He has neither antecedent nor consequent.
--Thorstein Veblen, 1898
[T]he economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place.
--Friedrich Hayek, 1945
Capitalism is by nature a form or method of economic change.... Creative Destruction is the essential fact about capitalism.
--Joseph Schumpeter, 1962
Over a century since Thorstein Veblen's seminal essay on evolutionary economics, it seems "the economic life process" is "still in great measure awaiting theoretical formulation" (1898, 387). There is as yet no widely convincing theory of "economic action" to account for the process in which "it is the human agent that changes--his insight and his appreciation of what these things can be used for is what develops" (387-8). Original institutional economics is widely viewed--if it is viewed at all--as having failed to make good on Veblen's overture. (1) It is not to belittle our efforts that we should recognize this; it is to emphasize the difficulty of the task we face and the need therefore to draw upon the widest possible collegiate.
Currently the evolutionary economics literature is developing very rapidly but has yet to achieve centrality and integrative discipline. Geoffrey Hodgson (1999, 127-31) has noted that there are at least six major groups that are called evolutionary economists and expresses doubt that any coherent theme unites them. One tends to agree, but at the same time Hodgson would likely agree that there is merit in investigating possible synergies among these and other groups. No doubt, in addition to original and new institutional economics, potential contributions are spread among various intellectual traditions, such as social and socio-economics; behavioral economics and finance; game theoretic and experimental economics; and related studies in cognitive and self-psychology, economic sociology, anthropology, and cultural geography.
Possible contributions might also be found in evolutionary psychology and socio-biology, or any insights into the activity of the human brain (Pinker 1997). Indeed, there may be far less inconsistency than is often presumed between social construction and evolutionary psychology views of social behavior (Mallon and Stich 2000). The physical nature of the brain may be such that the agent seeks to economize computational costs by relying on patterns of socially constructed interactions (Clark in Drobak and Nye 1997, 287). In contrast to economic man, the evolutionary economics person is a multifaceted creature whose every move is steeped in complexity. Evolutionary economists cannot afford to turn their backs on potential contributions to specifying this creature and creating a theoretical structure to account for its role in forging evolving economic institutions.
I have titled my remarks "From OIE and NIE toward EE." My intent is to contribute to a move from original versus new institutional economics to an evolutionary economics which eventually earns its own acronym status. With this is mind I will offer a few remarks on the roots and nature of EE.
The Roots of EE
In Veblen's (1898, 389) classic essay on the need for an evolutionary economics, there is a famous paragraph in which he criticized the hedonistic conception of man for its neglect of the active character of human beings. This is of course the paragraph that includes references to "a lightning calculator of pleasure and pain" and "a homogenous globule of desire of happiness." In a somewhat neglected and tiny sentence within that paragraph, Veblen lamented that hedonistic man "has neither antecedent nor consequent," which is to say that the economic agent, thus conceived, has lived no history and lives no history (390) and continued by noting "it is the characteristic of man to do something " because he is "a coherent structure of propensities and habits which seeks realization and expression in an unfolding activity." I take Veblen's point to be that economic agents have and make history. Their actions are conditioned from that which has gone before, they have antecedence, and their actions in turn condition that which is yet to unfold; they have consequence.
In another classic essay, Friedrich von Hayek (1945, 524) altered the definition of the economic problem from its conventional static rendering of allocating scarce resources to meet unlimited wants to an evolutionary conception which focuses on "adaptation to changes in the particular circumstances of time and place." Indeed Hayek (523) stressed
that economic problems arise always and only in consequence of change. So long as things continue as before, or at least as they were expected to, there arise no new problems requiring a decision, no need to form a new plan. Hayek's emphasis on the economic problem as adaptation to changing circumstances reminds one of the major theme in the OIE conception of the economic problem as institutional adjustment (W. Hamilton 1919; D. Hamilton 1973, 76-9). It also points toward the importance of the expectations held by, and the interactivity of, economic agents and an emphasis on dynamic or adaptive efficiency (North 1990, chap. 11). Schumpeter (1962) stressed the dynamic character of capitalism and the pivotal role of the entrepreneur. Indeed, he argued that, since capitalism is essentially a system of change, driven by the entrepreneur's "Creative Destruction," only dynamic efficiency is of relevance to its appraisal.
Veblen, Hayek, and Schumpeter focused attention not only on agency and change but also on the fact that a good deal of an agent's behavior involves habit or routine. No problem requiring a new plan arises so long as an agent's expectations are validated. As William Waller noted (1988, 113-8), habit and routine serve to economize on effort and focus attention on the important aspects of situated tasks while abstracting from aspects that do not presently require analytic attention. Of course, this would not be necessary if information were freely available and costless to interpret and apply. Habitual application of tools or concepts to familiar activities is the exercise of skill. Richard Nelson and Sidney Winter (2002, 30) view the routine of an organization as analogous to individual habit and skill. Routines embody an organization's social contracts as to expected individual capabilities, responsibilities, and rights. Habits and routines can be effective in solving a wide range of problems that arise if they conform to familiar patterns; in such cases learning can take place within habitual or routine practice (29).
But in other situations, agents become aware of problematic change...