Some Pessimistic Advice to an Aspiring Economist

In 1898 Thorstein Veblen published his famous essay ‘Why is economics not an evolutionary science?’¹ He urged his fellow-economists to take seriously the transformation that the Darwinian world view was having on the humanities and social sciences, as well as on biology. He used this Darwinian viewpoint to criticize both mainstream economics and Marxism. Mainstream neoclassical economics (a term that Veblen coined) focuses on equilibrium rather than evolution. Marxism offers a pre-Darwinian view of history as a series of ‘stages’ – through feudalism and capitalism, leading to communism. Veblen saw both approaches as deficient and inconsistent with Darwinism. He understood that economic complexity and dynamism ruled out both permanent equilibrium and pre-ordained stages of development.

I read Veblen’s essay in about 1980 and it inspired me to explore ways in which Darwinian insights could be brought into biology. In 1982, Richard Nelson and Sidney Winter published their classic book on An Evolutionary Theory of Economic Change.² This had a major impact. It introduced a more dynamic approach to economics. But citation analysis suggests that it had a greater enduring influence on management scholars in business schools.³ I have not come across many cases where it is recommended to students in university departments of economics. Within economics, it is largely ignored.

Having read some of Veblen beforehand, I noticed something odd about Nelson and Winter’s book, despite my admiration for it. Their models use the Darwinian principles of variation (concerning the sources and role of variety in populations), inheritance (concerning how crucial information is passed from entity to entity), and selection (concerning how some entities survive and propagate more effectively than others). But they failed to describe their approach as Darwinian. Darwin is mentioned only once, in passing, in the entire volume. Since then they have remained reluctant to describe their core principles as Darwinian. Terms like ‘selection’ are used, with little precise explanation, and with decreasing frequency.⁴ This is despite several other scholars following Veblen’s inspiration and bringing Darwinian ideas into economics. For example, see my 2010 book with Thorbjørn Knudsen.⁵

My first piece of advice is that if you want to promote evolutionary ideas then you must explain what you mean by evolutionary. Too many people take it for granted as if it had a single, established meaning that is secretly shared among the high priesthood. In fact, there is no shared meaning, other than change. This is banal. Self-described evolutionary economists cannot even agree if or be clear that they are talking about the development of one entity (akin to ontogeny in biology and to the view of ‘evolution’ in the writings of Marx and Schumpeter) or of a population of entities (akin to phylogeny). Darwinian principles apply to populations. If your analysis is confined to one entity, then variation, inheritance, and selection do not apply.

Joseph Lamoureux’s excellent points about the limitations of much modern economics, even including behavioral economics, are spot on. His critique of the rational actor model is highly reminiscent of Veblen, who also pointed to the need for economists to learn to draw on ideas from psychology, anthropology, and elsewhere that had been impelled by the Darwinian revolution. In another essay published in 1898, Veblen chided economists for making assumptions about human nature or behavior that were inconsistent with our knowledge of human evolution: ‘But if this [rational] economic man is to serve as a lay figure upon which to fit the garment of economic doctrines, it is incumbent upon the science to explain what are his limitations and how he has achieved his emancipation from the law of natural selection.’⁶

When I came across the works of Veblen, Nelson, Winter, and others in the 1980s, I became much more optimistic than I am now about the possibility of using their ideas to improve economics. Here is the bad news: despite many important changes within economics, the rational, utility-maximizing model – or Max U – still reigns supreme. That is one reason why I am pessimistic.

As Joseph makes clear, behavioral economics retains Max U at its core, while measuring ‘deviations’ from it. Peter Earl has written a great essay on this.⁷ I discuss the retention of Max U further in chapter three of my Heterodox Economics book.⁸ I show that mainstream economics has not moved away from its Max U assumptions, despite over a century of criticism and huge developments in other disciplines of our understanding of human evolution and human nature.

When behavioral economics was founded by Herbert Simon in the 1950s, it promoted a strong critique of Max U. Despite Simon being awarded the Nobel Prize in 1978, his version of behavioral economics had little impact on mainstream economics. But during the 1990s a group of scholars developed the ‘new behavioral economics’, which retained Max U as a reference point in the way that Joseph describes.

The fate of Veblen is also relevant. He was the leading member of a strong current of thinking known as institutional economics. This school was highly influential in the US in the interwar period. But with the rise of neoclassical economics, dominated by Max U, the original institutional economics became marginalized by the 1950s.

I have already mentioned, as another case in point, that the impact of Nelson and Winter has turned out to be less in economics than in management and business. In chapter four of my Heterodox Economics book, I show that the ‘evolutionary economics’ (whatever that means) has fragmented into different fields in multiple sub-disciplines, and, while there has been a huge success in applied areas outside economics, that there has been little noticeable development of its core theory among its leaders since 1982. That is another reason why I am pessimistic.

Max U has been unharmed by the work by many scholars on the roots of altruism and cooperation among humans. Leading economists in this area – such as Samuel Bowles and Herbert Gintis⁹ – modify Max U’s preference function so that he gets an extra ‘warm glow’ of utility by helping or cooperating with others. But he is still selfishly maximizing his own utility, even when he is helping his neighbors.

My pessimistic view of the likelihood of economics dethroning Max U, at least in the next 20 years, means that some of my advice to an aspiring economist of Joseph’s ambition and intelligence must be rather negative. You love economics. But if you do not love Max U, then most economists will not love you. It might be best to move out of economics and into another discipline. And the alternatives are not obvious. In part, this reflects a serious broader defect in the nature and organization of the social and behavioral sciences today.

This is sad advice, but I think it must be taken seriously. Because of my criticisms of mainstream economics and Max U, I was blocked from senior positions in UK departments of economics in the late 1980s and early 1990s. I moved into business schools instead. But UK business schools tend to be more pluralist and tolerant, while in the US the situation is a bit different. I still describe myself as an economist, and in many ways, I still love economics, but sadly economics is not my home. The broader problems of surviving as a heterodox economist within the economics discipline are discussed in my Heterodox Economics book.

Anyway, I congratulate Joseph on his accurate depiction of the issues. I hope very much that he will find a way forward where he can flourish. Good, critical economists are sorely needed, and I look forward to hearing more of his work and ideas.

References:

[1] Thorstein B. Veblen (1898) ‘Why Is Economics Not an Evolutionary Science?’ Quarterly Journal of Economics, 12(3), July, pp. 373-97.

[2] Richard R. Nelson and Sidney G. Winter (1982) An Evolutionary Theory of Economic Change (Cambridge, MA: Harvard University Press).

[3] See Geoffrey M. Hodgson (2019) Is There a Future for Heterodox Economics? Institutions, Ideology and a Scientific Community (Cheltenham UK and Northampton MA: Edward Elgar), ch. 4.

[4] See, for example, Richard R . Nelson, Giovanni Dosi, Constance Helfat, Andreas Pyka, Pier Paolo Saviotti, Keun Lee, Kurt Dopfer, Franco Malerba and Sidney Winter (eds) (2018) Modern Evolutionary Economics: An Overview (Cambridge and New York: Cambridge University Press), where there is little mention of Darwinism or even Darwinian principles. Hodgson and Knudsen (2010) is not cited.

[5] Geoffrey M. Hodgson and Thorbjørn Knudsen (2010) Darwin’s Conjecture: The Search for General Principles of Social and Economic Evolution (Chicago: University of Chicago Press).

[6] Thorstein B. Veblen (1898) ‘The Instinct of Workmanship and the Irksomeness of Labor’, American Journal of Sociology, 4(2), September, p. 188.

[7] Peter E. Earl (2010) ‘Economics fit for the Queen: A Pessimistic Assessment of its Prospects’, Prometheus, 28(3), pp. 209-25.

[8] See Geoffrey M. Hodgson (2019) Is There a Future for Heterodox Economics? Institutions, Ideology and a Scientific Community (Cheltenham UK and Northampton MA: Edward Elgar), ch. 3.

[9] Samuel Bowles and Herbert Gintis (2011) A Cooperative Species: Human Reciprocity and Its Evolution (Princeton, NJ: Princeton University Press).