| Preface | ix |
| Acknowledgements | xvii |
|
|
|
|
|
|
|
|
| Part One. Prelude | 1 |
| 1. Introduction and Outline | 3 |
| 1.1. The trajectory of critical development | 4 |
| The current theoretical background | 4 |
| Problems of information | 5 |
|
|
|
|
| 1.2. Some observations | 7 |
| Subjectivism and institutionalism | 7 |
| Process and system | 8 |
| Determinism, purposefulness and choice | 10 |
|
|
|
|
| 1.3. A systems view | 12 |
| The endogeneity of preferences and technology | 13 |
| The systems view briefly explored | 18 |
| Economics and the systems view | 19 |
|
|
|
|
| 1.4. Scope and outline | 21 |
| The fate of institutional economics | 21 |
| Outline of this work | 24 |
|
|
|
|
|
|
|
|
| 2. On Methodology and Assumptions | 27 |
| 2.1. The methodological defence of neoclassical theory | 28 |
| Friedman's methodology | 29 |
| The methodology in practice | 30 |
| Criticisms of Friedman | 32 |
| The instrumentalist interpretation | 33 |
|
|
|
|
| 2.2. Empiricism and beyond | 35 |
| A critique of positivism and empiricism | 35 |
| The falsificationism of Sir Karl Popper | 37 |
| A critique of Popper's methodology | 39 |
|
|
|
|
| 2.3. The fate of methodology | 42 |
| Prediction and other obsessions | 42 |
| The limits of prescriptive methodology | 43 |
| The remaining scope for appraisal | 44 |
| The residual function of evidence | 47 |
|
|
|
|
| 2.4. Appendix: Friedman and the maximization hypothesis | 48 |
|
|
|
|
|
|
|
|
| Part Two. A Farewell To Economic Man | 51 |
| 3. Behind Methodological Individualism | 53 |
| 3.1. What is methodological individualism? | 55 |
| Debating methodological individualism | 55 |
| Purposeful human action | 56 |
| Causality and purpose | 59 |
| Psychological explanations of purpose | 60 |
|
|
|
|
| 3.2. Critique and implications | 62 |
| Spontaneity and absentee explanation | 63 |
| The problem of infinite regress | 64 |
| Wholes and parts | 66 |
| Concluding remarks | 71 |
|
|
|
|
|
|
|
|
| 4. The Maximization Hypothesis | 73 |
| 4.1. The utility of criticizing the maximization hypothesis | 74 |
| Revealed preference and beyond | 74 |
| The 'evolutionary' argument | 76 |
| Other theoretical critiques of maximization
| 78 |
| Empirical critiques of maximization | 83 |
| Evaluations of the criticisms | 86 |
|
|
|
|
| 4.2. Problems with the means-ends framework | 93 |
| Ends and means | 93 |
| Adaptive ends | 95 |
|
|
|
|
|
|
|
|
| 5. The Rationalist Conception of Action | 98 |
| 5.1. Initial criticisms | 101 |
| Early critiques | 101 |
| Reason and discourse | 102 |
| A possible rationalist response | 103 |
|
|
|
|
| 5.2. Cognition and the hierarchy of mind | 106 |
| Unconscious processes | 106 |
| Cognitive theory | 107 |
| Multiple levels of consciousness | 109 |
| Too little information and too much | 111 |
|
|
|
|
| 5.3. Concluding remarks | 114 |
| The rationalist dilemma | 114 |
| Conclusion | 115 |
|
|
|
|
|
|
|
|
| 6. Action and Institutions | 117 |
| 6.1. The impact of cognitive theory | 118 |
| Cognition, culture and society | 118 |
| Cognitive theory and subjectivism
| 121 |
|
|
|
|
| 6.2. The significance of institutions | 123 |
| Action and institutions | 123 |
| Habits | 124 |
| Routinization and institutions |
130 |
| Routines, institutions and information
| 131 |
| Orthodoxy and institutions | 134 |
| Game theory and institutions | 134 |
| Spontaneous order | 137 |
|
|
|
|
| 6.3. Some conclusions | 138 |
| The potential for cumulative instability |
138 |
| The evolutionary character of institutional
economics | 140 |
|
|
|
|
|
|
|
|
| Part Three. Elements of an Institutional Economics | 145 |
| 7. Contracts and Property Rights | 147 |
| 7.1. The concepts of exchange and property | 148 |
| Defining exchange | 148 |
| Exchange and institutions | 149 |
| Individualistic conceptions of property
and law | 151 |
| Williamson's treatment of exchange | 154 |
|
|
|
|
| 7.2. Critique of the utilitarian calculus | 156 |
| Durkheim and the impossibility of pure
contract | 157 |
| Some special cases of impure contract | 160 |
| The centrality of impure contract | 162 |
| General remarks on trust | 166 |
| 7.3. The impurity principle and the fate of capitalism | 167 |
| Impurity and Cartesian thinking | 168 |
| Contractual impurities: Schumpeter and
Marx | 169 |
|
|
|
|
|
|
|
|
| 8. Markets as Institutions | 172 |
| 8.1. Defining the market | 172 |
| The elusive definition | 172 |
| Markets and institutions | 173 |
| Types of market institution | 176 |
| Markets and exchange | 177 |
| Some immediate theoretical consequences
| 177 |
|
|
|
|
| 8.2. Why do markets exist? | 179 |
| Transaction costs | 180 |
| On the limits to the growth of the market |
181 |
|
|
|
|
| 8.3. Markets, prices and norms | 182 |
| The establishment of norms | 184 |
| The classical tradition | 186 |
|
|
|
|
| 8.4. The impossibility of perfect competition | 187 |
| The function of conventions | 188 |
| The game-theoretic analysis of markets
| 191 |
|
|
|
|
|
|
|
|
| 9. Firms and Markets | 195 |
| 9.1. Neoclassical perspectives on the firm | 196 |
| Alchian and Demsetz: the firm as a market
| 196 |
| Why do firms exist? | 199 |
| Transaction costs and lack of information |
201 |
|
|
|
|
| 9.2. Notes towards an alternative perspective | 203 |
| Uncertainty and transaction costs | 203 |
| Uncertainty, institutions and the firm
| 205 |
| The comparative efficiency of the firm
| 208 |
| Innovation and transaction costs | 212 |
| Efficiency, technology and power | 213 |
|
|
|
|
|
|
|
|
| 10. Expectations and the Limits to Keynes | 217 |
| 10.1. Expectations in the General Theory | 218 |
| Long-term expectations | 218 |
| Keynes' policy conclusions | 220 |
|
|
|
|
| 10.2. Some limitations of the theory | 221 |
| The expecting agent | 222 |
| Firms and financiers | 223 |
| Keynes' rationalist conception of action
| 226 |
| Government action | 228 |
|
|
|
|
| 10.3. Austrian and rational expectations alternatives | 230 |
| The endogeneity of expectations | 230 |
| The rational expectations hypothesis | 231 |
| The Austrian theory of expectations | 236 |
|
|
|
|
| 10.4. Lessons for post-Keynesian economics | 239 |
| The imperfectionist interpretation | 240 |
| Conclusion | 241 |
|
|
|
|
|
|
|
|
| 11. Direction and Policy Implications | 242 |
| 11.1. Needs and welfare | 243 |
| A road to serfdom? | 243 |
| Needs and economic analysis | 245 |
| Theories of needs | 247 |
|
|
|
|
| 11.2. Systems, impurity and dominance | 252 |
| Economic systems as diversified pluralities
| 254 |
| The principles of impurity and dominance
| 256 |
| Cybernetics and the impurity principle
| 257 |
| Illustrations of the impurity principle
| 258 |
| Extending the impurity principle | 261 |
|
|
|
|
| 11.3. Guidelines for economic organization | 262 |
| The firm as a system | 262 |
| The conditions for innovation | 267 |
| Institutional intervention | 269 |
|
|
|
|
|
|
|
|
| Notes | 275 |
| Bibliography | 306 |
| Index of Names | 347 |
| Index of Subjects | 356 |
