1 Institutional Economic Theory Economics 451 University of Missouri- Kansas City
Dec 30, 2015
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Institutional Economic Theory
Economics 451
University of Missouri-Kansas City
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Inquiry Behaving - emerge out of problematic situation
Valuation What is a situation?
What is knowledge – terminus of inquiry• How do we acquire it? • How many teeth in the mouth of a horse?• Clarence Darrow story.• Knowledge and Action-- inseparable• Nature of Theory and practice – properly done also inseparable
•Evolutionary Process
•Darwin -- Importance of ocean islands is that it reduces confusion of task to simpler proposition – assumed marooned
•evidence of past connection with nearest continent
•Finches on the Galapagos – had great variety of beaks – nowhere but on the islands – must have evolved there.
•The Grand synthesis • Evolution by natural selection• Genetics
Knowing–Doing–Valuing –>Behavior
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Veblen’s synthesis
• Evolution by natural selection
• Concept of Culture – anthropology
Veblen’s point of view – cumulative causation – instincts – habits
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Elements of Theory
Culture
Evolution of institutions
Consumption theory• Class Analysis – Leisure class – • pecuniary emulation • canons of taste• conspicuous consumption• conspicuous waste
dress v clothing
Production theory• Resources• industrial arts – tools – machine process – combination – cumulative
causation• Business – purchase and sale – profit max – money as the key variable• Nature of capital
Value Theory
Theory of Progress
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Veblen --------Commons-----------Mitchell
•Veblen – Theory—Critique of standard, classical and Marxian.•Commons – applied and policy•Mitchell – built on Veblen’s theory to create empirical foundation for economics, especially business cycles, theory of money
Veblen Brief Biography
Criticisms of Classical Theory pre-Darwinian Taxonomy pre- conceptions of human nature - natural order
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Schematic of Veblen – Dewey Theoretical Heritage
Veblen
Mitchell
Kusnets – NBER
Major Theoretical Developments
Ayres
Pecuniary Employments/Industrial Employments And all the rest of the distinctions he made Evolutionary approach to theory and method Class analysis
Dewey
Seek for security, Ceremonial arts, sacrifice, ceremonial rite, magical cult, sacrifice of contrite heart (more pleasing than oxen or bull) Industrial arts, turn powers of nature to account, make
friend instead of enemy. Instrumental theory of value
Veblenian Dichotomy, Combined: Veblen’s distinctions With Dewey’s value theory
Business cycles, Quantitative Data, GNP
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Mitchell -- Business Cycles – Data, Quantification, NBER, Biography on Mitchell
• Born Rushville Illinois 1874• Decatur Ill High school• University of Chicago 1892 – entered in first class of U of Chicago• Veblen introduced him to economics• Dewey – taught him Philosophy• Dissertation – role of money -- greenbacks• Continued statistics experiments Institute of U of Chicago 1900-1901• Univ of California 1903 -- head of dept• Columbia University 1913 there for next 33 years• Kusnets, National Income and Product accounts
Types of writingStatistical Series – business cyclesNational income accounts – Kuznets
Aspects of human nature -- institutional factors mass behaviorQuantitative statistical approach to human behavior
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Schematic of Commons Contributions and Heritage
Commons
Theoretical
Labor Policy
social experiments
Reasonable value
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Commons
Brief Biography -- Myself• Indiana – discharged for ineffectiveness and dishonesty• Syracuse – discharged due to views on business and religion.
Suggested baseball on Sunday so working people could have a form of recreation on only day off
• University of Wisconsin– rest of career
Definition of Institution -- collective action in control and liberation of individual action
Natural Law -- problems – monopoly – what to do about – public utility
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Behavior Theory – The nature of Human Nature
A valid way of thinking about economics derives from a valid conception of human nature. What constitutes a valid conception of human nature?
Rationality – irrationality – what constitutes these Economic Man and the Standard Perspective
Human Nature – what everybody thinks •human nature is such that . . . . .•It is only human nature to . . . . .•You can’t change human nature . . . .
The traditional view – assumptions about human behavior•hedonism•lack of evolution•rationality – in the form of economic man – calculator of pleasure and pain•determined or shaped by motives – profit motive
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•The contemporary-- traditional view
Human nature, at bottom, is based on self-interest and greed. Richard Posner has stated the position in its most stark form. Suppose we were to give humans an acid bath. What would be left? Greed and self-interest is Posner’s reply.
What can we make of this• one reaction may be to dismiss it as simplistic nonsense not deserving of attention
•Another possibility is understand that significant numbers of people, including many social scientists (economists especially) agree with Posner so a more complete response is called for.
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Veblen on Instincts
Veblen -- The Instinct of Workmanship
Not Tropismatic
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Functional Workmanship Ownership irrationalProgressive Parental Bent Predation Past -bindingInstrumental Idle Curiosity Vested Interest
CeremonialTechnological
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Institutional View – assumptions about human nature/behavior
•humans have a natural (biological) existence
•nature of the species
•genetic structure etc – relationship of head and hands
•human reproduction is bi-sexual – requiring two genders
•human infants require physiological care for an extended period in the early stages of life (unlike fish for example and many other species)
•human children, without the production of which there would be no more humans, usually are nurtured within a group of other humans (family, tribe, community etc.) for an extended period , often several years.
Assertion – hypothesis – proposition -- Most people adopt the cultural habits and behaviors of the group they associate with, especially early in life, e.g., most children adopt the religion and language of their parents, family, community.
Language contains cultural relationships – conceptualizations, -- cognitions
If all behavior is traced to self-interest, by someone saying that all behavior is self-interest, i.e., I gave money to my mother because I felt guilty, therefore it was for my own self-interest, not hers, that the money exchanged, or other e.g., ad infinitium
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