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The Methodology of Institutional Economics: A Pragmatic Instrumentalist Perspective

  • Paul D. Bush
Part of the Recent Economic Thought book series (RETH, volume 31)

Abstract

Institutionalists engage in a very active, ongoing dialogue about methodological issues. Their preoccupation with methodology is motivated in part by their critique of mainstream economics. Since institutionalists attempt to steer economic inquiry in a direction quite different from that followed by mainstream economists, the institutionalist critique of neoclassical thought requires that institutionalists be concerned with methodological issues. But there is a more profound reason for the institutionalist emphasis on methodological discourse. It arises out of the influence of the philosophy of pragmatism on institutionalist methodology. A fundamental tenet of pragmatism is that all propositions are subject to revision as theoretical and empirical inquiry moves forward. In order to remain alert to the possibility that such revisions may be required at any given stage of inquiry, methodology must be under constant scrutiny. Consequently, institutionalists are as interested in methodological issues arising in their own work as they are in those arising in their critique of orthodoxy.

Keywords

Economic Issue Institutional Economic Correspondence Theory Factual Proposition Post Keynesian Economic 
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Notes

  1. 1.
    The term pragmatic instrumentalist is taken from Dewey’s use of the term in The Quest for Certainty in Jo Ann Boydston, ed., The Later Works of John Dewey, 1925–1953, Vol. 4: 1929 (Carbondale: Southern Illinois University Press, 1984, footnote, p. 30. It is hoped that by using “pragmatic” to modify “instrumentalist” one can clearly differentiate between Dewey’s use of “instrumental” and Karl Popper’s use of the term in his philosophy of science. See Karl Popper, The Logic of Scientific Discovery (New York: Basic Books, 1959), footnote, p. 59. Alas, the failure to make this differentiation between the Deweyan and Popperian uses of the term has led to considerable intellectual mischief, a matter that will be taken up later in a comment on Friedman’s “instrumentalism.” One must also differentiate between Dewey’s use of the term from that of Jurgen Habermas. Habermas confines the term instrumental to the technical cognitive interest which he distinguishes from “practical” and “emancipatory” human interests. In contrast, Dewey’s use of instrumentalism spans the three realms of human interests identified by Habermas. See Jurgen Habermas, Knowledge and Human Interests, trans. Jeremy J. Shapiro (Boston: Beacon Press, 1971), pp. 308–311. For a discussion the Habermasian usage, see Jon D. Wisman, “Toward a Humanist Reconstruction of Economic Science,” Journal of Economic Issues 13 (March 1979): 19–48; and “Economic Knowledge, Evolutionary Epistemology, and Human Interests,” Journal of Economic Issues 23 (June 1989): 647–656.Google Scholar
  2. 2.
    There is no intention here to diminish the importance of Peirce’s philosophical influence on institutionalist methodology. Philip Mirowski, for one, suggests that while Dewey has, indeed, had a greater influence than Peirce on institutionalist methodology, Dewey’ s dominance must be regarded as a basic weakness in the institutionalist literature. He argues that the viability of institutionalism will depend on whether the “hermeneutical” perspective of Peirce can be substituted for the views of Dewey in guiding the methodology of institutional thought in the future. See Philip Mirowski, “The Philosophical Basis of Institutional Economics,” Journal of Economic Issues 21 (September 1987): 1001–1038; and the author’s critical comment on this piece, Paul D. Bush, “Institutionalist Methodology and Hermeneutics: A Comment on Mirowski,” Journal of Economic Issues 23 (December 1989): 1159–1172. For two views of Peirce’s influence on institutionalist methodology that are quite different than Mirowski’s, see Alan W. Dyer, “Veblen on Scientific Creativity: The Influence of Charles S. Peirce,” Journal of Economic Issues 20 (March 1986): 21–41; and H.H. Liebhafsky, “Peirce on the Summum Bonnum and the Unlimited Community,” Journal of Economic Issues 20 (March 1986): 5–20.Google Scholar
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    John R. Commons, Institutional Economics, Vol. I and II (Madison: University of Wisconsin Press, 1961 [1934]), p. 150.Google Scholar
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    Both studied at Johns Hopkins as graduate students under Peirce. They both taught at the University of Chicago from the late 1890s until 1904 (Veblen, 1892–1904, and Dewey, 1894–1904) and at the New School for Social Research, where Veblen held his last academic post. See Joseph Dorfman, Thorstein Veblen and His America, 7th ed. (Clifton: Augustus M. Kelly, 1972), p. 449; and H.H. Liebhafsky, “An Institutionalist Evaluation of the Recent Apparently, But Only Apparently Fatal Attack on Institutionalism,” Journal of Economics Issues 22 (September 1988): 837–851. The Liebhafsky article contains a discussion of the relationship of Veblen and Dewey to Peirce and Ayres.Google Scholar
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    C.E. Ayres, Toward a Reasonable Society (Austin: University of Texas Press, 1961), pp. 29–32. Rick Tilman documents in some detail the strong intellectual ties between Dewey and Ayres as expressed in their correspondence. See Rick Tilman, “New Light on John Dewey, Clarence Ayres, and the Development of Evolutionary Economics,” Journal of Economic Issues 24 (December 1990): 963–979. Dewey made direct reference to Ayres’s Theory of Economic Progress (Chapel Hill: University of North Carolina Press, 1944) as a study that incorporated an approach to values and valuations which Dewey regarded as pertinent to his own inquiries. See John Dewey, “Some Questions about Value,” in Jo Ann Boydston, ed., The Later Works of John Dewey, 1925–53, Vol. 15: 1942–48 (Carbondale: Southern Illinois University Press, 1989), p. 108, footnote 6; and “By Nature and by Art,” ibid., p. 89, footnote 3. Ayres participated in Ray Lepley’s symposium on Dewey’s theory of value in which there is considerable discussion among Dewey, Ayres, and others (e.g., George R. Geiger) concerning the interrelationship between Dewey’s and Ayres’s views on values in culture and on their role in inquiry. See Clarence E. Ayres, “The Value Economy,” in Ray Lepley, ed., Value: A Cooperative Inquiry (New York: Columbia University Press, 1949), pp. 43–63. For the criticisms and rejoinders relevant to Ayres’s contribution, see pages 302–311, 321–333, and 415–423.Google Scholar
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    An important consequence of reading Veblen from this perspective is that a “normative” Veblen emerges from behind his well-known rhetorical stance of “Olympian detachment.” For a brief characterization of the normative Veblen presented in the context of a commentary on David W. Seckler’s Thorstein Veblen and the Institutionalists (Boulder: Colorado Associated University Press, 1975), see Paul D. Bush, “Radical Individualism vs. Institutionalism, I,” American Journal of Economics and Sociology 40 (April 1981): 139–148; and “Radical Individualism vs. Institutionalism, II,” American Journal of Economics and Sociology 40 (July 1981): 287–298. For Seckler’s rebuttal to this characterization, see Seckler, “Individualism and Institutionalism Revisited: A Response to Professor Bush,” American Journal of Economics and Sociology 40 (October 1981): 415–425. Not all institutionalists who have an affinity for the ideas of Dewey and Ayres acknowledge the existence of a normative Veblen. See, for example, Wendell Gordon, “The Role of Institutional Economics,” Journal of Economic Issues 18 (June 1984): 369–381, specifically, pages 378–379.Google Scholar
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    Professor Ranson made this invitation during his presidential address to the Association for Institutional Thought on April 27, 1984, in San Diego, California, at the 26th Annual Conference of the Western Social Science Association. His address was entitled “Activating AFIT: The Problems and a Possible Solution.”Google Scholar
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    Some of Richard Rorty’s most important works are: Philosophy and the Mirror of Nature (Princeton: Princeton University Press, 1979); Consequences of Pragmatism (Minneapolis: University of Minnesota Press, 1982); Objectivity. Relativism, and Truth: Philosophical Papers, Volume One (New York: Cambridge University Press, 1991); and Essays on Heidegger and Others: Philosophical Papers, Volume Two (New York: Cambridge University Press, 1991).Google Scholar
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    Allan G. Gruchy was the first to use the term holism in describing the methodology of institutional economics. See his Modern Economic Thought: The American Contribution (Now York: Prentice-Hall, 1947). An extensive discussion of holistic methodology in institutional economics is found in Charles K. Wilber and Robert S. Harrison, “The Methodological Basis of Institutional Economics: Pattern Model, Storytelling, and Holism,” Journal of Economic Issues 12 (March 1978): 61–89. Discussions of holism and pattern models in the social sciences are undertaken by Kaplan, The Conduct of Inquiry, pp. 327–328; and Paul Diesing, Patterns of Discovery in the Social Sciences (New York: Aldine, 1971), pp. 157–167. For a sophisticated treatment of holism in general, and with respect to John R. Commons’s thought in particular, see Yngve Ramstad, “A Pragmatist’s Quest for Holistic Knowledge: The Scientific Methodology of John R. Commons,” Journal of Economic Issues 20 (December 1986): 1067–1105.Google Scholar
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    An exmple of the use of a hypothetico-deductively formulated model in institutional economics is found in Paul D. Bush, “An Exploration of the Structural Characteristics of a Veblen-Ayres-Foster Defined Institutional Domain,” Journal of Economic Issues 17 (March 1983): 35–66. Ramstad has criticized the approach taken in that article as being incompatible with a holistic methodology. See Ramstad, “A Pragmatist’s Quest for Holistic Knowledge …,” p. 1097 and footnotes 12 and 51. “It is my suspicion,” he says, “that Bush’s ingenious effort to formalize such qualitative and evolving concepts as’ social values,’ and then to combine them into concepts such as ‘ceremonial encapsulation’ or into quantitative indexes such as the ‘index of ceremonial dominance,’ will ultimately prove sterile” [footnote 15]. While the author is sympathetic to Ramstad’s concerns with respect to the perils of both “formalism” and “quantification,” he does not believe that the model he set forth in the 1983 article is incompatible with holistic methodology. Indeed, every effort was made to indicate that the “hypothetical” portion of the model was derived from the rich theoretical and empirical insights found in the pattern models of Veblen, Dewey, Ayres, and Foster. In regard to the question of sterility, that is a matter that can only be settled through further inquiry.Google Scholar
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    H.P. Rickman states that according to Wilhelm Dilthey, “the use of understanding [verstehen] provides the human studies with a method distinct from those of the physical sciences and thus frees them from subservience to the latter.” See Wilhelm Dilthey, Pattern and Meaning in History, edited and introduced by H.R. Rickman (New York: Harper Torchbook, 1962), pp. 17–18.Google Scholar
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    Examples of the use of this distinction between “value judgment” and “valuation” are to be found in Paul D. Bush, “The Theory of Institutional Change,” Edythe S. Miller, “Review of Wendell Gordon and John Adams, Economics as a Social Science: An Evolutionary Approach,” Journal of Economics Issues 24 (March 1990): 275–278; and Baldwin Ranson, “Review of Laurence H. Tribe, Corrine S. Schelling, and John Voss, editors, When Values Conflict,” Journal of Economic Issues 12 (March 1978): 195–196.Google Scholar
  130. 132.
    It appears that Liebhafsky first used the term self-correcting value judgments in The Nature of Price Theory, rev. ed. (Homewood: Dorsey Press, 1968), p. 523. His elaboration on this idea is discussed by Warren Samuels in “Technology vis-a-vis Institutions in the JEI: A Suggested Interpretation,” Journal of Economic Issues 11 (December 1977): 867–895; the discussion is found on pages 887–891. See also Anne Mayhew’s use of Liebhafsky’s notion in “Ayresian Technology, Technological Reasoning, and Doomsday,” Journal of Economic Issues 15 (June 1981); 513–520.Google Scholar
  131. 133.
    C.E. Ayres, The Industrial Economy (Boston: Houghton Mifflin Company, 1952), p. 310.Google Scholar
  132. 134.
    A number of important issues arise in connection with the pragmatic instrumentalist view of the role of values in inquiry. Space does not permit their discussion here, but the author has attempted to address some of them in previous publications, two of which are: Paul D. Bush, “The Normative Implications of Positive Analysis”; and idem, “Reflections on the 25th Anniversary of AFEE: Current Philosophical and Methodological Issues in Institutional Economics,” Journal of Economic Issues 25 (June 1991): 321–346. For a highly competent review of the pragmatic instrumentalist approach to the theory of valuation and its application in the institutionalist literature, see Steven R. Hickerson, “Instrumental Valuation: The Normative Compass of Institutional Economics,” Journal of Economic Issues 21 (September 1987): 1117–1143; reprinted in Marc R. Tool, ed., Evolutionary Economics: Foundation of Institutional Thought, Vol. I (Armonk, NY: M.E. Sharpe, 1988), pp. 167–193. The most extensive development and application of the pragmatic instrumentalist value theory to institutional economics is to be found in the works of Marc R. Tool. See Tool, The Discretionary Economy, and idem, Essays in Social Value Theory. The pragmatic instrumentalist position acknowledges the possibility of an infinite regress in the means-ends relationship that exits between “value judgments” and “valuations.” Contrary to the view held by many philosophers, pragmatic instrumentalists do not regard the possibility of an infinite regress as a deficiency of the theory. It is their view that, properly understood, all empirical and normative propositions are embedded in infinite regresses. On this issue, see Sidney S. Alexander, “Human Values and Economists’ Values,” in Sidney Hook, ed., Human Values and Economic Policy (New York: New York University Press. 1967), pp. 101–116; Paul D. Bush, “Reflections on the 25th Anniversary of AFEE: Current Philosophical and Methodological Issues in Institutional Economics,” especially pp. 329–340; and Larry Dwyer, “The Alleged Value Neutrality of Economics,” Journal of Economics Issues 16 (March 1982): 75–106.Google Scholar
  133. 135.
    For a discussion of the methodological significance of this definition of the term “institution,” see Paul D. Bush, “On the Concept of Ceremonial Encapsulation,” Review of Institutional Thought 3 (December 1986): 25–45. See also J. Fagg Foster’s use of this conception of institutions in “The Effect of Technology on Institutions,” Journal of Economic Issues 15 (December 1981): 907–913.Google Scholar
  134. 136.
    Gunnar Myrdal, Objectivity in Social Research (New York: Pantheon Books, 1969), p. 9. Myrdal’s use of the term “a priori” should not be read to mean in some metaphysical sense “beyond inquiry.” His use of the term is consistent with the pragmatic instrumentalist view that valuations are logically prior to the determination of the “facts.”Google Scholar
  135. 137.
    Jerry L. Petr, “Fundamentals of an Institutionalist Perspective on Economic Policy,” Journal of Economic Issues 18 (March 1984): 1–17; reprinted in Marc R. Tool, ed., An Institutionalist Guide to Economics and Public Policy (Armonk, NY: M.E. Sharpe, 1984), pp. 1–17.Google Scholar
  136. 138.
    See, for example, Mark Blaug, The Methodology of Economics (Cambridge: Cambridge University Press, 1980), pp. 1–51; Bruce Caldwell, Beyond Positivism, pp. 221–230; Paul Feyerabend, Against Method, rev. ed. (London: Verso, 1988); Thomas S. Kuhn, The Structure of Scientific Revolutions, 2d ed. enl. (Chicago: University of Chicago Press, 1970), and idem “Reflections on My Critics,” in Imre Lakatos and Alan Musgrave, eds., Criticism and the Growth of Knowledge (London: Cambridge University Press, 1970), pp. 231–278; Imre Lakatos, “Falsification and the Methodology of Scientific Research Programmes,” in Imre Lakatos, The Methodology of Scientific Research Programmes: Philosophical Papers, Volume I, ed. John Worrall and Gregory Currie (Cambridge: Cambridge University Press, 1978), pp. 8–101; and Popper, The Logic of Scientific Discovery.Google Scholar
  137. 139.
    Kuhn, The Structure of Scientific Revolutions.Google Scholar
  138. 140.
    Kuhn, “Reflections on My Critics,” pp. 266–277.Google Scholar
  139. 141.
    See, for example, John M. Connolly and Thomas Keutner, “Introduction: Interpretation, Decidability, and Meaning,” in John M. Connolly and Thomas Keutner, trans, and eds., Hermeneutics Versus Science? Three German Views: Essays by H.-G. Gadamer, E.K. Specht. W. Stegmuller (Notre Dame: University of Notre Dame Press, 1988), pp. 1–67; Kurt Mueller-Vollmer, “Introduction: Language, Mind, and Artifact: An Outline of Hermeneutic Theory Since the Enlightenment,” in Kurt Mueller-Vollmer, ed., The Hermeneutics Reader (New York: Continuum Publishing Company, 1985), pp. 1–53; and Wachterhauser, “Introduction: History and Language in Understanding,” pp. 5–61.Google Scholar
  140. 142.
    Mirowski, “The Philosophical Basis of Institutional Economics,” p. 1010.Google Scholar
  141. 143.
    Wachterhauser, “Introduction: History and Language in Understanding,” pp. 7–10.Google Scholar
  142. 144.
    Ibid., p. 6.Google Scholar
  143. 145.
    Ibid., p. 7.Google Scholar
  144. 146.
  145. 147.
    Ibid., p. 10.Google Scholar
  146. 148.
    Rorty, Philosophy and the Mirror of Nature, pp. 12–13.Google Scholar
  147. 149.
    William Waller explores some related problems in William Waller, “Avoiding the Cartesian Vice in Radical Institutionalism: A Reply to Mayhew,” Journal of Economic Issues 24 (September 1990): 897–901.Google Scholar
  148. 150.
    Fritz Machlup, “The Problem of Verification in Economics,” Southern Economic Journal 22 (July 1955): 1–21; see especially pages 7–11.Google Scholar
  149. 151.
    Lionel Robbins, An Essay on the Nature and Significance of Economic Science, 2nd ed. (London: MacMillan and Co., Ltd., 1952 [1935]), p. 79.Google Scholar
  150. 152.
    See Ludwig von Mises, Human Action (New Haven: Yale University Press 1949); and idem, The Ultimate Foundations of Economic Science (New York: D. Van Norstrand, 1962).Google Scholar
  151. 153.
    For an excellent sample of critical commentaries of Rorty’s work, see Alan Malachowski, ed., Reading Rorty (Oxford: Basil Blackwell, 1990). See also K. Kolenda, “Rorty’s Dewey”; and idem, Rorty’s Humanistic Pragmatism (Tampa: University of Southern Florida Press, 1990).Google Scholar
  152. 154.
    Unfortunately, the limits of space have not permitted a review of and response to the substantial body of literature critical of pragmatic philosophy. That task must remain for a later undertaking. Such an undertaking should include a discussion of some of the more interesting and relevant commentaries, such as: Roy Bhaskar, “Rorty, Realism and the Idea of Freedom,” in Alan Malachowski, ed., Reading Rorty (Oxford: Basil Blackwell, 1990), pp. 198–232; Martin Hollis and Edward J. Nell, Rational Economic Man (London: Cambridge University Press, 1975), pp. 152–169; and Max Horkheimer, Critical Theory, trans. Matthew J. O’Connell et al. (New York: Herder and Herder 1972).Google Scholar
  153. 155.
    Hodgson, Economics and Institutions.Google Scholar

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Copyright information

© Kluwer Academic Publsihers 1993

Authors and Affiliations

  • Paul D. Bush
    • 1
  1. 1.Department of EconomicsCalifornia State UniversityFresno

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