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Abstract:
Richard Langlois supports the contribution of New Institutional Economics (NIE) to Economics, contrasting the following assertions: (i) Original Institutional Economics (OIE) wanted institutions but without theory; (ii) Neoclassical Economics (NE) wants an economic theory without institutions; and (iii) NIE wants both institutions and theory. This article uses the approach of Critical Realism with the aim of counteracting the suggestions of Langlois, who considers the advances of institutionalist schools by contrasting the theoretical (scientific) and anti-theoretical (naive empiricism) institutionalism. Instead of sustaining a criterion of scientificity founded on the assumption of a world composed of isolated and atomized events, Critical Realism treats the real unity of human activity and social structure as a condition of knowledge in the social domain. This implies the adoption of a structured ontology that deals with the opening of social systems, the existence of emerging phenomena, and the rejection of the notion of cause as a constant conjunction of events.
Notes
1 Between the two World Wars, the institutionalist movement experienced its most powerful momentum, driven by an overflow of realism and a new liberal idealism that could not be contained in neoclassical practice. See Ross (Citation1991).
2 For institutionalists, changing is explained by considering its systemic ramifications, especially “the technology responsible for the reproduction of the human species as a set of material creatures with patterns of socialized behaviour” (Stanfield Citation1999, 235). For NE changes is exogenous, as are preferences and technology.
3 Oliver Williamson acknowledged that the focus on transactions was borrowed from John R. Commons, but he makes no use of Commons’ analysis.
4 The authors highlight the fields considered from collective volumes edited to deal with NIE.
5 In societies where the number of players is small, exchanges are simple and require few transaction costs.
6 Blaug (Citation1997), critical of institutionalism, points out the core of the school emphasizing that none of these elements are found in equal measure in the works of the leading institutionalists. They are: (1) dissatisfaction with the high level of abstraction of NE, (2) view of an integrated social science, (3) emphasis on a more empirical researches in economics, and (4) favorable attitude to State intervention.
7 Hodgson's definition focuses on proposition 1 as the distinguishing factor between institutionalisms. From the perspective of this article it is not possible for NIE to support the idea of an open and evolving system (proposition 4).
8 Veblen (Citation[1898] 1919) developed and used the principle of circular causation of a series of factors within a cumulative causal process in connection with his analysis of the function of the idle class and the role of technology and credit, which is connected to his explanation of the economic cycle and the inflation of all monetary values.
9 The concern of NIE with the efficiency of the economic system is an original consequence of Coase's (Citation1937) proposition that not only do different institutions imply different transaction costs, but that the most efficient institutions are those that are adopted. Due to bounded rationality, the process of choosing institutions is not that of maximization, which would guarantee an optimal choice.
10 This is because pragmatism accepts that knowledge is produced from specific contexts and that the meaning given to assigned to objects and events is therefore socially constructed.
11 See Terence Hutchinson (Citation1938) and Milton Friedman (Citation1953).
12 According to Mitchell (Citation1925, 1), “In the measure of our proficiencies, we all practice both qualitative and quantitative analysis, shifting our emphasis according to the tasks we have in hand.”
13 Son of John Bates Clark, the most influential neoclassical theorist in the United States at the turn of the nineteenth century.
14 NIE draws closer to neoclassical formalism only in very specific areas, such as agency theory and game theory (Mirowski Citation1981).
15 As postulated by Frederic Lee (Citation2008), this term can be used to encompass many other approaches such as Feminism and the Austrian school of thought.
16 The term ontology is derived from Greek, with “onto” meaning “to be,” and “logos” generally interpreted as “science”; so that ontology, as traditionally understood, is the science or the study of being.
17 According to T. Lawson (Citation1997, 23): “The essential mode of inference sponsored by transcendental realism is the retroduction or abduction or “as if” reasoning. It consists in the movement, on the basis of analogy and metaphor amongst other things, from a conception of some phenomenon of interest to a conception of some totally different type of thing, mechanism, structure or condition that, at least in part, is responsible for the given phenomenon.”
18 In this perspective, there are no differences within scientific research between assertions and hypotheses. This was intended to avoid a series of debates that would involve the question of the realism of hypotheses. Therefore, the conditions of tests or hypotheses would be observable, forming the link between theoretical constructs and real objects. The postulates, on the other hand, would be the universal propositions about the behavior of objects. The primordial aspect of theoretical constructs is that it is impossible to describe, in a finite amount of time and space, all the attributes of real objects. Therefore, the important thing for the realism of the hypotheses would be to be sure that the non-specification of the attributes will not significantly affect all the tests of the theory.
19 Although it weighs important defenses, like that of Mark Blaug.
20 Although theories change (transitive dimension), this does not mean that what they deal with (intransitive dimension) necessarily changes as well: there is no reason to believe that the shift from a flat land theory to a round earth theory was accompanied by a change in the shape of the earth. For more information on this point, see Sayer (Citation2000).
21 Social science would be characterized by the so-called double hermeneutic, meaning the mutual interpretative interaction between the science and activities that constitute its object.
22 These practices are something identifiable, restricted, relatively durable and consistent. Another important category for T. Lawson (Citation2015b) is the notion of social status, which reflects the division of these practices within communities. A position is an accepted status that confers a social identity. Inanimate objects can also, in fact, acquire social identities by being placed within a social system. Examples of inanimate objects include money, identity cards, deeds of property, wedding rings, and so on.
23 Precedence of the transactions, positive transaction costs, and allocation problems involving positive transaction costs.
24 The reference here regards the works of Ronald Coase and Oliver Williamson, and their attempt to incorporate theories and elements. Mäki (Citation1998 and Citation2004) considers progress in terms of expansion in the realm of theory and in terms of the realm of reality in which the theory applies. In the latter case, several doubts remain regarding the explanatory progress of the NIE within the limits of its conceptual structure. That is, if this progress would be possible without inducing transformations in the theoretical framework and removing the notion of transaction costs as the main case.
25 The normative aspect of collective practices thus gives rise to the notion of obligation along with the associated category of right.
26 Sustained economic growth would depend on the existence of efficient markets, with the institutions and their incentives as explanatory factors.
27 Institutions are constructed, organizations are established and relationships are developed in an endogenous manner so that economic life can be more efficient. Society is shaped by economic considerations (Boettke and Storr Citation2002).
28 Clarence Edwin Ayres is the most notable here. His institutionalist approach focused on the dichotomy between institutional and technological forms or between ceremonial and instrumental ways of doing and thinking.
29 In other words, the institutions and other ceremonial aspects are conceived from a static point of view, they are not subject to the processes of continuous change nor to the stimulus of novelties.
30 In the same way Tauheed (Citation2013, 852) points out that “The cultural system itself contains material (some “tools”) and ideal (some “tools” and “skills”) components, while r-structural “resources” are material and ideational as well.”
31 Hodgson (Citation1998) states that Veblen had his first contact with the concept of emergence in a lecture given by Professor Conway Lloyd Morgan in Chicago in 1896. However, according to T. Lawson (Citation2003), there is no substantive evidence that this occurred.
Additional information
Notes on contributors
Hélio Afonso de Aguilar Filho
Hélio De Aguilar Filho is a Professor at the Federal University of Rio Grande do Sul (UFRGS). The author acknowledges the financial support given by Comissão de Aperfeiçoamento de Pessoal de Nível Superior (CAPES) and the Cambridge Social Ontology Group (CSOG) with whom this research was conducted.