The USA: from Veblen to Boulding via Spencer

Many economists had been inspired by Herbert Spencer's introduction of the evolutionary approach into the social sciences. An American economist of Norwegian extraction, Thorstein Veblen, is often seen as the first real evolutionary economist on that continent, but also as the last of the classical evolutionists (Peel 1972: xlvii). In his famous 1898 article "Why is economics not an evolutionary science", Veblen wrote that economics was "helplessly behind the times". Biology as a science was on its march forward. The social sciences needed to follow. It is likely that Veblen had read and was influenced by the British economist Alfred Marshall, fifteen years his senior, who in 1890 pointed out that economists had much to learn from the recent history of biology when developing their science. "Darwin's profound discussion of the question [in The Origin of Species] throws a strong light on the difficulties before us" (Marshall 1890: bk 1, ii). He felt strongly that it was biology, rather than Newtonian mechanics, which should be the model for the study of economics.

It is commonly thought that evolutionary economics is an attempt by economists to adapt economics to the principles of the natural sciences. In fact one might well argue that it was the other way round: Darwin is said to have got the idea of natural selection by reading Malthus. (Boulding 1981: 84)

When we look more closely at the history of economics we find that most useful progress has been achieved within the applied fields, such as the study of marketing or management, which are more concerned with real-life situations and applications than with theory building. Yet it is the theoretical advances which have been rewarded, for instance with the Nobel Prize. An important question is how far the discipline of economics really needs theory-building in order to justify its existence. Many business schools, especially graduate schools and master's programmes, are perfectly satisfied with teaching students how to do things (know-how), developing their skills and giving them "tools". This matches Heidegger's notion of the future of the social sciences and the humanities as Steuermannskunde or Kybernetik (etymologically, "the art of the helmsman"), focusing on the ability to solve practical problems. These ideas are already shaping business schools today.

There is a another point here too, as mentioned before. There seems to be no real correlation between economic theory-building and economic success among industrial nations. Thus countries like Germany, South Korea, and Japan are highly competitive nations economically, but have contributed little to the development of modern economic theory, particularly as compared to English-speaking countries. The latter have lost much of their industry over the last few decades while those theories were being created. Their economies have shifted from a society of craftsmen and industrial production to one of knowledge production and services, a shift which has been very much supported by their own economic theories. Both the USA and Britain, which are producing most of these theories, are now suffering from general economic decline.

We talk of "economic theory", but mean very different things. How often does phenomenon A (cause) have to lead to phenomenon B (effect) for the relationship to be called a theory? Some talk of theory if they have done a small empirical experiment which gives answers that go in one direction. Others avoid the term altogether. There is less confusion about the term "economic law": few economists today would claim to have discovered any economic laws.107 R. F. Harrod, one of the founders of the Oxford Economics Research Group, may have come closest when he put forward a law of evolutionary economic behaviour summarized as "Nothing for nothing" (Perroux 1960: 8), but such common-sense theories are of little value. The evolutionary perspective on human behaviour leaves little place for a formulation of natural law in terms of definite normality. Nor does it leave room for that other question of normality, namely what should be the end of the developmental process under discussion (Veblen 1899: 12). The only way for the evolutionary approach to demonstrate its value is to produce theories with greater predictive success than those produced by alternative schools of thought, or else to reject the idea of theories in the social sciences altogether.

One of the real challenges to evolutionary economics is how to define and measure change. Early evolutionists discovered that the differences in traits and species increased with geographical distance, and they sought to classify change into (i) change of stations, and (ii) change of habit. A habitat is a special environmental area inhabited by a particular species or organism. Similar animals may be found at many stations, but only within one habitat (Wallace 1876: 4).

There are a number of reasons why comparable research projects are troublesome in economics. First there is the globalization argument : economic agents travel extensively and live all over the world. They cannot be defined as belonging to one geographical location. Secondly, any research that points to differences in economic performance between human groups is likely to meet serious criticism. One of the advantages of marginalist theory is that it is politically correct, since it complies with human-rights ideals and assumes that all men have the same economic abilities and possibilities initially, regardless of upbringing, cultural background, or genetics. This in turn is what makes differing economic outcomes fair, from the marginality's point of view. We know this is not so: for instance, children born in wealthy families have a better than average chance of economic success themselves, not least because they can expect to inherit their parents' fortune. In that sense it could be argued that neoclassical economics is a convenient tool for the rich to defend their property.

Veblen's definition of evolutionary economics does not ignore cultural differences, nor does it ignore the notion of power:

[evolutionary economics is] the theory of a process of cultural growth as determined by the economic interest, a theory of a cumulative sequence of economic institutions stated in terms of the process itself. (Veblen 1899: 13)

... where man's knowledge of facts may be formulated in terms of personality, habit, propensity/natural tendency and will power. (op. cit.: 5)

This is the culturalist position, so heavily criticized by the academic establishment today for its political incorrectness. Men living under different climatic conditions will tend to behave differently. They have simply developed different habits. For instance, in many places on earth the climate is simply too hot to engage in much economic activity. We see this in large parts of sub-Saharan Africa, the Arab world, and South-East Asia. We also behave differently depending on our geographical location. Thus, island people tend to keep to themselves, or make occasional outbursts into the world, but are also inclined to engage in large-scale export efforts to stay competitive. Among competitive Island economics there is always the realization that if they keep to themselves they will decline, even if that is just as true for landlocked countries. We see this not only with Japan, but also with Britain, Sweden, Taiwan, South Korea, and Singapore. Our cultures have imprinted their particular traits on us, which again helps to explain our behaviour, including our economic behaviour. This does not mean that individuals cannot break out of these patterns, or that cultures do not change. They do. The culturalist position does not have to be a dogmatic one.

Culturalists are also attacked for embracing the scenario summarized as survival of the fittest, implying that some individuals survive at the expense of others. However, it has been suggested that a better phrase would be survival of the fitting, since success is not restricted to a single individual or species, and survival seems to be more a question of finding a niche than of forcing others out (Boulding 1981: 18). In the wild, animals who are not adapted, who have not found some sort of advantage, disappear. Darwin called that the survival of the fittest, a phrase he borrowed from the English philosopher Herbert Spencer (rather than vice versa). Again, objections to the doctrine have a lot to do with ways in which it has been exaggerated. It does not necessarily mean aggressive behaviour. We do not want to live in a society where only the fittest survive; that would be inhumane. Instead we have constructed a political and social system in which those who are "unfit for survival" receive some form of help. However, if those who asked for help formed the majority of citizens, the nation would lose its competitive advantage. So the theory does apply.

What corresponds to extinction in business life is bankruptcy. Bankruptcy does not mean that the bankrupt actually disappears, it merely simulates disappearance by excluding agents who perform poorly from conducting further business for a period of years. Furthermore, the precise consequences of bankruptcy vary, depending on the social-welfare system in place in a particular country. Thus the metaphor of survival of the fittest does not have the same consequences in modern society as it has in Nature, and the cruelty involved is often exaggerated.

Spencer, who was greatly influenced by Adam Smith and Lamarck, is one of the more neglected among classical sociologists. The reasons for this neglect are many: in part political, in part due to his outspoken, consequent denial of historic analysis as a method to gain scientific knowledge, and, no doubt, in part due to his notoriously blunt statements. His ideas were frequently utopian. Hence Spencer remained interesting for a long time as a literary figure but (like Marx and Comte) quickly became unacceptable as a scientist. His Lamarckian biology was dismissed in Europe, partly because it was bad timing to present a value-free social science in a Western world marked by high unemployment and great social misery. He was misunderstood, as when he is associated with social Darwinism and laissez-faire politics. In reality he argued for increased State intervention. Spencer survived in the USA by virtue of ideas such as rejection of absolute standards of truth and elevation of practice over theory. In the 1920s and 1930s these ideas were taken up by Dewey. Two features were never abandoned in the US: (i) economics-based models of social structure, and (ii) methodological individualism (Peel 1972: xl). He also inspired a whole new school of American anthropologists, including L. H. White, J. H. Steward, Marshall Sahlins, and Elman Service, who saw the task of anthropology as being to trace the path by which cultures "evolve" (loc. cit.). This approach was inspired by the long-established German discipline of Völkerkunde. A similar approach is familiar in linguistics - as when we can trace the Indo-European languages back to Sanskrit - and we see something similar when scholars trace the development of mythologies (Cox 1870). The movements of populations suggested by such investigations are being confirmed today by genetic research.

If sociology is not to be value-free, it must have a moral basis. This moral stance was widely accepted in sociology following Spencer, but has since been largely forgotten. As Spencer saw it, the chief role of evolutionary sociology was to reconcile Man to the inexorable processes of Nature. He wanted to describe a theory of social change. Economists who have worked to unite economics and sociology along these lines have included Schumpeter, Vilfredo Pareto, and Ferdinand Tönnies, a German sociologist who taught economics at Kiel University (Schumpeter and Takata 1998: xxxiii). Tönnies is perhaps best known for having reintroduced Thomas Hobbes into the social sciences. This strengthened the evolutionary approach to economics. The notion of power is vital in understanding human behaviour because we live in social, hierarchical systems. Had Tönnies not died in 1936 he would probably have had to flee Germany, as his children and so many of his colleagues did because of the rise of Nazism. The Nazis made a short process of anyone criticizing their movement. Tönnies was considered a social democrat, but this was also the fate of many conservative German intellectuals like the Manns and Carl Schmitt.

Daniel Defoe's Robinson Crusoe represents life at the opposite extreme to the world of economics as portrayed by Hobbes. Economic marginalists reason very much as if Man were created as an isolated individual in Nature, like Robinson Crusoe on his island, and Crusoe is therefore a favorite trope among marginalist economists. Their critics argue that we do not live like Crusoe, so that any such comparison is a gross oversimplification bound to give false answers. Evolutionary economists argue that (whether we like it or not) the world is more Hobbesian than we care to admit, and that the task of a science is to describe reality.

For significant new discoveries in the study of Man and human behaviour, we are reliant on future work by psychologists, biologists, and neuropsychologists to show us how we reason and why. This is an argument in favour of more interdisciplinary research in economics. A sensitive specialist pursuing his investigations in any field, Boulding reminds us (1950: viii), finds himself on the frontiers of other disciplines. That was also very much a watchword in Boulding's own research. How can you study economics in mediaeval times without considering religion, and how can you study economics during the Industrial Revolution without considering the class distinctions of that period, Boulding asked (Perroux 1960). In the same way, how can you study the economics of today without considering the phenomenon of globalization - probably the greatest accelerator of change ever known on this planet, leaving aside natural catastrophes.

Every age, every nation, every climate exhibits a modified form of humanity (Peel 1972: 7). This universal law of physical modification is also the law of mental modification (op. cit.: 9). According to Spencer all imperfection is unfitness. Progress, therefore, is not an accident, but a necessity (op. cit.: 13). Rather than civilization being artificial, it is a part of Nature. Spencer thought that this imperfection would end and Man would attain some sort of completeness. Thus according to Spencer the law of evolution may be expressed as a change from a less coherent homogeneity to a more coherent heterogeneity. There is and can only be one evolution, as all the different existences are component parts of the same cosmos. Why should mankind be different, why should he follow different laws from all other living organisms? That is the question that every social scientist must ask himself. Furthermore, towards what form is Man evolving? For Peel the ultimate man is seen as one whose private requirements coincide with the public ones (op. cit.: 26). Considered over a large time interval, we find that Man's character is growing more civilized, less violent, shaping into what we might call "social man". The further we come away from violence, the more successful we seem to evolve. This development in our character can be seen for instance in styles of leadership over recent centuries - a shift from the boss to the leader, who gives fewer orders and instead aims to be a role model through his actions; from the military commander type associated with the early days of industrialization to the team player of today. This is also reflected in the terms "social intelligence" and "emotional intelligence", which have become a focus today. We also speak of "people skills", but seem to mean the same thing. True, others say that Man is becoming ever more selfish, a result of his striving for ever more independence. But that may represent more a backlash than an actual long-term trend. The evolution of our character can rather be plotted as a rising curve, so far as present data indicate at least.

Taking human actions as a starting point for the human sciences, instead of theories or ideas, has given us some of the most useful techniques or methods available in the social sciences today, including game theory and rational choice theory. But these contributions are not necessarily marginalist or even neoclassical. We shall rather argue that game theory relates more closely to informal and formal logic than to mathematics. In fact it is really a non-marginalist approach, with no fixed number of variables to be optimized. And yet arguably game theory, invented by the German economist Oscar Morgenstern and the Hungarian-born mathematician John von Neumann, is one of the better analytical tools available to describe and analyse social dynamic realities. It is also interdisciplinary, meaning that it is equally applicable in any of the social sciences, and in the humanities.

So long as scarcity is a major problem, the economic forces that constrain us will be very real. On the island of Utopia there is no need for the discipline of economics, because everything that people need is available in plenty, and people do not ask for more than they need. In Thomas More's book the character Peter Giles believes that:

Till property is taken away there can be no equitable or just distribution of things, nor can the world be happily governed: for as long as that is maintained, the greatest and the far best part of mankind will still be oppressed with a load of cares and anxieties.

More draws this conclusion from his experience of early sixteenth-century England, ruled by Henry VIII, where "all things will fall to the share of the worst men" and where "all things are divided among the few". From a national perspective this situation improved dramatically with industrialization, which allowed a large proportion of the poor to rise into the middle class, much like in today's China. From an international perspective the problem is more complicated, since what we have been doing is largely exporting low-wage jobs to other, less developed countries: as the saying goes, out of sight out of mind. The possibility of continual improvement in standards of living is also limited, since it is those who already have money who have the best chance of making more. That is a consequence of the efficiency of financial markets, which has brought us to a point where the free-market system is once again being criticized as unfair because it is to the advantage of those who are already ahead.

More's Utopia is a land where leisure is to be used for reading books, playing chess, and engaging in gardening. But the problem of who will do the work if everyone lives a life of ease is solved by slavery; as More says, "All the uneasy and sordid services about the halls are performed by their slaves...". Man is always a child of his time, and the social scientist can seldom ignore the values of his time. Being a successful social scientist is to a large extent a question of writing in conformity with the values of one's time. Those who do not do that are choosing to live the hard way. One economist in that category was Nicholas Georgescu-Roegen, Schumpeter's favorite student.

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