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Extracts from an important article by the American psychologist, philosopher and social scientist Donald T. Campbell are reproduced here, with an introduction underlining the importance of his argument for today. Campbell identified disciplinary boundaries as enablers of specialization but often barriers to scientific innovation and shared knowledge. But instead of unbounded interdisciplinarity, Campbell argued for focused specialisms that cross disciplinary boundaries. This argument is particularly relevant for the development of institutional research in the future.
With its eighteenth annual volume, the Journal of Institutional Economics (JOIE) has come of age. This editorial report looks at the growth of the journal, summarises some of its achievements, reviews progress in addressing diversity and gender balance, outlines current editorial policy, and considers some further issues that are important for the future.
Despite agreement on many points, including our shared insistence that ‘corporation’ and ‘firm’ are different concepts, Jean-Philippe Robé still maintains that they are mutually exclusive: no corporation is a firm, and no firm is a corporation. In contrast, we follow standard nomenclature when we point out that all (business) corporations are firms, but some firms are not corporations. We show here that this is a standard practice among lawyers writing in leading law journals and note that Robé seems to have abandoned the task of defining the firm.
This is a review of Joel Mokyr's fascinating book entitled A Culture of Growth. The work is summarized, noting its focus on Darwin-style evolutionary explanations of cultural change. But Mokyr's emphasis on cultural entrepreneurs and positive feedbacks in the procreation of ideas is insufficient to explain the origins of modern economic growth. Too much explanatory weight is placed on too few extraordinary people. It is argued that Mokyr's analysis should be extended, to bring the evolution of institutions, as well as the evolution of culture, into the picture at an additional level. The role of inter-state rivalry and exogenous shocks has also to be underlined. This kind of analysis can be developed within the framework of generalized Darwinism, which Mokyr himself adopts. This is a major and highly stimulating book.
In his recent book on Property, Power and Politics, Jean-Philippe Robé makes a strong case for the need to understand the legal foundations of modern capitalism. He also insists that it is important to distinguish between firms and corporations. We agree. But Robé criticizes our definition of firms in terms of legally recognized capacities on the grounds that it does not take the distinction seriously enough. He argues that firms are not legally recognized as such, as the law only knows corporations. This argument, which is capable of different interpretations, leads to the bizarre result that corporations are not firms. Using etymological and other evidence, we show that firms are treated as legally constituted business entities in both common parlance and legal discourse. The way the law defines firms and corporations, while the product of a discourse which is in many ways distinct from everyday language, has such profound implications for the way firms operate in practice that no institutional theory of the firm worthy of the name can afford to ignore it.
This scoping paper addresses the role of financial institutions in empowering the British Industrial Revolution. Prominent economic historians have argued that investment was largely funded out of savings or profits, or by borrowing from family or friends: hence financial institutions played a minor role. But this claim sits uneasily with later evidence from other countries that effective financial institutions have mattered a great deal for economic development. How can this mismatch be explained? Despite numerous technological innovations, from 1760 to 1820 industrial growth was surprisingly low. Could the underdevelopment of financial institutions have held back growth? There is relatively little data to help evaluate this hypothesis. More research is required on the historical development of institutions that enabled finance to be raised. This would include the use of property as collateral. This paper sketches the evolution of British financial institutions before 1820 and makes suggestions for further empirical research. Research in this direction should enhance our understanding of the British Industrial Revolution and of the preconditions of economic development in other countries.
This is a review essay of Markets without Limits by Jason Brennan and Peter M. Jaworski and of The Invisible Hand? by Bas van Bavel. From different perspectives, both books focus on the moral or practical limits to markets in modern society. While both works make major contributions, there are theoretical flaws. Brennan and Jarworski powerfully countered some criticisms of commodification. But they downplayed the possibility that the transition from gift to contract or market exchange may raise moral issues that are additional to those intrinsic to the goods or services being traded. Van Bavel investigated cycles of growth, inequality and decline in several market economies over the last 1,500 years. But his argument is built on a confusion between finance and capital goods. Nevertheless, much that is positive remains in both books after their flaws are corrected.
After an esteemed academic career as a chemist, Michael Polanyi switched to the social sciences and made significant contributions to our understanding of the nature and role of knowledge in society. Polanyi's argument concerning knowledge led him to emphasise the vital importance of decentralised mechanisms of adjustment and coordination, including markets. His article ‘Collectivist Planning’ (1940) enters into debates about the possibility (or otherwise) of centrally planning scientific and economic activity. This early article also foreshadows post-war debates within the Mont Pèlerin Socierty (formed in 1947) concerning the economic role of the state and the future of liberalism.
This Element examines the historical emergence of evolutionary economics, its development into a strong research theme after 1980, and how it has hosted a diverse set of approaches. Its focus on complexity, economic dynamics and bounded rationality is underlined. Its core ideas are compared with those of mainstream economics. But while evolutionary economics has inspired research in a number of areas in business studies and social science, these have become specialized and fragmented. Evolutionary economics lacks a sufficiently-developed core theory that might promote greater conversation across these fields. A possible unifying framework is generalized Darwinism. Stronger links could also be made with other areas of evolutionary research, such as with evolutionary anthropology and evolutionary psychology. As evolutionary economics has migrated from departments of economics to business schools, institutes of innovation studies and elsewhere, it also needs to address the problem of its lack of a single disciplinary location within academia.
This is a response to the criticism by Rod O'Donnell of the account of Keynes’ notion of a general theory in the book How Economics Forgot History (Hodgson, 2001). Several points of full agreement are noted, including the fact that Keynes’ work contains much discussion of historically specific institutions, including the financial and market institutions of modern capitalism. But it is argued here that even copious discussion of historically specific institutions is insufficient to indicate an adequate understanding or conceptual appreciation of historical periodisation or evolution, as developed in various ways by Karl Marx, the German historical school and the original American institutionalists. Keynes’ General Theory is best understood as a theory of modern capitalism. But Keynes did not have sufficient acquaintance with these historically oriented schools of thought to even define the concept of capitalism, or to make that specific historical association clear.
Definitions are crucial for institutional analysis. This article explains the nature of taxonomic definitions, with particular attention to their use in economics and other social sciences. Taxonomic definitions demarcate one species of entity from another. They are vital for the communication of meaning between scientists, who must share some basic conception of what types of entity they are investigating, to establish a division of labour over subsequent theoretical analysis and empirical investigation of the type of entity defined. Generally, taxonomic definitions build on past usage and are parsimonious: they are not meant to be explanations or descriptions. By contrast, overloaded taxonomic definitions can create square-one disagreement about what is being investigated. As illustrative examples, the paper considers different degrees of progress with attempts to define firms, markets and institutions.
Robert Neild (born 1924) has made a major contribution to economics and to peace studies. This paper provides a brief sketch of Neild's life and work. While noting his research in economic policy and peace studies, this essay devotes more attention to his largely unnoticed contributions to institutional and evolutionary economics since 1984. These are important in their own right, but they are especially notable because Cambridge heterodox economists have been devoted mainly to other approaches, including Marxism and post-Keynesianism. Neild's distinctive contribution is partly explained by his closeness to both Nicholas Kaldor and Gunnar Myrdal. Myrdal made explicit his adherence to the original American institutionalism: Neild extended that link to Cambridge.
The literature on the determinants of cross-country variation in financial system development identifies historical institutional factors, mostly rooted in colonial effects, as key causes. Using a sample of 39 African former European colonies for 2006–11, this paper investigates the extent to which the historical institutional determinants identified by legal origins, disease endowment, religion-based and ethnic fractionalisation theories explain current differences in financial system development across Africa. While most existing research focuses only on one financial system development dimension, namely financial system depth, this article considers also financial system access. The results do not support any of the above theories when depth measures are used, while three of them (legal origins, disease endowment and ethnic fractionalisation theories) are validated when using access measures. This suggests that in Africa financial system depth and access do not have common historical institutional determinants, pointing to the need for greater fine tuning of prevalent theories and empirical measures.
This introduction considers the highly influential contribution of Douglass C. North to economic history and institutional economics, as it developed from the 1960s until his death in 2015. It sketches the evolution of his arguments concerning the roles of institutions, organizations and human agency. North's conception of the economic actor became progressively more sophisticated, by acknowledging the role of ideology and adopting insights from cognitive science. Eventually, he abandoned the proposition that institutions are generally efficient, to propose instead that sub-optimal institutional forms could persist. A few noted criticisms of North's work are also considered here, ranging from those which are arguably off the mark, to others that retain some force. The contributions to this memorial issue are outlined at the end of this introduction.
In a seminal 1989 article, Douglass North and Barry Weingast argued that by making the monarch more answerable to Parliament, the Glorious Revolution of 1688 helped to secure property rights in England and stimulate the rise of capitalism. Similarly, Daron Acemoglu, Simon Johnson, and James Robinson later wrote that in the English Middle Ages there was a ‘lack of property rights for landowners, merchants and proto-industrialists’ and the ‘strengthening’ of property rights in the late 17th century ‘spurred a process of financial and commercial expansion’. There are several problems with these arguments. Property rights in England were relatively secure from the 13th century. A major developmental problem was not the security of rights but their feudal nature, including widespread ‘entails’ and ‘strict settlements’. 1688 had no obvious direct effect on property rights. Given these criticisms, what changes promoted the rise of capitalism? A more plausible answer is found by addressing the post-1688 Financial and Administrative Revolutions, which were pressured by the enhanced needs of war and Britain's expanding global role. Guided by a more powerful Parliament, this new financial system stimulated reforms to landed property rights, the growth of collateralizable property and saleable debt, and thus enabled the Industrial Revolution.
This is a response to the useful comments by Allen, Barzel and Cole on Hodgson (2015a) on property rights. One section deals with some misrepresentations by Allen and Barzel. For instance, contrary to one interpretation, Hodgson (2015a) did not accuse the ‘economics of property rights’ of ignoring legal institutions or of making them generally irrelevant. This response further clarifies the standard meaning of rights, showing that it is at variance with usages in the ‘economics of property rights’. The issue of moral motivation, and its relevance for legal compliance, are also elaborated. Some arguments in Hodgson (2015a) have been described by critics as mere semantics, but in response it is argued – contrary to philosophical nominalism – that changes in the meanings of words can be analytically significant, and we should treat traditional meanings more seriously, especially when dealing with other disciplines such as law. (The cryptic reference to Humpty Dumpty comes in here). Before concluding, there is also a brief discussion of different ways of interpreting transaction costs.
Legal theorists and other commentators have long established a distinction between property and possession. According to this usage adopted here, possession refers to control of a resource, but property involves legally sanctioned rights. Strikingly, prominent foundational accounts of the ‘economics of property rights’ concentrate on possession, downplaying the issue of legitimate legal rights (Alchian, 1965, 1977; Barzel, 1994, 1997, 2002; von Mises, 1981). Some authors in this genre make a distinction between ‘economic rights’ and ‘legal rights’ where the former are more to do with possession or the capacity to control. They argue that ‘economic rights’ are primary and more relevant for understanding behaviour. But it is argued here that legal factors – involving recognition of authority and perceived justice or morality – have also to be brought into the picture to understand human motivation in modern societies, even in the economic sphere. As other authors including Hernando De Soto (2000) have pointed out, the neglect of the legal infrastructure that buttresses property has deleterious implications, including a failure to understand the role of property in supporting collateralized loans for innovation and economic development.
In their stimulating paper, Hindriks and Guala (2014) bridge the prominent alternative conceptions of institutions-as-rules and institutions-as-equilibria, by proposing a ‘rules in equilibrium’ interpretation. This comment argues that the task of defining institutions as a class of phenomena is different from the tasks of understanding or analysing them. Definitions are classification devices and are typically ill-based on behavioural outcomes such as equilibria. Accepting the useful insights of the Hindriks and Guala (2014) article, attention to the matter of definition reinstates a rules-based approach, notwithstanding the importance of understanding and analysing equilibria. The comment establishes a broad definition of institutions as systems of rules, which includes organizations. Finally this comment raised some of the problems involved in understanding the nature of institutional rules.
This is an introduction to the twelve essays in the special memorial issue in honor of Ronald Coase. It includes a brief account of Coase's long life and some of its many achievements. Coase's distinctive, worldly and empirically-grounded approach to economics is highlighted, claiming that it has yielded major theoretical and policy insights. This introduction concludes with a summary of the contributions of the twelve essays.