American Institutionalism: Reformism with a philosophical cause,
but without a theory of capitalism?
First Draft
George Liagouras1
Key words: Institutionalism, philosophy, methodology, history of economic
thought
In his last contribution to the Journal of Economic Issues, Allan G. Gruchy (1990)
presented in a clear-cut manner the main problem of (American) Institutionalism from
Veblen to our times. This concerns the lack of an elaborated analytical framework
within the institutionalist tradition. More precisely, Gruchy argued that one may find
three different approaches within institutionalism, that is, the topical, the thematic and
the paradigmatic one. The topical approach understands institutionalism as a
heteroclite sum of topics, the study most of which is ‘censured’ by the orthodox or
mainstream economics. The thematic approach resumes the topics addressed by
institutionalists in some basic themes (technology, culture, social control, value, …).
Finally, the paradigmatic approach tries to unify the thematic interests of
institutionalist current through the concept of evolving process, which is the opposite
of the static notion of equilibrium used by mainstream economists.
Gruchy saw in the work of Commons the most prominent example of the
thematic approach:
John R. Commons, for example, may be said to have had the thematic approach. He
analyzed a number of themes, … He did not however, have a theoretical roof under
which he could bring together his many themes in order to develop a theory of
American capitalism. Following the thematic approach it is quiet clear that Commons
1
Department of Financial and Management Engineering, Chios, Greece. E-mail:
[email protected]
1
failed to move from his Legal Foundations of Capitalism to a general theory of
American capitalism. (1990, 362)
Gruchy’s preference was for the paradigmatic approach, initiated by the
famous Veblen’s essay “Why is economics not an evolutionary science?” (Veblen
1898). However, Gruchy had not illusions about the success of Veblen and his
followers to elaborate an overall analytical framework. He remarked that Veblen
didn’t succeeded to develop further his notion of evolving process and that his initial
statement that “there is the economic life process still in great measure awaiting
theoretical formulation” (Veblen 1898, ) applies also for the rest of his work. The
same applies for the efforts made after Veblen to provide “the rather illusive
movement known as ‘Institutionalism’ ” (Clark 1936, 7) with a general theoretical
framework:
We see the expansion of the paradigmatic approach to some extent in Wesley C.
Mitchell’s concept of “pecuniary economy”, Clarence E. Ayres concept of “industrial
capitalism” and John Kenneth Galbraith’s “new industrial state”. It should be noted
that these and other institutionalists seek to provide an overall umbrella for whatever
topic they may analyze. However, their limitation is that they do not go far enough in
developing the nature and significance of the paradigmatic approach to institutional
economics. Like Veblen, they all failed to carry further the analysis of this basic
approach. (1990, 363)
The objective of the present article is to develop further the Gruchy’s
diagnostic in two directions. The first one is to ask how such a failure can be
explained. More precisely, the main question is, what are the intrinsic causes that
prevented the major institutionalist economists from developing an elaborated
theoretical framework. The second direction concerns the present and the future of the
institutionalist movement. What can it learn from the failures of the past and what are
the existing alternatives? The argument is organized in four sections. Each section
covers a specific period in the history of institutionalism (Veblen, interwar
institutionalism, Ayres, and today institutionalism).
The years of the high revolutionary hopes: Veblen’s synthesis between Darwin
and Bellamy
Veblen was not simply the more revolutionary mind ever appeared in US’ academia.
He was also an extremely cultivated mind and his influences come from a great
2
variety of approaches in philosophy, social sciences and psychology (Edgell and
Tilman, 1989). However, for the purpose of this paper, the more important influences
on his thought concern Charles Darwin’s biology and Edward Bellamy’s critique of
the capitalist system.
The fact that Veblen started his academic career with a, now lost, PhD on Kant
and Spencer, is very characteristic for his initial interests. Veblen approved Kant’s
critique of English empiricism but he wanted to historicize and socialize the Kantian a
priori and transcend the Kantian dualism between the physical and moral world.
Furthermore, he wanted to do all this without following the teleological directions
taken by Hegel and Marx. Darwin’s On the Origin of the Species presented for him a
solid philosophical alternative to the teleological approaches of the continental
philosophers. Indeed, his Darwinian influence permitted him to understand the human
history as continuously evolving process with no legitimate or predetermined end, nor
a unique pattern of direction. Thus, the main objective of his post–Darwinian
economics was to provide a theory of the “process of cultural growth as determined
by the economic interest” (Veblen 1898, 77). The study of cultural change, or of the
evolution of habits of thought, was his own materialist and historicized answer to the
problem of the possibility of knowledge raised in modern philosophy since Descartes.
Furthermore, it is well known that his Darwinian mind was critical not only of
the teleological evolutionary accounts of human history like those of Spencer and
Marx. His main attack was against the economic theory, and especially the rising
marginalist school. The latter presupposed and an “immutably given human nature”
(73) and formulated “laws of the normal and the natural, according to a preconception
regarding the ends … all things tend” (65). Still, given his rejection of the whole of
political economy as “taxonomic”, Veblen had two options: either to create ex nihilo a
new political economy, or to adopt a non academic one. The first option being a rather
hard task, Veblen finally opted for the critique of capitalism sponsored by the
American
utopian
and
authoritarian
socialist
Edward
Bellamy
(1887[])2.
Unfortunately for Veblen, Bellamy’s analysis of the capitalist system was not
too sophisticated. In a nutshell, it suggested that capitalism as a system is
characterised not only by inequality, but also, and above all, by waste and
2
Concerning the crucial influence of Bellamy on Veblen’s conception of capitalism see
Dorfman (1934, 68) and Tilman (1985).
3
inefficiency. The hard work and the technological achievements of the community are
spoiled by the anarchy of the market, the status emulation of unproductive classes,
and the proliferation of parasitic employments around the capitalists. This meant that
the enormous technological and economic progress made from the industrial
revolution and after had not been realized thanks to the capital but against it.
Capitalists, and their corollary unproductive employments, were like parasites
spoiling the wealth accumulated by the workmanship of the community. A so stark
conception of capitalism implied also a fundamentalist rejection of the totality of
economic theory. As Rick Tilman remarked, “(f)or both men [Bellamy and Veblen]
economics and economists were apologists for capitalism because they supported
inequality, waste and inefficiency behind a facade of self-serving pseudo-science”
(324).
The mediation between the Darwinian conception of evolution and Bellamy’s
charges on capitalism was realized in Veblen’ thought through his theory of instincts.
The latter permitted Veblen to combine his Darwinian inquiry of impersonal causes
with a crypto-normative standpoint, which enabled him to judge the evolution of
humankind. From a Darwinian perspective Veblen saw the variety of human societies
as the result of the evolution of different mixtures of instincts, or “racial stocks”.
From a Bellamian - and hidden religious - perspective3, the whole evolution of
humankind was interpreted as a battle between the Good (hard work in the service,
and for the survival, of the community) and the Bad (conspicuous leisure and
consumption in the service of the self-seeking and acquisitive individual).
More concretely, the instinct of parental bent expressed Veblen’s
communitarian ideal or, in other words, his strong ontological collectivism. In the
same vein, his conception of the predatory instinct permitted him to denounce the
possessive individualism of capitalist societies by imputing its origins to the more
barbarian and abominable traits of the human psyche. Last but not least, his
workmanship instinct served as an ultimate justification of his pivotal anti-capitalist
position assuming the existence of insurmountable contradictions between making
goods and making money, productive and pecuniary employments, centrallyorganised production and wasteful competition, satisfaction of basic collective needs
3
Concerning the relationship between Bellamy’s religion of solidarity and Veblen’s
ambiguous position about “Christian morals” see Leathers (1986).
4
and conspicuous consumption (including culture), and so on. Veblen borrowed most
of the above simplistic contradictions in the early 1890s from Bellamy and he
remained faithful to them throughout his life. As Stephen Edgell (1975, p. 196) nicely
resumed it: “In effect, Veblen recast Bellamy’s indictment of capitalist society in
historical and evolutionary terms”.
It remains that Veblen’s effort to produce an evolutionary theory of cultural
change has been proved problematic from both sides the Darwinian and the Bellamian
one. His absolute reject of “pre-Darwinian” economics implied that the permanent
evolution of human societies rendered impossible the elaboration of physics-like
scientific laws. Such impossibility implied in turn that, in order to grasp the present
state of human affairs, one needs to go back and study the origins of the whole
process. That is, you cannot understand capitalism without going back and study the
evolution of human kind from the savage man to the present. Still, producing an
evolutionary theory to explain the whole human history as a unique unfolding process
seems to be a self-defeating task. Thus, although Veblen was critical of the
descriptive tendencies of German Historicism, his own work seems rather as an
overview, or a philosophy, of human history than a theory. A.W. Coats, in his critical
account of Veblen’s methodology, pointed very succinctly to this problem:
Veblen seemed to imply that the efficient cause of any phenomenon was to be found
in the immediately antecedent circumstances, and this interpretation is supported by
his explanation of ‘cumulative causation’. (…) (T)he inevitable outcome was a
historical account of successive cultural changes, despite his assertion that such an
account did not constitute ‘theory proper’ in the modern evolutionary sense (Coats
1954, p. 101) (italics added).
In the origin of this failure one can repair serious misunderstandings in the
relationship between history and theory. The first concerns the limits of the theories of
natural history regarding the scientific explanation of specific organisms. For
example, Darwinian biology has successfully explained the origin of man, but by no
means can render obsolete or useless the modern medicine. By the same way,
whatever the success of a “theory” of human history, the latter could never eliminate
the need for a theory of the capitalist economy and society4.
4
In the natural sciences the difference between history and theory is very sticky. A doctor can
be the best specialist in heart surgery and at the same time he can be a fundamentalist
5
The second misunderstanding refers to the specificities of social sciences. A
civilization, or a fortiori a social system, is far more complex than a species. Such a
complexity asks for important theoretical explanations. Thus, we cannot correctly
understand the Medieval Europe by simply showing how it raised from the decay of
the Roman Empire. The medieval period presents important regularities asking for
theoretical explanation. Furthermore, the aforementioned complexity as well as the
hermeneutical problems arising from the existence of different “language games”
makes impossible the elaboration of a scientific theory about the evolution of human
societies. That’s why it’s better to be modest and to speak about a philosophy and not
a theory of (human) history.
By following the anthropologists that divided human history into a few socioeconomic systems, Veblen could have tempered his Darwinian methodology and
could have studied theoretically at least one of them, in the same way that Marx
tempered his Hegelian dialectics and focused on the analysis of what he called the
“capitalist mode of production”. But, Veblen by rejecting all kinds of laws and
tendencies and by seeking to present the history of humankind as a “unique unfolding
process”, he paid little attention to the fact that socio-economic systems present
important regularities demanding theoretical explanations, independently of their
genetic causes. Indeed one of the more interesting methodological points in Marx, but
also in Weber, is that the origin and the dynamics of a social system remain two
different questions. That is, both thinkers insisted that the confirmation or the
rejection of their historical accounts on the origin of capitalism (the Protestant Ethic
versus the primitive accumulation hypothesis) could not confirm or reject their
theoretical analysis of capitalism.
Finally, Veblen’s inspiration from Bellamy’s critique of capitalism has also
been proved problematic. Even though, Veblen produced an impressive work on the
“business system” of his times (Veblen 1904, 1914, 1923), his stance is based to the
naïve dichotomy between making goods and making money he inherited from
Bellamy. Or, the so-called, after him, “the Veblenian dichotomy” contradicts his own
evolutionary methodology in two points. First, it establishes a taxonomy that was
supporter of the creationist vision of the world. In social sciences, our pre-conceptions about
the history of humankind could have important consequences on how we analyze our
capitalist society and vice versa.
6
totally opposite to Veblen’s intentions when he criticized the economic theory as
taxonomic. Second, it implies a technological determinism according to which,
institutions are lagging behind the “matter-of-fact” habits of thought spreading from
the new technology. Or, the above latent technological determinism stands at odds not
only with his evolutionary research programme (Veblen 1898, 1899), but also with his
historical account on the evolution of human kind (Veblen 1914).
Besides, whatever the brilliant insights one can find in Veblen’s analysis, the
dichotomy between the machine technology and the business (or price) system
undermines by definition the elaboration of a theory of capitalism. William Dugger
(2006), who continues today the original Veblenian problematic, put in a very clear
manner:
Veblen did not treat the current economy as if it were a coherent system based on
capital accumulation. He did not use the term ‘capitalism’ to describe the present
economic situation. He used the term ‘business’. The term capitalism implies the
existence of a coherent economic system in which the dynamic factor is capital. To
Veblen, the current economy was the product of the blind drift that resulted as
growing community knowledge pushed one way while business predation pushed
another. (644)
In fact, in Veblen’s analysis (i.e. Veblen 1914), capitalism has the same status
as “handicraft” (simple commodity production). It is presented rather as transitory
phase of human evolution than relatively stable socio-economic system. The
contradiction between the workmanship of community and the predatory attitude of
capitalists is so stark that it is difficult to understand how capitalist society has
managed to survive – not to say to prosper - for centuries.
The years of the high reformism: American institutionalism in the inter-war
period
What characterised the making of the institutionalist movement (Mitchell, Clark,
Hamilton, Commons, …) in the aftermaths of the First World War was already the
replacement of Veblen’s Darwinian evolutionism and political radicalism by the
pragmatist faith on empirically testable scientific inquiry and trial-and-error
7
reformism5. As Rutherford resumes his study on the institutional economics during
the period 1918-1929:
To a young aspiring economist in the mid 1920s, institutionalism would have meant
something to do with the ideas of Thorstein Veblen, but it would not have meant
Veblenism, or evolutionary theory, or biological analogy, or instrumentalism versus
ceremonialism. (…) It would have meant the critical study of the functioning of the
existing set of pecuniary or business institutions and a pragmatic liberal reformism
(Rutherford 2000, p. 304).
Certainly, Veblen’s conception of the business enterprise, as well as his distinction
between making goods and making money have been a common locus for the main
bulk of institutional economists of this period. But, the latter sought mainly to study
concretely and empirically Veblen’s impressionist account of pecuniary principles in
order to promote institutional reforms aiming to restore community’s control over
business, labour, macroeconomic and general welfare issues. Consequently, the
combination of Olympian aloofness and virulent sarcasms by Veblen has been
substituted by an active socio-economic engineering. And the cultural and informal
conception of institutions as habits of thought has been put in the back of the scene by
the rise of more formal (organizational, legal,…) conceptions of the word institution6.
The period between the two World Wars was the “years of high reformism”
for the American institutionalism. Especially after the crash of 1929 the reformist
agenda of institutionalists found its zenith. The crucial importance of American
institutionalism in the conception and the implementation of the New Deal can hardly
be underestimated even by its more malevolent critics. It was a turmoil period where
marginalist economics have lost ground with reality at almost all the levels of specific
economic inquiry. Their lack of an empirical content – econometrics had not yet been
developed to come at their rescue - condemned them to be a speculative research
programme. Marginalists could manage to reject all the theoretical criticisms made by
institutionalists against them – outdated hedonistic psychology, lack of institutions,
5
Usually interpreters of Veblen insist on the compatibility between his approach and this of
pragmatist thinkers of his time like Dewey and James. This is the one side of the story. The
other one is that, regarding fundamental issues of social and political philosophy, there were
profound differences between Veblen’s radicalism and Dewey’s liberalism (Tilman 1984).
6
As T. Sowell remarked, Veblen “differed fundamentally from later institutionalism (a term
he did not use) in that he as concerned to analyse the derivation of ideas, not to describe the
mechanisms of institutions in the sense of organizational entities” (Sowell 1967, p. 137).
8
static analysis, and so on – by venting the superiority of their physics-like economics.
What marginalists could not do at this period is to find a link between their analytical
apparatus and empirical research.
Not surprisingly, institutionalists located the final cause of their disagreements
with marginalists in the purely deductivist methodology of the latter. It is not also a
surprise that some of them exaggerated the importance of inductive method and
empirical research. The most important proponent of this camp was Wesley Mitchell
(1924, 1925). Mitchell in his plea for quantitative analysis in economic theory was
very careful not to reject the importance of deductively produced theoretical
statements. But, at the same, in a manner that anticipated Popper and was clearly
influenced by the behaviorist psychology, suggested that theoretical statements will
be of value only if they can be tested by empirical methods. As the existence of the
neoclassical homo oeconomicus could not be tested empirically, Mitchell argued that
the orthodox theory would be progressively replaced by a new one, which would be
subjected to quantitative investigations. In his own words, “(t)here is little likelihood
that the old explanations will be refuted by these investigators, but much likelihood
that they will be disregarded” (Mitchell [1925], 26). Furthermore, according to
Mitchell’s scientific ideal, the new theory would have not the systematic character of
the old one: “From time to time someone will try to give a comprehensive survey of
the results of quantitative research, but such books will not have the prestige won by
the treatises by Adam Smith, Ricardo, Mill, and Marshall” (ibid, 29).
Yet, the main balk of institutionalist economists followed Walton Hamilton’s
proposition that institutional economics should re-give to economic science its unity
by focusing on institutions as “a unified whole which is in process of development”
(Hamilton 1919, 315). Their intention could be helped by the fact that most of them
were not simply specialists of one economic subject, but full-range economists
mastering a big variety of economic topics. The problem with institutionalists was
rather that they were too much attached to the pragmatist agenda of a decentralized,
trial-and-error and piecemeal reformism. In modern terms, they saw the economy as
an evolving and complex reality, which by continuously evolving and by being so
complex and diversified per place, undermined any effort for “high theory”. In other
words, the construction of an unified theoretical framework, which could integrate
their “thematic” or even “topical” contributions in an hierarchised whole, seemed to
9
them like a dogmatic and speculative degeneration of their programme, a come back
to the “Ricardian vice” caracterizing the orthodox economics.
The result was, to use the words of John Maurice Clark, “the growth of the
rather elusive movement known as ‘Institutionalism’, which means so many different
things to so many different people that doubt has arisen whether it has any definable
meaning at all’ (7). Some years before, in the discussion organized in American
Economic Association about economic theory and institutionalism, Eveline Burns
(Homan et al. 1931) had already put the problem with the more clear and concise
way:
The progress of institutionalism as a positive force in economic study in the last
fifteen years has been hindered by the entrenched position of other approaches but
more by the vagueness of the concept itself. Thus it has been erroneously identified
with quantitative economics, with welfare economics and with various views of
psychology believed to undermine hedonism as the fundamental economic
assumption (…) To become a serious rival to ‘orthodox economics’ institutionalism
needs a framework within which contributions may find their appropriate places (…)
There is a need for a tentative delimitation of the more peculiarly economic aspects of
behaviour and for some agreement as to the definition of economically relevant
institutions, in order to equip institutional economics with a set of analytical tools,
and to avoid the grave danger of a lack of focus. (134,5)
Eveline Burns went much further and referred to the “work of Weber and Sombart” as
a principal source of “even wider generalisations concerning the various forms of life”
(135). Unfortunately enough, the excessive mefiance of institutionalists against every
form of “wider generalisations” hindered them benefiting from the rise of the
sociology in continental Europe. Institutionalism remained confined within the
frontiers of US having as unique unifying framework the elusive notion of institution
in theory and the pragmatist faith in piecemeal reformism in policy.
But the worse was to come. Two important events of 1930s – the publication
of Keynes’ General Theory (1936) and the establishment of the Econometric Society
(1930) – have been proved disastrous for the future of the institutionalist movement.
The neoclassical synthesis that emerged after the Second World War, by integrating
Keynes and econometric methods7, provide to the neoclassical paradigm a strong link
7
The rise of econometrics in 1930s and 1940s is linked with the measurement without theory
controversy. In a fascinating article Mirowski (1989) deconstruct the neoclassical myth of
10
with empirical research and economic policy. In the aftermaths of the Second World
War the crisis of orthodox economic theory was over, whereas this of institutionalism
just started.
The relationship of institutionalists to the Keynesianism is very characteristic
of the methodological blockages of the interwar institutionalism. Both currents
pleaded for the end of the laisser-faire. And as shown by Rutherfrod and DesRoches
(2006), institutionalists had developed before Keynes an impressive research agenda
on macroeconomic issues. What institutionalists could not imagine is that a so
abstract edifice like this of General Theory could ever be substituted to their own
detailed, cautionary and case per case analysis of modern economy. J.M. Clark’s
reaction to the rise of Keynesianism in US is very significant of the “clash of
civilizations” between Keynesianism and American institutionalism. Clark (1942)
admitted that Keynes’ “income-flow analysis” was central to deal with
macroeconomic problems in the same way that six years later he admitted that the
marginal method was “perhaps the greatest single tool of economic analysis” (1936,
3). But both tools of analysis seemed to him too much mechanistic, speculative,
dogmatic, and so on to account with the evolving complexity of the modern economy.
In his own words: “Keynes offers a reversed Ricardianism, of similar power and
exposed to similar dangers, including that of undue dogmatism on the part of
disciples” (1942, 9)8.
Hard times: Clarence Ayres’ anti-institutional economics
The triumph of Keynes’ “reversed Ricardianism” as well as of mathematical pure
economics in the after-war scene marginalized American institutionalism not only in
the level of theory but also of policy. The institutionalism of these hard times, marked
institutionalism as naïve empiricism, initiated by Koopmans (1947). However, it remains that
“(t)he Econometric Society achieved a rearrangement of the forces in economics by turning
quantitative research from a ally of institutionalism into an ally of mathematical pure theory”
(Yonay 1998, 188)
8
Same arguments have been developed later by Arthur Burns ([1946], 1947), who was
working in the NBER with Mitchell. See also Lee (1990) for a very interesting account on
how Gardiner Means’s effort to construct a multi-industry macroeconomic model has been set
aside by the rise of the oversimplifying Keynesian models.
11
by Clarence Ayres’ (The) Theory of Economic Progress (1944), is withdrawn from
the active socio-economic engineering towards the philosophical critique of the
market economy. Ayres started his career as a philosopher. His friendship and
constant exchanges with the pragmatist philosopher John Dewey (Tilman 1990) were
of paramount importance for the development of his thought. In a letter he wrote in
1930 to Dewey, he anticipated already his theory of economic progress:
The antithesis between science and superstition is also the antithesis between
technology and institutions, and so far as we know we can’t live without institutions.
This means that we can’t live without a substantial modicum of superstition; that our
‘finished’ formulations must always become quasi-superstitious tradition. (…) We
can’t get away from institutions in living any more than we can get away from words
and connotations in thinking; but we can realize that an institution is not only not a
good thing itself: in itself it is a bad thing from which we are bound to try perpetually
to redeem ourselves. (quoted in Tilman 1990, 966)
As it can be seen by the above passage Ayres’ starting point was Dewey’s ideal of
scientific inquiry as an ongoing and reflexive process, and as dialectical continuum
between ends and means, which at any moment risks to be blocked by the
establishment of ‘finished’ formulations or certainties. In fact, Ayres applied Dewey’s
instrumental theory of science (and democracy) in the level of social analysis with a
major modification. The possibility of ossification of some formulations or habits in
the Deweyan process of inquiry has been transformed in Ayres’ social thought to
certainty. Thus for Ayres, all institutions are bad things “from which we are bound to
try perpetually to redeem ourselves”.
The Theory of Economic Progress, published 14 years later, reproduces a
similar shift from Dewey’s conception of scientific inquiry to Ayres’ dichotomy
between technology and institutions. In the beginning, Ayres insists that the
distinction between technology and ceremony is analytical: “these two sets of
activities not only coexist but condition each other at every point and between them
define and constitute the total activity of ‘getting a living’” (99). This remark is
consistent with the monist philosophical position of Dewey and Ayres which rejects
the metaphysical dualisms issued by the body and mind problem. That’s why Ayres
insists one more that his analytical distinction is a “dichotomy but not a dualism”:
“such a distinction need not and does not set up two separate realms of being such as
have characterized the historic dualisms” (101).
12
However, the above statements are not respected by Ayres himself when he
studies in detail the notions of technology and ceremony. In fact, his social ontology
presupposes an opposition between two different realms, each one having its own
logic: “The history of the human race is that of a perpetual opposition of these forces,
the dynamic force of technology continually making for change, and the static force
of ceremony – status, mores, and legendary belief – opposing change” (176). Thus,
not only we are in face of dualism, but this is a religious one. Technology is by
definition the Good and ceremony the Bad.
The last swift in the argument concerns institutions. Ayres, even though in the
beginning admits that institutions “contain tool-activities as well as ceremonial
usages” (182), he finishes some pages later by considering institutions as
“predominantly ceremonial in character”(184). So, institutions can be classified to the
Bad: “There is no such a thing as an institution (or a set of institutions) that is
‘appropriate’ to a given technology in any but a negative sense” (187).
Ayres thought to find his dualist conception of human evolution in his other
major source of inspiration, Thorstein Veblen. It must be said that Veblen’s dualist
analysis of capitalism – which was in total contradiction with his comprehensive
theory of social evolution, as we have seen - was not so far from Ayres’ dichotomy
between technology and institutions. Ayres had but minor changes to make.
First, whereas Veblen saw a contradiction between the new habits of thought
diffused by the expansion of the new technology (the machine process) and the old
ones preserved by the status quo, the so called Veblenian dichotomy, established by
Ayres, implied an immediate opposition between technology and institutions.
Second, given that Veblen’s crypto-normative theory of human instincts was
disqualified by the anti-biological turn of social sciences and of the behaviorist
psychology, technology was the most obvious - and “scientific” - candidate to provide
a normative basis for analyzing and reforming capitalism. After all, technology was
not but a more secular and comprehensible word for the dominant role that the
instincts of workmanship and idle curiosity played in Veblen’s thought (Ayres 1958).
Still, from a political point of view, Ayres’ restatement of Veblen was far to be
a come back to the sources. On the contrary, it pushed further the pragmatic turn
operated before him, and by consequence the reject of the Veblenian mix between
Darwinian evolutionism and social radicalism. Significantly, in Veblen the resistance
to change came both, from the hold of past habits of thought and the vested interests
13
of the present. On the contrary in the Ayresian synthesis the former factor of
resistance was far more important than the second one. The social problems are seen
through the old Enlightenment imagery, according to which scientific reason will
triumph against the myths and superstitions of the past.
It has already noted that technology provided Ayres with a normative instance
for judging the appropriability of socio-economic systems. For him, technology
(along with science) offered the only alternative to the evaluation of economic
systems by the market forces. However, this quest for objective criteria in the process
of social evaluation presents two shortcomings. First, it is contrary to the Deweyan
conception of evaluation, where the criteria are defined by the community and not by
a single researcher or citizen. Second, it becomes very problematic when transposed
in the analytical level because it renders the study of technology and institutions
implausible, if not unneeded. If by definition technology is a self-generating process
of change and progress, whereas institutions’ function is to resist change, there is
nothing more to learn about them, and a fortiori of their interactions. The next step is
to reinterpret the existing empirical evidence and theoretical literature in order to
show that fits well in the Ayresian dichotomy. This can be seen as a philosophical
interpretation of existing theories but as not an economic theory per se. As Donald
Walker (1978) remarked:
In working out ways to achieve his policy objectives Ayres did not draw upon his
analysis of technology, institutions, and value. He could not do so, because that body
of theory and speculation does not furnish any propositions about the magnitude of
economic variables. (…) When Ayres considered specific economic policies and the
details of the operation of the modern economy, therefore he had to look elsewhere,
and he found what he needed in the work of Keynes (618).
What is more important, the above exercise in philosophical interpretation is
too tautological to be challenged by new evidence or new theories (Walker 1979, 535;
McFarland 1986, 628; Webb 2002, 995; Hodgson?). The philosopher can always
classify all the new elements either to technology (Good) or to institutions (Bad).
What is not Good is Bad, and vice versa.
This unsophisticated and normative technological determinism isolated
American institutionalism not only from mainstream economics and sociology but
also from critical social thought. When many scholars of the twentieth century,
following prestigious thinkers like Max Weber, Hannah Arendt, Max Horkheimer,
14
Theodor Adorno and Herbert Marcuse denounced the domination of humanity from
the Technical Reason, American institutionalists who followed Ayres put all their
hopes to the triumph of Technical Reason. Indeed, they seemed to fix as objective to
adapt the retrograde American capitalism to the technological imperatives of their
époque. Ironically enough, from the Second World War till the 1970s the American
capitalism registered the best performances of his history. Therefore the
institutionnalists’s suggestions for adjusting institutions to the technological
imperatives sounded strange like voices from a remote era.
The isolation of American institutionalism from the rest of critical social
thought was fatal for an economic approach that initially had prospered thanks to its
close relationships with avant-guard sociology, psychology and philosophy. The
identification of the institutionalist movement with empiricist philosophies of science
and behaviourist psychologies was the most important symptom of its deep crisis
(Sturgeon 1984, Mirowski 1987, Webb 2002, Hodgson 2004, …).
Strange days: Institutions become fashionable, but institutionalists not
During the last two or three decades the demise of neoclassical synthesis and the
revival of interest for institutions and evolutionary processes in economics opened a
radically new era for institutionalism. Still, the latter does not seem to really benefit
from this radical change in the economic inquiry. The explanation proposed here for
the above paradox is that institutionalists are still influenced either by Ayres’
dichotomies or by his tendency to extrapolate philosophical questions to the analysis
of capitalism.
Certainly, many institutionalist scholars sought to redefine, or even to go
beyond the Veblenian dichotomy. Some (Foster 1981, Bush 1987, Waller 1987, …)
presented their reformulation as a step forward in the Veblen-Ayres tradition. Some
others (Samuels 1977, Tool 1979, Miller 1982, Klein 1995, Dugger 1995, Dugger and
Waller 1996…) could be defined as post-Ayresians, because they are more or less
critical with the Ayresian legacy. Today the most consensual solution seems to be
twofold. First, the technology-institutions dichotomy is replaced by the analytical
distinction between instrumental and ceremonial knowledge. That is, all
socioeconomic phenomena, technology as well as institutions, constitute a kind of
compromise between instrumental (rational, good) and ceremonial (irrational, bad)
types of knowledge and patterns of behaviour. Second, the normative criterion
15
defining what is instrumental or ceremonial is no more the technological but the
democratic progress9.
However, the above re-interpretations of institutionalist research program
maintain two serious shortcomings of Ayres’ thought. First, it reproduces the
untenable dualism between ‘matter-of-fact’ and ‘ceremonial’ knowledge. Even
though the above dualism is considered now as an analytical distinction not located in
concrete social realms, it remains too tautological to be challenged by alternative
theories. Besides, the de-mystification of technology makes more clear the
inoperativeness (arbitrariness) of such a dualism. In fact, the latter presupposes that
some researchers have the right to decide what is a “matter-of-fact” knowledge and
what is not.
What is more important is that the above re-interpretations still lack an
elaborated theory that could make the link between their highly abstract, quasiphilosophical, conceptions of technology, institutions, instrumental and ceremonial
practices and their empirical studies of different institutions. Thus, paradoxically
enough, after of one century of research on technology and institutions,
institutionalism still not disposes a genuine theory of technical change in (advanced)
capitalism. As Wisman and Smith (1999) argued:
The primary weakness with the Veblen/Ayres – inspired approach to technological
change is its focus on the highest and more abstract level of causation. (…) As a
general description of the accelerating technological advance of the human race in the
broad sweep of history, the Veblen/Ayres approach is indeed plausible (…) However,
as a theory about the proximate forces that motivate, shape, and guide technological
change in a advanced capitalist economy such as ours, the institutionalist view is not
convincing (Wisman and Smith, 1999, p. 891,2).
A more consistent proposition about the future of the institutionalist current
comes from James Webb (2002, 2005) who suggests to leave out the dichotomy
between the ceremonial and instrumental and come back to Dewey’s thought that has
been obviously misinterpreted by Ayres and his followers. Webb’s proposition
presents two intimately related major advantages. From the one hand, it sorts out the
9
It must also be noted the existence of more divergent contributions to the debate as this
coming from Ramstad (1995) who proposes to reject the ‘Veblenian’ dichotomy in favour of
Common’s approach. However, to repeat Gruchy’s quotation from the introduction of this
paper, Commons “did not … have a theoretical roof under which he could bring together his
many themes in order to develop a theory of American capitalism”.
16
institutionalist current from the impasse of Manichean dichotomies that isolated it
from the rest of the critical social thought. On the other hand, it comes in a period
where the importance and actuality of Dewey’s thought has been recognised by many
socially progressive and epistemologically anti-positivist researchers. The question is
if the removal from Ayres and the come back to Dewey is enough to remedy the
chronic problems of American institutionalism with theory. Webb (2004) seems to
believe that this is the case:
The problem with (self-conscious) theorizing in institutional economics is that too
often big words -‘concepts’- are merely labels given to the outcomes of complex
processes in lieu of the detailed, critical empirical study required to describe and
explain how the process generating the outcomes are functionally distinguished from
other processes. (1056)
The diagnostic about the blockages of modern institutionalism is very acute
and generalizes the remarks made by Wisman and Smith (1999) on the question of
technical change. Nonetheless, the history of institutionalist economics in the interwar
period shows that detailed and critical empirical studies, informed by pragmatist faith
on piecemeal reformism, were not enough to produce an alternative theory to
neoclassical economics. Unfortunately, the open-mindedness that characterises the
pragmatist philosophy regarding the reject of ready-made revolutionary blueprints and
the adoption of trial-and-error reformism has turned to a malediction for American
institutionalism. Everything passed as if the pragmatist imperative of a piecemeal
problem-solving proscribed the elaboration of history-bound theories and
combinations of different levels of abstraction.
It’s beyond doubt that we can find in Dewey’s thought a very interesting
moral and political philosophy. But, his moral philosophy cannot stand for social
theory, not to speak for economic theory. His ethics are linked with his radical
democratic ideal, which understands individual development and self-realization
through the participation to collective and experimental inquiry for problem-solving
in the public realm. This is a very powerful idea that expanded the limits of American
pragmatism and inspired important “continental” philosophers like Jürgen Habermas
(198, 1996) and Axel Honneth (1998). But, once again, Dewey’s democratic ideal can
be an important guide for progressive social research but it cannot be substituted to it.
It is to social scientists to produce theoretical devices in order to analyse/understand
the contemporary economy and society. The outcomes of the social research should in
17
turn inform the philosophers and the citizens if the reality of modern societies is
approaching or is diverging form the normative foundations of democracy offered by
Dewey.
Without such an interaction between the analysis of modern societies and the
Dewey’s radical democratic ideal, the latter risks to be transformed in an a-historical
Certainty that blocks the continuity of the original Deweyan inquiry. For example, the
ongoing process of “depoliticization and disinvolvement in the public realm” (Tilman
2001, 133) makes Dewey’s normative foundations of democracy too distant from the
reality of contemporary societies. As Rick Tilman (2001) remarks, even though the
phenomenon of depoliticization was already in process in the “mass” society and its
American way of life, it becomes far more acute today by the monopolization of mass
media by a handful of large firms. Therefore, the evolution of advanced capitalist
societies from the period where Dewey was writing The Public and its Problems
(Dewey 1927), or The Theory of Valuation (Dewey 1939), should seriously be taken
in account by Dewey’s followers not only in social sciences but also in philosophy10.
Finally, similar remarks hold for Dewey’s epistemological contributions. Their
importance for today social research is undeniable (Webb 2002, 2005). Still,
epistemology can usefully guide theory but not be substituted to it.
In guise of conclusion: Could Institutionalism produce a history-friendly theory?
Τhe above does not mean that occupation with philosophical and
epistemological issues present diminishing returns for institutionalist inquiry. On the
contrary, contemporary institutionalism should invest heavily in following the
philosophical and epistemological debates of our era. The main challenge for today
institutionalism in the meta-theoretical level is not to be isolated within Dewey’s
pragmatism. Obviously, the latter is not the only current to form an alternative to
scientism and post-modernism, or to the “spectator theory of knowledge” inaugurated
by Descartes.
Nevertheless, as already said above, whatever the meta-theoretical advances of
modern institutionalism, they could never be substituted for theory. The first choice
institutionalists have to do is between universal theories and historically-bounded
10
For a questioning of the applicability of Dewey’s ideal of democratic inquiry in “complex
industrial societies”, see also Festenstein 2001, 745.
18
theories. Supposing that only the second ones are conforming to the broad
institutionalist framework, the existing choices for intellectual exchanges are not so
many. In 1932 Eveline Burns cited the names of Sombart and Weber. Marx, Galbraith
and Polanyi are also important candidates towards this direction. From a
methodological point of view, the above authors can help institutionalism to
understand capitalism as a hierachised whole, and not as a nebula of institutions. But
the big problem with these authors is that their analysis of capitalism becomes
irrelevant as the industrial capitalism is getting over and replaced by an informationor knowledge-based one. The passage from an energy-based to an informationintensive technological system, the possibility of the capitalism to work in a real time
on a planetary scale, the ongoing dematerialisation of commodities (inputs and
outputs), the importance gained by knowledge workers and intangible capital over
manual labour and physical capital … are some of the tendencies that openly
undermined the foundations of industrial capitalism11. From this point of view, the
severe crisis of labour unions and communist or socialist parties in the Western World
is but the political expression of the above secular mutations of modern capitalism.
Therefore, if theories cannot be invented ex nihilo or simply be extrapolated
by philosophical positions, there is today for institutionalism a urgent need for a
critical appropriation of dominant and non-mainstream theories that have been
developed the last two decades. The main question is what they tell us – and
especially what they don’t tell us - for the capitalism of 21st century. It must be noted
that what is lacking is neither dominant theories that deserve to be appropriated and
criticised (Gibbons et al. 1994, Foray and Lundvall 1996, …)12, nor already existing
critical approaches (Block 1990, Castells 2000, Sennett 2006, Mirowski 2007,…).
What is rather lacking is the innovative spirit, that is, the capacity to go beyond
“imbecile the institutions of the past”. Thus, institutionalists and other non-mainsteam
traditions, instead of looking backward and trying to rationalize the habits of thought
11
An analytical account of the above tendencies is beyond the scope of this paper. For a
systematic comparison between industrial and post-industrial (information) capitalism, as
well as a venturing in new contradictions of the emerging post-industrial economy, see
Liagouras 2005.
12
The internet bubble gave rise to many naïve theories about the so-called ‘new economy’.
Obviously, the latter are of little help for theorising post-industrial capitalism.
19
they inherited from the remote past, they would have better to work together on the
salient features of the rising post-industrial capitalism.
Bibliography
Ayres, Clarence E. The Theory of Economic Progress. Kalamazoo: New Issues Press,
Western Michigan University [1944] 1978.
____. “Veblen’s Theory of Instincts Reconsidered”, in Douglas F. Dowd (ed.),
Thorstein Veblen: A critical Reappraisal, Ithaca, New York: Cornell University Press
(1958): 25-37.
Bellamy, Edward. Looking Backward: 2000-1887, New York: Random House, [1887]
1951.
Block, F. 1990. Postindustrial Possibilities
Burns, Arthur F. Economic Research and the Keynesian Thinking of our Times”, in
Twenty-Sixth Annual Report of the National Bureau of Economic Research. Reprinted
in Athur F. Burns, The Frontiers of Economic Knowledge, Princeton, Princeton
University Press [1946] (1954): 3-25.
____. “Keynesian Economics Once Again”, Review of Economic Statistics, 29, 4
(1947): 252-267.
Bush, Paul D. “The Theory of Institutional Change”, Journal of Economic Issues 21,
3 (1987): 1075-116.
Castells, M. 2000. The Information Age: Economy, Society and Culture, updated
edition (3 volumes), Oxford, Blackwell
Clark, John M. “Past Accomplishments and Present Prospects of American
Economics”, American Economic Review 26, 1 (1936): 1-11.
___. “The Theoretical Issues”, American Economic Review 32, 1 (1942): 1-12.
Coats, A.W. “The Influence of Veblen’s Methodology”, Journal of Political
Economy, vol. 62. (1954) Reprinted in J.C. Wood (1993), vol. II, 96-108
Dewey, John. Theory of Valuation. In John Dewey: Later Works, vol. 13, Carbondale:
Southern Illinois University Press, and London: Feffer & Simons, [1939], 1981-1990.
Dugger, William J. “Veblenian Institutionalism: The Changing Concepts of Inquiry,
Journal of Economic Issues 29, 4 (1995): 1013-27.
Dugger, W.J. and Sherman, H. 2000. Reclaiming Evolution. A Dialogue between
Marxism and Institutionalism on Social Change, London and New York, Routledge
20
Edgell, S. “Thorstein Veblen’s Theory of Evolutionary Change”, American Journal of
Economics and Sociology 34, 3 (1975) 267-80. Reprinted in 195-208
Edgell, S. and Tilman, R. 1989. The intellectual antecedents of Thorstein Veblen: A
reappraisal, Journal of Economic Issues, vol. XXIII, no. 4, 1003-1026
Festenstein, Matthew. “Inquiry as Critique: On the Legacy of Deweyean Pragmatism
for Political Theory”, Political Studies 49, 4 (2001): 730-48.
Foster, Fagg J. “The Effect of Technology on Institutions”, Journal of Economic
Issues, XV, 4 (1981): 907-922.
Gruchy, Allan G. “Three Different Approaches to Institutional Economics: An
Evaluation”, Journal of Economic Issues 24, 2 (1990): 361-69.
Hodgson, Geoffrey .M.. Dichotomizing the dichotomy: Veblen versus Ayres, in
Fayazmanesh, S. and Tool. M.(ed.), Institutionalist Method and Value. Essays in
honour of Paul Dale Bush, vol. 1, Aldershot, Edward Elgar, 1998.
Hodgson, Geoffrey M. The Evolution of Institutional Economics. Agency, Structure
and Darwinism in American Institutionalism, London and New York: Routledge,
2004.
Homan Paul T., Burns, Eveline M., Copeland, Morris A., Jaffé William, Spengler,
Joseph J., and Taylor Overton, H. Economic Theory-Institutionalism: What It Is and
What It Hopes to Become, American Economic Review, 21, 1 (1931): 131-141.
Honneth, Axel. “Democracy as Reflexive Cooperation: John Dewey and the Theory
of Democracy Today”, Political Theory 26, 6 (1998): 763-83.
Klein, Philip A. “Ayres on Institutions – A Reconsideration”, Journal of Economic
Issues 29, 4 (1995): 1189-96.
Lawson, T. 1997. Economics and Reality, London and New York, Routledge
Lawson, Tony. “Institutionalism: On the Need to Firm up Notions of Social Structure
and the Human Subject”, Journal of Economic Issues 37, 1 (2003): 175-207.
Leathers, Charles G. “Bellamy and Veblen’s ‘Christian Morals’”, Journal of
Economic Issues, XX, 4 (1986): 1107-1119.
Lee, Frederic S. “From Multi-Industry Planning to Keynesian Planning: Gardiner
Means, the American Keynesians, and National Economic Planning at the National
Resources Committee”, Journal of Policy History, 2, 2, (1990): 186-212.
Liagouras, George. “The Political Economy of Post-Industrial Capitalism”, Thesis
Eleven, 81 (2005): 20-35
McFarland, Floyd B. “Clarence Ayres and his Gospel of Technology”, History of
Political Economy 18, 4 (1986): 617-37.
21
Mayhew, Anne. “On the difficulty of evolutionary analysis”, Cambridge Journal of
Economics, 22, 4 (1998): 449-61.
Mirowski, Philip. “The Philosophical Bases of Institutionalist Economics” Journal of
Economic Issues 21, 3 (1987): 1001-38.
___. “The Measurement Without Theory Controversy: defeating rival research
programs by accusing them of naïve empiricism”, Economies et Sociétés, Série
OEconomia, 11 (1989): 65-87.
Ramstad, Y. 1995. “John R. Commons Puzzling Inconsequentiality as an Economic
Theorist”, Journal of Economic Issues 39, 4 (1995): 991-1011.
Rutherford, M. 1984. Thorstein Veblen and the process of institutional change,
History of Political Economy, vol. 16, no 3, 331-48
Rutherford, M. 1998. Veblen’s evolutionary programme: a promise unfulfilled,
Cambridge Journal of Economics, vol. 22, no 4, 463-77
Rutherford, Malcolm. “Understanding Institutional Economics: 1918-1929”, Journal
of the History of Economic Thought 22, 3 (2000): 277-308.
Rutherford, Malcolm, and C. Tyler DesRoches. “The Institutionalist Reaction to
Keynesian Economics” (2006)
Samuels, Warren J. “Technology vis-à-vis Institutions in the JEI: A Suggested
Interpretation, Journal of Economic Issues 11, 4 (1977): 871-95.
Sowell
Sturgeon, James I. “Induction and Instrumentalism in Institutional Thought”, Journal
of Economic Issues, vol. XVIII, 2 (1984): 599-609.
Tilman, Rick. “Dewey’s Liberalism versus Veblen’s Radicalism: A Reappraisal of the
Unity of Progressive Social Thought”, Journal of Economic Issues 18, 3 (1984): 74569.
___. “The Utopian Vision of Edward Bellamy and Thorstein Veblen”, Journal of
Economic Issues 19, 4 (1985): 879-98.
___. “New Light on John Dewey, Clarence Ayres, and the Development of
Evolutionary Economics” Journal of Economic Issues 24, 4 (1990): 963-79.
___. “Institutional Economics, Instrumentalist Political Theory, and the American
Tradition of Empirical Collectivism”, Journal of Economic Issues 35, 1 (2001): 11738.
Veblen, T. 1898. Why is economics not an evolutionary science?, The Quarterly
Journal of Economics, vol. XII, no. 3. Reprinted in Veblen, T. 1919A. The Place of
22
Science in Modern Civilisation and Other Essays, London, Routledge/Thoemmes
Press, 1994
Veblen, T. 1899. The Theory of the Leisure Class: An Economic Study in the
Evolution of Institutions, London, Routledge/Thoemmes Press, 1994
Veblen, T. 1904. The Theory
Routledge/Thoemmes Press, 1994
of
the
Business
Enterprise,
London,
Veblen, T. 1914 Veblen, T. 1914. The Instinct of Workmanship and the State of the
Industrial Arts, London, Routledge/Thoemmes Press, 1994
Walker, Donald A. “The Economic Policy Proposals of Clarence Ayres”, Southern
Economic Journal 44, 3 (1978): 616-28.
Waller W.J.(Jr) 1987. Ceremonial encapsulation and corporate cultural hegemony,
Journal of Economic Issues, vol. XXI, no 1, March, 321-8
Waller W.J.(Jr) 1982. The evolution of the Veblenian dichotomy: Veblen, Hamilton,
Ayres and Foster, Journal of Economic Issues, vol. XVI, no 3 September, 757-71
Webb, James L. “Dewey: Back to the Future”, Journal of Economic Issues 36, 2
(2002): 981-1003.
___. “Reply to Baldwin Ranson: New Continua Are Not a Substitute for Deweyan
inquiry”, Journal of Economic Issues 38, 4 (2004): 1056-1059.
___. “Dewean Inquiry and Economic Practice”, Journal of Economic Issues 39, 2
(2005): 511-517.
Wisman, Jon D., and James F. Smith. “American Institutionalism on Technological
Change”, Journal of Economic Issues 33, 4 (1999): 887-902
Yonay Yuval, P. The Struggle Over the Soul of Economics: Institutionalists and
Neoclassical Economists in America between the Wars, Princeton, Princeton
University Press (1998).
23