the...

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