Veblen (1898) - Why is Economics Not an Evolutionary Science

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Why is Economics not an Evolutionary Sci-ence was written in 1898 and is a very signi-cant paper. It called into question the premise

that the physics of equilibrium thermodynam-ics is pertinent to analyzing economic systems;indeed it called into question the premise thateconomic systems do, indeed, tend to equi-librium. This is in contrast to his contempo-rary, Walras(1874), who expressed the view,in Elements of Pure Economics, that thispure theory of economics is a science which re-sembles the physico-mathematical sciences inevery respect. Veblen, in contrast, suggested that the

only rationalapproach is to assume economiesevolve; otherwise, he argues, we can describethe economy but have no effective theory ofchange and development.

Evolutionary Economics is the Only

Rational Proposition

Veblen starts by asserting that (all) mod-ern sciences are evolutionary sciences(p. 374). Having given the intellectual

high ground to evolution, he states that eco-

nomics is helplessly behind the times in notbeing evolutionary (p. 373). From the per-spective of 2010, this is fascinating. We wouldnot now, I suspect, use the word evolutionaryto epitomise modern science and, one hundredyears later, evolutionary economics is still, per-haps, seen as rather on the edge of mainstreameconomics. Veblen bands together Smiths viewof the economy moving due to natural law

Why is Economics not an Evolutionary Science?E:CO Issue Vol. 12 No. 2 2010 pp. 41-69

towards a balance and the scientic view ofthe economy reaching equilibrium. He com-pares them with an evolutionary perspective

and says that the difference is a difference ofspiritual attitude or point of view (p. 377) .He views natural law, due to the guidanceof an unseen hand, (p. 381) as somethingthat exercises some sort of coercive surveil-lance over the sequence of events, and [gives]a spiritual stability and consistence (p. 378).He talks of the physics theory of the tendencyto an equilibrium. being a formulation of theconditions under which this putative equilib-rium supervenes (p. 383). This phrase, pu-

tative equilibrium supervenes, encapsulateshis disdain for the idea. This is fascinating. Thetendency towards equilibrium, based as it is onthe adoption of equilibrium thermodynam-ics, is generally regardedthen as nowasscientic. Veblen, however, classes this as-sumptionthat economies normally tendtowards equilibriumas no more rationalthat the spiritually-based notion that there isa nal cause or teleological pull towards somenatural outcome due to natural law; that is, a

preconception regarding the ends to which, inthe nature of things, all things tend (p. 392).He rather sarcastically suggests that in effect,this preconception imputes a tendency to workout what the instructed common sense of thetime accepts as the adequate or worthy end ofhuman effort (p. 382). This is reminiscent ofEinsteins oft-quoted comment that commonsense is the collection of prejudices acquired byage eighteen.

Why is Economics not an Evolutionary Science?Thorstein Veblen (with an introduction by Jean Boulton)

Originally published as Veblen, T. (1898). Why is economics not an evolutionary science?,Quarterly Journal of Economics, ISSN 0033-5533, 12(4): 373-397. Reprinted with kindpermission.

Classical

Classic Paper Section


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what this implies is that study must be madeof action (p. 388); in other words he is advocat-ing an empirical approach towards economicsand signalling a socio-technical reexive pro-cess, developed much further by Nelson and

Winter (1982). Veblen describes this reexiveprocess eloquently:

The economic life history of the individual is acumulative process of adaptation of means toends that cumulatively change as the process goeson, both the agent and his environment beingat any point the outcome of the past process(p.391).

Veblen, indeed, developed denitions of evo-lutionary economics. For example, he says thatthe economic life history of any community is

its life history in so far as it is shaped by mensinterest in the material means of life (p. 392).He says that an evolutionary economics must

be the theory of a process of cultural growth asdetermined by the economic interest, a theoryof a cumulative sequence of economic institu-tions stated in terms of the process itself (p.393). It is likely that these are the rst deni-tions of evolutionary economicsand cap-tures the path-dependent and coevolutionaryquality that it embraces. As Hodgson (1998)

points out, it is also very interesting in thatVeblen does not see evolution as somethingthat happens primarily to individuals but as acollective change to societies, and collectionsof institutions. Hodgson believes that Veblenwas inuenced by zoologist and philosopherC. Lloyd Morgan (Hodgson 1998: 421). Mor-gan promoted the idea of an emergent levelof socio-economic evolution that was not ex-plicable exclusively in terms of the biologi-cal characteristics of the individuals involved.And Hodgson (1998: 423) tells us that Veblen,in 1896, wrote the struggle for existence, asapplied with the eld of social evolution, isa struggle between groups and institutionsrather than a competition between the indi-viduals of the group. This view of emergingpatterns and regimes in social and economicsystems paved the way for much later work inevolutionary economics.

Growth and Development

It is interesting to consider whether Ve-

blen takes a normative view of the evolu-tion of the economy. Does he see that the

economy should or does get either bigger orbetter; is there an underpinning assumptionof progress? There is little to suggest that he

does. First, he speaks of evolution as dispas-sionate cumulative causation which portrayslittle sense of intrinsic purpose. He is also dis-missive of Smiths invisible hand which wouldlead, through natural law to a good balance asgood is what conforms to nature (Ronca-glia, 2009). He does, however, talk about evo-lution providing a theory of a developmental

process. And he goes on to say that it is thehuman agent that changeshis insight and hisappreciation of what these things can be used

for is what develops (pp. 387-8) and speaks ofa cumulative growth of habits of thought (p.394). This does hint at the notion that humanagents evolve and that their thinking maturesin this process. Veblen does talk of evolution as a pro-cess of cultural growth (p. 393) but, in fact, heis very clear that such growth is not necessarilyqualitatively better than what was before. Hestates that economic action may or may not beteleological in the sense that it tends or should

tend to any end that is conceived to be worthyor adequate by the inquirer or by the consen-sus of inquirers. In other words, man may dothings towards an intended end, but whetheror not this is or is not a laudatory end is a matterof opinion. Veblen then states very rmly thatwhether [the action] is or is not [worthy] is a question of which an evolutionary economicsneed take no account (p. 392). So he does notsee evolutionary economics as an ethic but as adispassionate science. Veblen seems to use the word growthto mean change and does not impute any ten-dency for this change to be about progress orcultural transcendence in any way. It is alsointeresting to note that Veblen makes no men-tion of quantitative growth; the idea that eco-nomic growth was a valid or appropriate orself-evident goal or likely outcome is given noconsideration.


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Rational Man

Veblen was scathing about the theory of eco-nomic, rational, man, which he deems a he-donistic psychology. As he says, under hedo-nism, the economic interest is not conceivedin terms of action in terms of a cumulativegrowth of habits of thought (p. 394). He feels

that economies populated with rational mancannot change and develop. Indeed, he waxeslyrical on the topic:

The hedonistic conception of man is that of alightning calculator of pleasures and pains, whooscillates like a homogeneous globule of desireof happiness under the impulse of stimuli that

shift him about the area but leave him intact...He is an isolated, defnitive human datum, in

st able equilibr ium except for the buf fe ts of

the impinging forces that displace him in onedirection or another. Self-poised in elemental

space, he spins symmetrically about his ownspiritual axis until the parallelogram of forcesbears down on him, whereupon he follows theline of the resultant (pp. 389-90).

Conclusion

Ind Veblens paper one of the most excit-ing and stimulating papers I have ever read.I feel he touches on most of the challenges

that economists ever since have raised aboutmainstream neo-classical economics (for ex-ample Fullbrook, 2004). Alan Greenspan(2008), for example, writing about rationalman says:

Asset-price bubbles build and burst today as theyhave since the early 18th century, when moderncompetitive markets evolved. To be sure, wetend to label such behavioral responses as non-rational. But forecasters concerns should be not

whether human response is rational or irrational,only that it is observable and systematic.

This could equally well have been writ-ten by Veblen in 1898. So I like this paper because it re-minds us that most of what we think has beenthought before, just not acted upon; because itseems to sow the seeds for much of what fol-lowed in terms of complexity and evolutionary

economics; because reading it rewards us withgreater insight if we try to explore the contextin which it was written rather than just inter-pret from our own contexts. And, nally, I likethis paper because of Veblens sheer commandof language which gives to scholarly debate aliterary quality to which I can only aspire.

ReferencesAllen P.M. (1988). Dynamic models of evolving

systems, System Dynamics Review, ISSN 0883-7066, 4(1-2): 109-130.

Bak, P. (1997). How Nature Works: The Science of Self-Organized Criticality, ISBN 9780198501640.

Fullbrook, E. (2004).A Guide to Whats Wrong withEconomics, ISBN 9781843311485.

Greenspan, A. (2008). Worst Crisis since World WarII, Financial Times, March 17.

Hodgson, G. (1998). On the evolution of Thorstein

Veblens evolutionary economics, CambridgeJournal of Economics, ISSN 0309-166X, 22(4):415-431.

Nelson, R. and Winter, S. (1982). An Ev olu-tionary Theory of Economic Change , ISBN9780674272286(1985).

Roncaglia, A. (2009). The Wealth of Ideas, ISBN9780521843379.

Spencer, H. (1898). What is social evolution?The Nineteenth Century, 44: 348-58, available atGoogle Books.

Veblen, T. (1898). Why is economics not an evolu-

tionary science?Quarterly Journal of Economics,ISSN 0033-5533, 12(4): 373-397.Walras, L. (1874).Elements of Pure Economics, ISBN

9780678060285(1954).


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Veblen (1898) - Why is Economics Not an Evolutionary Science

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