I was always fascinated by social evolution, so I was happy when I read Thorstein Veblen's argument that economics must become an evolutionary science. All institutionalists agree with Veblen's principle that social analysis must begin with institutions embodying human relationships rather than with arbitrary laws of psychology. The notion of starting with specific institutions implies different institutions in different times and places, so it implies change and evolution. My own view of evolution, which agrees with Veblen's, may be found in Sherman 1995 and in Dugger and Sherman 2000.
Neoclassical economists deny evolutionary change in basic institutions and concentrate on long-run equilibrium analysis. Institutionalists all agree that there is evolution, but the notion is seldom developed in detail and rarely applied to specific cases. The key to a concrete evolutionary paradigm lies in two dichotomies made by Veblen. These dichotomies indicate the most important questions to ask, but not the answers. The questions must be answered by empirical research for each specific society. The dichotomies are certainly not a set of transhistorical and inevitable laws. They are flexible methodological approaches.
In many of his works, Veblen stated a dichotomy between "business" (economic institutions) and "industry" (technology). Business and industry refer to the specific case of capitalism, but in more general terms, this dichotomy between economic institutions and technology is important in many societies. Sometimes the institutions promote technology, but in other times and places the institutions hold back technology. The term "technology" is used in the broadest sense to include not only knowledge and organization but also the level and quality of labor, capital, and natural resources available to this society.
The fact that the social-economic institutions of society have become an obstacle to further economic development does not necessarily mean that there will be evolutionary change in the institutions. This depends on many favorable circumstances and on the actions of groups of human beings. Veblen made this clear in his second important dichotomy. There is a sharp distinction and a conflict between vested interests in the institutions and the needs of the common people. The vested interests always resist with all their power any attempt to change the institutions that give them their wealth and power. Only an immense effort of the common people can overcome such resistance. The common people expend that effort if, and only if, there is a clear crisis that is directly harming them. The illustrations below show some of those crises. Even in a crisis, there is nothing written in the stars today that the common people will triumph over the vested interests even when they try to do so. Thus, there is nothing inevitable about evolutionary change. Major evolutionary change--whether reform or revolution-comes about only if institutions are holding back economic performance, if this is clear to the great majority of the common people and they are willing to fight about it, and if the strength of the common people can overcome the vested interests.
Sketch of Evolution in Light of the Dichotomies
For at least a hundred thousand years, the human species existed in small hunting and gathering societies. Unlike under capitalism, people worked collectively to hunt and to gather food. Not only was most of the food supply produced collectively but it was also consumed collectively with each person getting a share. Within this set of communal institutions, there was little fixed wealth; most people were roughly equal in income, so there were no social conflicts among classes with competing interests. Men and women were roughly equal in power. Among the earliest hunter-gatherers, there were no extensive wars because there was little wealth to loot. There was also no war to acquire slaves because a slave could not produce more than the slave's own sustenance. Since prisoners of war were not useful as slaves, they were killed or, in some rare societies, eaten (see, e.g., Dugger and Sherman 2000).
Neoclassical economists claim there is no alternative to capitalism. One can imagine a philosopher talking to a cannibal king in this early culture. The philosopher asks if it is not bad ethics to eat other people. The king answers, "Eating other people is human nature, so scientific analysis shows that cannibalism is the only viable society. There is no alternative."
The communal institutions, based on the extended family in hunting and gathering activities, seemed eternal. But about 12,000 to 10,000 B.C. in the Middle East and China in fertile river valleys, the Neolithic revolution began. It took thousands of years of transition, but eventually it brought better tools, pottery, farming, and herding. This led to much higher productivity, ability to build big cities, and leisure time for artists to decorate the cities and build beautiful monuments. It also led, however, to the end of egalitarian, communal societies. (A readable book on the transition is Diamond 1997.)
In Veblen's terms, the old economic institutions held back further progress. The communal form became obsolete in the face of unequal wealth and the fact that slaves became profitable. Groups who kept the communal form could not have a rapid increase in productivity.
There was a very long transition with chiefs having more and more power in larger and larger tribes. In Veblen's terms, this meant continual conflict between the vested interests, who were trying to expand the power of the chief and his close friends, versus the common people, who wished to maintain an equalitarian structure.
External conflicts included warfare by the most powerful tribes, which resulted in large numbers of prisoners who became slaves. This led to hierarchical societies with a ruling elite and a great majority of unfree serfs and slaves. The unfree workers produced what the elite consumed. So the great majority lacked freedom and led a very hard life.
To call this "progress" means to look only at the higher productivity and the excellent conditions of the elite while ignoring the terrible conditions of the great majority. Subjective notions like "social progress" exist only in the eye of the beholder and do not help our understanding of these mixed results. It is perfectly true that one can measure the progress of production in a quantifiable manner, but that does not settle the question. First, there are many periods when production and technology go backward, such as after the fall of the Roman Empire. So even progress in production is not inevitable but depends on favorable institutions. Second, the broader concept of "social progress"--that is, progress for the whole...