Rethinking Economics: Markets, Technology and Economic Evolution

112 Pages·1991·8.541 MB·English

by  Geoffrey M. Hodgson & Ernesto Screpanti (Editors)

Rethinking Economics
COMPRA
1
Rethinking Economics
Markets, Technology and Economic Evolution
Edited by
Geoffrey M. Hodgson and Ernesto Screpanti
Edward Elgar
Contents
e European Association for Evolutionary Political Economy 1991
I
All rights reserved. No part of this publication rriay be reproduced,. stored in _a
retrieval system, or transmitted in any for_m or ~y any me~, electroi:uc: mecharu List of Tables vii
cal, photocopying, recording, or otherwise without the pnor permission of the List of Contributors ix
publisher. Preface xi
Published by
1 Introduction 1
Edward Elgar Publishing Limited
Geoffrey M. Hodgson and Ernesto Screpanti
Gower House
Croft Road
Aldershot
Hants GUl 1 3HR PART I: PRICES, MARKETS AND PRODUCTION
England
Edward Elgar Publishing Limited 2 Contributions to an Institutional Theory of Price Determination 19
Distributed in the United States by MarcR. Tool
Ashgate Publishing Company
Old Post Road 3 The Nature of the Market: a Structural Analysis 40
Brookfield Frederick C. v. N. Fourie
Vermont05036
USA 4 The Pertinent Levels of Analysis in Industrial Dynamics 58
Dominique Foray and Pierre Garrouste
A CIP catalogue record for this book
5 Production Flexibility 68
is available from the British Library
Mario Morroni
A CIP catalogue record for this book
is available from the US Library of Congress
PARTII: INNOVATION, TECHNOWGY AND ECONOMIC EVOLUTION
6 Reflections on the Present State of Evolutionary Economic Theory 83
Ulrich Witt
7 Cultural Difference and Subjective Rationality: Where Sociology 103
Connects with the Economics of Technological Choice
Mary K. Farmer and Mark L. Matthews
ISBN 1 85278 416 4
8 How do National Systems of Innovation Differ?: A Critical 117
Analysis of Porter, Freeman, Lundvall and Nelson
l'rlnted in Great Britain by
Maureen McKelvey
BIiiing &r Soni Ltd, Worcester
V
Rethinking Economics
vi
9 Economic Evolution, Chaotic Dynamics and the Marx-Keynes- 138
Schumpeter System
Richard M. Goodwin
List of Tables
153
10 Socio-political Disruption and Economic Development
Geoffrey M. Hodgson
172 4.1 Product and process characteristics 60
Bibliography
199 4.2 The pertinent levels of analysis in industrial dynamics 66
Index
5.1 Flexible production systems: a taxonomy 69
8.1 Conceptions of technology and technical change 135
8.2 What are national systems of innovation? 136
10.1 Periods of major disruption (PMDs) 166
10.2 Index of disruption (DIS) 167
10.3 The existence of pluralistic democracy (DEM) 167
10.4 Regression 168
vii
il
I'i,
List of Contributors
Mary K. Farmer, School of Social Sciences, University of Sussex, Brighton,
United Kingdom.
Dominique Foray, Ecole Centrale Paris CNRS, Paris, France.
Frederick C. v. N. Fourie, Department of Economics, University of the
Orange Free State, Bloemfontein, South Africa.
Pierre Garrouste, MRASH, Universite Lumiere Lyon 2, Lyon, France.
Richard M. Goodwin, Institute of Economics, University of Siena, Italy.
Geoffrey M. Hodgson, Department of Economics and Government, New
castle Polytechnic, United Kingdom.
Maureen McKelvey, Department of Technology and Social Change, Uni
versity of LinkOping, Sweden.
Mark L. Matthews, Science Policy Research Unit, University of Sussex,
Brighton, United Kingdom.
Mario Morroni, Department of Economics, University of Bergamo, Italy.
Ernesto Screpanti, Department of Economics, University of Trieste, Italy.
Marc R. Tool, Department of Economics, California State University,
Sacramento, United States of America.
Ulrich Witt, Faculty of Economics, University of Freiburg, Germany.
ix
Preface
In 1988, at an historic meeting at Mansion House in Grim's Dyke (North
London) between American institutionalists and heterodox European econo
mists of different persuasions, a decision was made to launch a new European
association which could amass a sustained and influential alternative to the
analyses and policy prescriptions of the neoclassical orthodoxy. This is how
the European Association of Evolutionary Political Economy (EAEPE) was
born. Today, the Association has over 350 members in different European
countries and the US. The membership of economists from the East European
countries, searching for an alternative to both the centrally planned and the
market economy, has also grown rapidly since 1989.
This volume is one of two of the first publications of EAEPE, based on
the second Annual Conference of the Association, which was held in Flor
ence in November 1990. The conference, with its ambitious title 'Rethinking
Economics: Theory and Policy for Europe in the 21st Century', was a great
success, eliciting, as it did, a wide range of papers and active discussion on
questions of economic theory and on patterns of restructuring in Europe (the
subject matter of the companion volume).
To the pleasure of the organizers, the conference produced a surprisingly
high level of consensus over the issues discussed; a consensus rooted in a
political economy drawing upon the work of such antecedents as Marx,
Keynes, Polanyi, Veblen, Commons, Myrdal and Kaldor. It was widely felt
that this, at the very least, would secure the longevity of the Association and,
with it, prospects of a broad heterodox alternative to neoclassical economics.
The building blocks of such an approach are evident both in this volume and
in the accompanying volume on the dynamics of structural and institutional
change in Europe, Towards a New Europe?
xi
1. Introduction
Geoffrey M. Hodgson and Ernesto Screpanti1
Ask us not the fonnula to open up worlds for you,
but a crooked syllable like a withered briar.
l•• I
Only this we are able to say anew,
what we are not, and for what we do not aspire.
Eugenio Montale, 'Don't Ask Us the Word'2
CHAOS IN ECONOMICS AND 1HE ECONOMICS OF
CHAOS
For about 30 years after the end of the Second World War, during the
decades of political stability and economic boom, there was a prevailing
consensus in economic theory. ~~.!amcal.mi~~~mics combined with 7
a bowdlerized J~~e,siani~m in the textbooks, and leading theorists pro
claimed that their understanding of economic phenomena and systems was
virtually complete. All was seen to be well, and little work remained but to
gather more data, estimate a few more functions for forecasting purposes,
and solve some residual puzzles.
Today, in contrast, g;onomics .is. in thaos. The proclamation of a 'Crisis
in Economic Theory' by Daniel Bell and Irving Kristol in 1981, in a cel
ebrated collection of essays, now seems almost an understatement. The
crisis has reached chaotic proportions for several reasons and is illuminated
by tnany examples. First, theoretical work in pmc~ and elsewhere has
raised questions about the very meaning of 'hard core' notions such as
rationaj.iJy. As Robert~en(f99.(), p. 89) argues, 'game theory may rest on
a concept of rationality iliaTisultimately little more than a convention'.
Consequently, the very definition of what is tenned 'neoclassical economics'
has become unclear, and ~odoxy is beginning to lose the ability to police
its own boundaries.
• .. _ Secondly, the door having been bolted for decades, mainstream theorists
· now, albeit in a limited fashion, admit discussion of problems of imperfect
or 39mm~c information apd even ~unded.rationality'. Whilst these are
1
2 Introduction Introduction 3
welcome developments they have created havoc with orthodox presupposi equilibrium conditions. Clearly, this type of socio-economic reasoning has
tions. For instance, as Joseph Stiglitz (1987) has elaborated, even standard had a long string of liberal followers since it was promoted by Bernard
demand analysis is now called into question. Mandeville in the Fable of the Bees (1714). The general presumption is that
Thirdly, the intrusion of ~tl.!_~r:y into economics has put paid to the', from private vices, public virtues spring. The indeterminacy and instability -i
general idea that economics can proceed simply on the criterion of 'correct \ results produced by contemporary theory lead to the conclusion that an !
predictions'. With non-linearJ!L@£!~ outcomes are over-sensitive to initial 1 economy made up of atomistic agents has not structure enough to survive, as
conditions and thereby reliable predictions are impossible to make in regard its equilibria may be evanescent states from which the system tends to ·
to any extended time period. In particular, chaos theor-y has confounded the depart ~aiid Israe1:j9B3; 1',ll1!l~-~- .:
• rational expectations theorists by showing that even if most agents knew the There are mariy other problems, from capital theory to monetary analysis,
basic structure of the economic model, in general they cannot derive reliable from the theory of the firm to the economics of welfare. For the moment we
predictions of outcomes_1:1_Dd tll~rebs form any meaningful 'rational expecta- / have confined ourselves to some special cases only. These conspire to under
lions' of the future Wraii~mont, 1987)., / mine the very 9ntolog!c:_al andme.tltod9l<>,gi~a! fQ!m®JlOQ~ o.(or,th()(),oxy. In
Fourthly, the developmenfof~eaj equilibriumJbeor:y bas now reached sum, 'homo rationalis insatiabilis', so beloved by economists, this pale
a serious impasse. Quite early on it was realized that the potential diversity simulacrum of homo sapiens, is a fake. A society simply made up of such
amongst individuals threatened the feasibility of the project Consequently, molecules of desire is an impossibility.
many types of interaction between the individuals have to be ignored. Even - Of course, there are those who will continue to bury their heads in the
with the restrictive psychological assumptions of rational behaviour, severe sand. Many, faced with the prospect of introducing their students to such
difficulties are faced when the behaviours of a number of actors are brought mayhem, and armed with the narve belief that economics is a more-or-less
together. As Kenneth Arrow (1986, p. S388) has been led to declare: 'In the,, complete and established box of tools, will continue to reel out the textbook
aggregate, the hypothesis of rational behavior has in general no implications.' verbiage as before. At the same time, many textbook authors go on stuffing
Consequently, it is widely assumed that all individuals have the same utility their volumes with an increasing amount of largely empty formalizations.
function. Amongst other things this denies the possib~y of 'gains from Students are taught less to think, more to assimilate dogma and to perform
trade arising from individual differences'<'.(Arrow, 198.6; p. S390). Thus, tricks of technique. But blinkered insularity cannot calm the cacophony and
despite the traditional celebrations of individualism and competition, and confusion in the subject at large.
despite decades of formal development, the hard-core theory of .Q!.IDQdox It must be stressed, however, that not all economists brought up in the
~onomics can handle no more than a grey uniformity amongst actors. neoclassical tradition are exposed to the foregoing criticisms. On the con
, Fifthly, recent research into the problems of the uniqueness and stability trary, one of the promising aspects of the current process of creative destruc
1
f a general equilibrium have shown that it may be indeterminate and unsta tion in economic theory is the tendency for even mainstream economics to
le unless very strong assumptions are made, such as that society as a whole lose its limpidity, while, as we have suggested, the boundaries between
behaves as if it were a single .individual. Addressing such problems Alan orthodoxy and heterodoxy are becoming increasingly blurred. Consider the
IGr.man (1989, p. 138) thus concludes: 'If we are to progress further we may diverse wealth of insights now coming from research fields such as game
well be forced to theorise in terms of groups who have collectively coherent theory, public economics, social choice theory, the theory of justice, industrial
behaviour. . . . The idea that we should start at the level of the isolated organization studies, property rights theory and ecological economics.
individual is one which we may well have to abandon.' -
r·- The theoretical implications of the uniqueness and stability results dis-
cussed by Kirman are dramatic, and they go well beyond the traditional STRANGE ATTRACTORS
' criticisms of general equilibrium analysis. A fundamental consequence is the
· breakdown of the individualistic or atomistic type of economic analysis Neither have the heterodox traditions in economic theory been free from\
1 typically associated with a few fundamental assertions: that the rationality of problems. For example, after a rapid rise in scholarship and interest in the l
self-interested and autonomous individuals is sufficient to produce and late 1% Os and early 1970s, Marxian economics has reached an impasse. 1
j maintain equilibrium and social order; that such an equilibrium is efficient; There are many reasons for this, both external and internal. We may note in :
and &hat social institutions like the state can interfere only to disrupt the passing the theoretical and empirical weaknesses of some 'laws' associated :
I
4 Introduction Introduction 5
with Marxism, such as the laws of the falling rate of profit or of the classicals, post-classicals, Austrians, neo-Austrians, Schumpeterians, neo
immiserization of the proletariat. Further, Marxism has been scarred by Schumpeterians, behaviouralists, neo-Ricardians, new institutionalists, neo
penetrating criticisms of some of its fundamental concepts and ideas, con institutionalists, plain institutionalists and more: an orgy of delights herald
cerning, for instance, the theory of the state and of social classes. A variety ing an exhaustion of meaning.
of approaches and schools have spawned within Marxism. The creativity of Amongst this culture of epigones consider a single further case. It is well
several of these is undeniable, but many have become ossified and they are known that the various Post Keynesian approaches are united more by their
often disengaged from crucial debates in modem economic theory. common dislike of 'neoclassical' theory and less by any coherence or agree
',;;;;... During the 1970s, Marxist economists had become polarized into the ment upon fundamentals (Harcourt, 1982). But whilst embracing the legacy
'fundamentalists', who were less willing to amend Marx, on the one hand, of Keynes, and despite the recent instructive scholarship on Keynes's deeper
''<!
and various kinds of neo-Marxists, including Sraffians, on the other.
v.i.sion (C.arabe.. lli, 1988; Fitz.gi·b·b ..o n. s, 1988; O'Donnell, 1989.) •.. Qle Pos.t.
Throughout this decade much time and energy was taken up by internal .. l(~ynesians have generally evaded the more fundamental ontological and
1
debates, neglecting the vital and critical dialogue with other streams of .. r.nethodo.Jogieaf:.ntai:ters. ·Of· course, there are a few exceptions, such as
.· thought. Even today the fundamentalists are still searching for the 'correct' Sheih(~.w.119_85)';1,ut the main Post Keynesian effort has been to concen- '
definition of 'value' and refining the latest solution to the 'transformation trate instead on alternative approaches to formal economic modelling. This
.·problem'. Strangely, after it had led the clarion calls for 'relevance' in the situation has led to some disenchantment with this school, with attempts to
' 1960s and 1970s, Marxism itself now seems less capable of addressing the redefine the 'Post Keynesian' label, or to formulate an underlying methodol
concrete structures and processes of contemporary capitalism. ogy. We welcome such efforts, but in our view the fruit is not yet on the vine.
Here too, the most serious debacle is ontological and methodological. This is not, nor is it meant to be, an exhaustive survey of 'neoclassical'
With hindsight, the tedious debates on value theory gave a clue. The cen theory and its rivals.4 What is asserted here, however, is that chaos has in
tury-long controversy over the 'transformation problem' ended with the fected all the main schools and branches of theoretical economics. Conse
simple result: the sole correct solution to the problem is nothing but its quently, any degree of complacency or self-assuredness amongst representa
dissolution. But this clue leads to more revelations. Today, many economists tives of either mainstream or heterodox approaches is likely to indicate
sympathetic to Marxism are prepared to accept that the labour theory of insularity rather than adequacy.
value is a residue of •R icardian naturalism': a 'substance theory of value' of
doubtful meaning and validity (Lippi, 1979; Mirowski, 1989). Thus homo
Jaber too - the supposed creator of value through the power of abstract ORDER OUT OF CHAOS
nerve and muscle - is a fake. Value at best is a social phenomenon, not a
substance at all.3 It is through such an escape route that the more creative It is partly for reasons discussed above that we are resisting the temptation to
Marxist economists have reached the real world. present the ideas and approaches collected here as a well-defined alternative,
We cannot delve into all the historico-philosophical considerations in appropriately packaged and labelled, to current orthodoxy. In recent years a
volved in the above discussion of different streams of economic theory. But number of books have appeared with bold claims to present an 'alternative'
it is hard to resist the temptation to observe a common reason at the roots of to 'neoclassical' theory. The editors do not believe that a well-developed and
the debacle of economic value theory. It is indeed impressive that two major viable alternative yet exists, other than in the form of a few tentative sign
theoretical schools of thought have come to a point of breakdown over the posts through the current mire. Thus we are not making the claim to present
same kind of underlying issue, and in the same period of time. They both a full alternative theoretical system here, neither does the current collection
have subsided at their methodological and ontological foundations. The encompass all the topics of our concern. It is simply a pertinent selection of
cracks widened visibly in the 1980s, but the problems were there long views: helpful explorations in the attempt to find a route through the chaos.
before. At some future stage such ideas might develop into a more clearly formed
Today, of course, the dismal science has much more on offer than merely alternative to orthodoxy. If so, it is bound to become labelled by its friends
neoclassicism and Marxism. We cannot but celebrate the proliferation of or by its foes, and indeed it will have to be so marketed if it is to survive and
•neo•, •new', 'post' and other sundry theoretical approaches now on the prosper. To accept a label at the outset, however, is to take on a great deal of
market. There are neo-Keynesians, Post Keynesians, new Keynesians, new dubious theoretical baggage and many associated misconceptions. Conse-