July 2004

Geoffrey Hodgson has published a new book, The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism.You can read here the review published on EH.Net.

Geoffrey M. Hodgson, _The Evolution of Institutional Economics:
Agency, Structure and Darwinism in American Institutionalism_. London
and New York: Routledge, 2004. vix + 534 pp. $135 (hardcover), ISBN:
0-415-32252-9; $43.95 (paperback), ISBN: 0-415-32253-7.

Reviewed for EH.NET by Sherry Davis Kasper, Department of Economics,
Maryville College.

At the beginning of this book, Hodgson gratefully acknowledges the
time to read, think and research his new position at the University
of Hertfordshire has provided him. The remarkable array of ideas he
imparts in this book bears witness to that gift. They range from the
development of Charles Darwin’s concept of natural selection in the
nineteenth century to late twentieth-century developments in
psychology, philosophy, complexity theory and economics. Along the
way, the reader learns about ways of thinking about the relationship
between agency and structure; the evolution of social theory,
psychology, and philosophy; the life, times, and intellectual
accomplishments and failures of Thorstein Veblen; the development of
American institutionalism in the twentieth century; and the ripe
conditions for a revival of Veblenian institutionalism at the present
time. In addition, Hodgson provides readers with detailed footnotes
and an extensive bibliography, both of which can serve as a launching
point for their education in these ideas.

Hodgson views this book as a companion to his earlier volume _How
Economics Forgot History_ (2001). The theoretical focus of the first
book was “the limits of general theory in the social sciences” and
the consequent necessity for scholars to study how “socio-economic
systems [move] through time and space” (p. xiv). To explore these
ideas, he examined the effect of the German historical school on the
development of American institutional economics. This new book
changes its theoretical focus and moves forward in time. “The
theoretical focus here is on the interaction between the individual
and society,” that is the relationship between agency and structure.
The time period covered runs from the development of Darwin’s ideas
to the decline of institutional economics after World War II.

Hodgson divides the book into five sections. Part I serves as an
introduction to the book and to the core concepts on which Hodgson
hopes to found the revival of Veblenian institutionalism. Chapter 1
introduces the nature and scope of the argument. Chapter 2 provides a
discussion on how social theorists have analyzed the relationship
between agency and structure. Chapter 3 ends this section with an
examination of the evolutionary perspective of analysis, including
descriptions of Darwinism, Lamarckism, and Weismannism.

Part II, titled “Darwinism and the Victorian Social Sciences,”
examines the “origin and meaning of Darwinian ideas and the early
impact they had on the social sciences” (p. 10). Chapter 4 elucidates
and contrasts the principles of Darwinism with those of social
Darwinism as developed by Herbert Spencer and William Graham Sumner
during the late 1800s. Chapter 5 describes “early attempts to apply
Darwin’s ideas to social evolution” (p. 10). In this section, Hodgson
focuses on the work of philosopher George Henry Lewes, natural
scientist Conwy Lloyd Morgan, and philosopher David Lloyd Ritchie to
establish that Veblen could build on earlier attempts to apply the
Darwinian principle of natural selection to both the levels of the
individual (agency) and the institutional evolution (structure).

Part III, titled “Veblenian Institutionalism,” “discusses Veblen’s
institutionalism and measures his achievement” (p. 10). In chapter 6,
Hodgson begins his account by providing biographical detail about
Veblen, including potential influences on his thinking. He spends a
section of the chapter expanding further on the ideas and possible
influence of Morgan. Though Hodgson cannot confirm that Veblen and
Morgan met, he does establish that both were at the University of
Chicago at the same time. He speculates that Morgan’s ideas about
emergence paid an important role in Veblen’s contribution that
“individual and social structures were in a process of coevolution,
rather than one being the determinant of the other” (p. 133).

In chapters 7 and 8, Hodgson describes Veblen’s development of a
Darwinian institutional economics. Initially he spends time
documenting his position that Veblen made his primary theoretical
contributions to economics from 1896 to 1909. He continues with an
extensive discussion of how Veblen drew on the evolutionary theory of
Darwin, the instinct-habit psychology of William James and William
McDougall, and pragmatist philosophy of James and Charles Sanders
Peirce to develop institutional economics. Hodgson concludes by
arguing that Veblen rejected both methodological individualism and
methodological collectivism in favor of a theory that views
“institutions as both units of evolutionary selection and
repositories of knowledge” (p. 10).

In chapters 9 through 11, Hodgson critically evaluates some of
Veblen’s ideas to explain why Veblenian institutionalism never took
hold. First, he describes the “defects in [Veblen’s] account of the
‘instinct of workmanship’ and its alleged conflict with pecuniary
motives” (p. 10). In Chapter 10 Hodgson delineates the two research
programs present in _The Theory of Business Enterprise_ (1904). The
first focuses on the “role of expectations and financial speculation
in business cycles” (p. 10). Hodgson laments that if Veblen had
focused more on developing this idea then he could have “upstaged”
Keynes by several decades (p. 10). Unfortunately, in Hodgson’s view,
Veblen dissipated his energy developing the second research program
—“the alleged influence of the machine process on habits of
thought” (p. 11). Hodgson concludes by arguing that the development
of institutional economics was irreparably harmed by Veblen’s
decision to abandon the study of philosophy by 1909. This desertion
meant that Veblen missed connecting with the developers of
emergentist philosophy during the 1920s. Their ideas about evolution
on the social level could have rescued Veblenian institutionalism
from the contamination of those who used principles of biological
evolution to justify racist, sexist and imperialistic practices, such
as the Nazis.

In chapter 12, Hodgson concludes this part with a description of the
launch of American institutionalism. In it, Hodgson asserts that its
Veblenian foundations were harmed by two factors. First, the
development of behavioral psychology and positivism challenged the
instinct-habit psychology and pragmatist philosophy on which Veblen
founded his institutionalism. Second, a movement emerged to separate
social science from biology, due to racist, sexist and imperialistic
policies that groups such as the Nazis were justifying on
evolutionary grounds.

Part IV, titled “Institutionalism into the Wilderness,” provides an
overview of the birth and decline of American institutionalism during
the interwar period. Initially, Hodgson presents case studies
describing how individuals that he classifies as institutional
economists dealt with the relationship between agency and structure
in their work. These include John R. Commons, Wesley Mitchell, Frank
Knight and Clarence Ayers. Chapter 18 returns to a general discussion
of institutional economics after World War II. Hodgson highlights
external and internal reasons for its decline. External factors
include an inability to provide a theoretical explanation for the
Great Depression, a failure to provide a remedy for the Great
Depression, the focus of economics during World War II, and the
change in the nature and scope of economics to “a greater
technocratic bias” after the war (p. 388). Internal factors include
the absence of a “systematic treatise on institutional theory”;
Ayers’ reinterpretation of institutions as inhibitors rather than
promoters of evolution; the abandonment of price theory by leading
institutionalists; the lack of consensus on fundamental
methodological and psychological issues; and the focus on ideology
and moral pronouncements to the detriment of theoretical developments
(p. 391).

Part V, titled “Beginning the Reconstruction of Institutional
Economics,” serves as Hodgson’s manifesto about ways to generate “the
revival of a Veblenian-style institutionalism” (p. 11). Chapter 19
outlines recent developments in psychology, philosophy, complexity
theory and economics that support the reintroduction of Veblen’s
ideas. Chapter 20 illustrates how institutional economists can use
Veblenian institutionalism to solve current problems. This chapter
concludes with a summary of lessons learned from reconstructing the
history of institutional economics and outlines the promise of
Veblenian institutionalism for the future.

In terms of assessing this book, as a scholar of the development of
economics during the interwar period, I was not fully persuaded by
Hodgson’s description of the decline of institutionalism, because it
was not always clear to me why he selected for analysis the four
economists that he did. He states that he chose Commons, because he
wanted to evaluate his “attempt to provide institutional economics
with a systematic methodological foundation,” an effort Hodgson
judges as a failure (p. 287). Hodgson seems to have selected
Mitchell, because his success during the interwar period at the
National Bureau of Economic Research (NBER) and in developing
macroeconomics made him “the second most important figure in the
history of institutional economics” (p. 309). He appears to have
chosen Ayers because his theory of the dichotomy between technology
and ceremony “was to sustain and become central for the dwindling
numbers of American institutionalists for more that fifty years” (p.
355). He states that his purpose for examining the ideas of Knight is
“to situate [him] in the broad tradition of American institutional
economics, and to consider his views on the relationship between
neoclassical and institutional economics, on the problem of agency
and structure, on psychology and its relation to economics” (p. 323).

Yet, these choices seem arbitrary. Commons, Mitchell and Ayers do
stand out as leading institutional economists. At the same time,
during the interwar period, other individuals were identified as
providing successful models of institutional economics, such as
Walton Hamilton and his study of the coal industry and John Maurice
Clark and his study of costs. In addition, no consensus exists on the
fact that Knight was an institutionalist. In fact my reading of
Knight’s work suggests that ultimately he epitomizes the questioning
skeptic who aimed to keep his fellow social scientists aware of and
accountable for the limitations and possibilities of their methods of
analysis. Thus after reading Part IV, I was left wondering if
Hodgson’s historical narrative and subsequent interpretation would
have been different if he had selected a different set of interwar

On a different level, the amazing breadth of this book emerges as
both a virtue and a vice. Its virtue is that it enlightens the reader
immensely. For example, I decided to accept this review, because I
wanted to learn more about Darwinism and its influence on the
development of the social sciences in America. Reading this book
enabled me to accomplish that goal. Hodgson provides a detailed
description of Darwinism and the ideas that Darwin drew on to develop
his ideas about evolution. This introduction to the foundations of
Darwin’s thought took the reader to discussions of philosophy, social
theory, psychology and philosophy. Hodgson also clearly explained the
differences between Darwinism proper and its corruption to the social
Darwinism of Spencer and Sumner. I then learned how Veblen drew on
the ideas of Darwin to develop his multiple-level evolutionary
economics. Finally, I gained a fuller understanding of why the
majority of social scientists abandoned evolutionary ideas. Due to
the book’s expansive range, other readers can come to this book with
a different interest and come away enlightened.

Yet, there is also a vice inherent in this amazing breadth. First,
its complexity sometimes makes following Hodgson’s argument a
challenge. For example, Hodgson examines pieces of emergentist
philosophy in various ways throughout in the book. Some of the times,
the text is an historical narrative. For example, in chapter 5, he
describes the ideas that were precursors to this philosophy. In
chapter 11, when discussing how Veblen got institutional economics
off track, Hodgson continues with the historical narrative, providing
a detailed description of the “flowering” and “importance” of
emergentist philosophy in the 1920s (pp. 237, 242). But suddenly at
the end of chapter 11, he moves from historical narrative to
theoretical explication to present his view of what Veblenian
institutionalism would consist of on “emergentist foundations” (p.
246). Since Part V of the book is designed to present the
reconstruction of Veblenian institutionalism, an abbreviated
rebuilding at this point in the book diverts the reader from the
historical narrative and makes following the argument more
complicated. On some level, Hodgson seems aware of this problem.
Throughout the book, he adds statements letting the reader know that
he will return to a particular train of thought in a later chapter,
or that the reader can return to an earlier section of the book to
refresh her understanding. Thus, I think Hodgson could have made a
more persuasive argument if he had organized it more logically.

Second, the breadth of the book also detracts from his proposal to
rebuild institutionalism. I sense that Hodgson believes that he must
provide much detail in order to convince readers of the necessity and
possibility for reconstruction of institionalism at this place and
time. But the reader has to sift through so much to get to his
manifesto, that I fear Hodgson will lose many along the way. And that
loss would be disturbing, because twenty-first-century economics is
in need of some reconstruction so that it can understand and
remediate the problems of real people. And Hodgson has provided some
ideas that might help move institutional economics in a more fruitful

(Geoffrey Hodgson is Research Professor in Business Studies at the
University of Hertfordshire, UK. He was formerly a Reader in
Economics at the University of Cambridge, UK.)

Sherry Davis Kasper, Professor of Economics at Maryville College
(Maryville, Tennessee) is an historian of economics who studies the
evolution of American economic thought in the twentieth century. She
recently published _The Revival of Laissez-Faire in American
Macroeconomic Theory: A Case Study of the Pioneers_ (2003).

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Published by EH.Net (January 2005). All EH.Net reviews are archived

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