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Veblen’s evolutionary methodology and its implications for heterodox economics in the calculable future

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Abstract

Critics have repeatedly claimed that heterodox economics has failed. They blame heterodox economists for their own failure. I subject this claim to critical examination from the perspective of Veblen’s evolutionary methodology. Veblen’s theory of the business enterprise will be used as an example, which exemplifies the case that a ‘blasphemous’ theory is ignored and marginalized even though it provides rich and perspicacious insights into the evolution of economy and society. It is also argued that social science does not follow the biological principle of natural selection and the survival of the fittest. What survives does not necessarily mean the fittest in the social realm. The history of science is replete with paradoxical incidents that an incoherent, irrelevant, or even wrong theory becomes dominant and widely accepted because it is one that serves the vested interests in academia and society. Economics is no exception.

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Notes

  1. There are different definitions of heterodox economics. By heterodox economics, I mean here the various schools of thought that are organized through currently active intellectual communities (see, Lee 2009: pp. 203–204) and that provide a scientific analysis of the social provisioning process (Jo and Todorova 2018; Jo et al. 2018a). How to classify heterodox economics from the Veblenian perspective is one of the main issues dealt with in this article (in particular, Section 4).

  2. Marshall’s evolutionary thinking was largely influenced by Herbert Spencer, rather than by Charles Darwin, as evidenced by Marshall’s biological analogies of the survival of the fittest and natural selection which presume that economy and society resemble the natural realm (Marshall [1890] 1920: p. 241; Hodgson 2004; Jennings and Waller 1998; Laurent 2000; Thomas 1991; Jo 2019b).

  3. The concept of the ‘joint stock of community knowledge’ warrants further but brief elaboration as it is relevant to the present discussion. The stock of (technological and managerial) knowledge animates resources (and, of course, requires resources to conduct scientific enterprise). That is to say, whether any resource is useful or not depends upon the joint stock of community knowledge; and by the same token, some previously utilized resources become obsolete when new knowledge is created and accepted. In this regard, “Resources are not, they become; they are not static but expand and contract in response to human wants and acts” (Zimmermann [1933] 1951: 15, original italics). Two important theoretical implications can be drawn from this evolutionary view of resources. Firstly, if all knowledge is socially created, it is not possible to single out one individual’s ‘productivity’ from another’s in the process of production. Labor, natural inputs, and the produced means of production become productive resources because of the joint stock of technological and managerial knowledge in place. ‘Capital’ or ‘labor’ alone cannot be productive in and by itself. Capital goods should be mobilized by skilled labor for a particular productive purpose. The joint stock of knowledge accumulated from the past determines the kind of inputs and the utilization ratio between inputs. Thus it is not possible to have the neoclassical production function with variable input proportions, marginal productivity, and profit maximization from Veblen’s evolutionary perspective (Veblen [1914] 1964b: 103, 144; Lee 2018: pp. 43–45). Consequently, a theory of the business enterprise that is completely different from the mainstream theory is required. Veblen (1904) is an attempt to that end (more on this in Section 3). Secondly, the assumption of scarce resources is a non-evolutionary, static, and hypothetical concept which presumes the fixed system of individual preference and society (including markets) and the absence of transformative social agency. Some evolutionary-institutional economists, however, postulate ‘local and global scarcity’ (Hodgson 2019: 54), the concept of which is at odds with this evolutionary point of view. While Hodgson calls for a more precise use of the scarcity concept, his local and global scarcity concept is still neither precise nor relevant to the critique of the incoherent neoclassical concept of relative scarcity (see Levine 1977: pp. 180–186, for a trenchant critique of the scarcity concept). Moreover, both Veblen’s and Zimmermann’s arguments are not about the temporal, individual, or locational availability of a resource. They are about the creation and use of resources that depends upon the accumulated joint stock of knowledge and the decision to generate specific knowledge for a particular purpose.

  4. A careful and informed reader, like one of the anonymous reviewers of this journal, would raise a question if I mean here that evolutionary-heterodox economists would or should reject mathematical formalism entirely. My answer is no. Although this is one of controversial issues that merits a fuller discussion, let me just briefly discuss since it is not directly linked to the main thesis of the present article. The same reviewer also brought up her/his own experience that most mainstream economists believe economics without mathematics is poetry and an economist who does not build a mathematical model is not an economist. For example, many students and economists of Harvard University did not consider John Kenneth Galbraith an economist because “he wasn’t a modeler” (Coyle 2007: 231). These observations indicate that there is a fundamental difference between heterodox economics and mainstream economics in terms of the use of mathematics in economic analysis. In this regard, I am quite sympathetic to Tony Lawson’s argument that heterodox economists are opposed to the “abuse of mathematical formalism,” rather than simply rejecting the use of mathematics (Lawson 2009: p. 190). By the same token, Veblen ([1908] 1961a) is critical of the mathematical-deductivist models to the extent it is a fundamentally limited way of explaining the uncertain and open-ended socio-historical process.

  5. Nelson and Winter (1982: p. 39) consider their evolutionary approach “neo-Schumpeterian.” They also claim that it is an alternative to the neoclassical theory for the reasons stated here. There is a vast literature on the neo-Schumpeterian approach to economics which is not confined to Nelson and Winter (see, e.g., Magnusson 1994). One of two anonymous reviewers of this journal asserts without supporting arguments that the same critiques of new institutional economics cannot be applied to the ‘heterodox’ neo-Schumpeterian theory. I do not agree (and, interestingly, the other reviewer is of the same opinion as the present author). I would refer readers to Jo (2019b) which argues that Nelson and Winter’s evolutionary theory is an anti-Veblenian theory and a protective modification of the neoclassical theory.

  6. To quote Veblen, “It may be interesting to point out that the like identification of the categories of normality and right gives the dominant note of Mr. Spencer’s ethical and social philosophy, and that later economists of the classical line are prone to be Spencerians” (Veblen [1900] 1961a, 167). And also: “It is a notable fact that even the genius of Herbert Spencer could extract nothing but taxonomy from his hedonistic postulates; e.g., his Social Statics. Spencer is both evolutionist and hedonist, but it is only by recourse to other factors, alien to the rational hedonistic scheme, such as habit, delusions, use and disuse, sporadic variation, environment forces, that he is able to achieve anything in the way of genetic science, since it is only by this recourse that he is enabled to enter the field of cumulative change within which the modern post-Darwinian science live and move and have their being” (Veblen [1908] 1961e, pp. 191–192).

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Acknowledgments

An early version of this article was first presented at a special session on heterodox economics (“The success, obstacles and potential opportunities for heterodox economics”) of the European Association for Evolutionary Political Economy (EAEPE) Annual Conference, Warsaw, Poland, in September 2019. I thank Carlo D’Ippoliti and Paolo Ramazzotti for inviting me to present the paper. A revised version of the paper was presented at the plenary session of the International Confederation of Associations for Pluralism in Economics (ICAPE) Annual Conference, San Diego, USA, in January 2020. I thank Geoff Schneider for giving me an opportunity to present my paper to a large audience, especially young heterodox economists. Thanks are due also to John F. Henry, Zdravka Todorova, Nuno Ornelas Martins, and Wesley Marshall, and two REPE reviewers for valuable comments and suggestions which have improved the paper greatly. Any remaining error is author’s responsibility.

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    Tae-Hee Jo

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Jo, TH. Veblen’s evolutionary methodology and its implications for heterodox economics in the calculable future. Rev Evol Polit Econ 2, 277–295 (2021). https://doi.org/10.1007/s43253-020-00024-1

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