Evolution and Institutions: On Evolutionary Economics and the Evolution of Economics (review)

Evolution and Institutions: On Evolutionary Economics and the Evolution of Economics. By Geoffrey M. Hodgson. Cheltenham, U.K.: Edward Elgar, 1999. 345 pp. $95.00.

Why did heterodox criticisms of mainstream economics not have a profound impact on economics, despite the fact that they often were well taken? More specifically, why does evolutionary economics, although it is based on a (biological) metaphor that arguably is more appropriate for economics than is the prevailing mechanistic metaphor, not get the attention and acclaim that it deserves? What institutions in the economics profession prevent this from happening? These are the main issues occupying Geoff Hodgson in his latest book. Most chapters in the book are revised versions of papers Hodgson published in the nineties. The chapters (eleven in all) are grouped together in four parts. In part 1 Hodgson argues that many heterodox economists have wrongly accused neoclassical economics of having an ingrained promarket bias. Neoclassical theory rather is market-blind, Hodgson argues: it fails to acknowledge essential market features and processes. Hodgson also sets out to explain why Piero Sraffa’s incisive and, according to Hodgson, devastating attack on the concept of the aggregate production function in mainstream economics almost left no trace in economics. Hodgson argues that this is primarily due to the fact that the Sraffians failed to develop an alternative theory of human agency and interaction.

In part 1 Hodgson also urges economists, first, to take the creative and constitutive role of metaphors in their own discipline more seriously and, second, to embrace theoretical pluralism. Hodgson argues that mainstream economics denies itself the possibility of contemplating alternative, potentially more fruitful, metaphors such as the biological metaphor, because it is oblivious to the mechanistic metaphor it was founded upon.

Part 2 addresses the vicissitudes of biological metaphors in economics from the 1880s to the 1980s. Hodgson also discusses the vast variety in approaches now faring under the banner of “evolutionary economics.” Hodgson makes it clear that he sympathizes in particular with “novelty-embracing, anti-reductionist” (NEAR) approaches in evolutionary economics: approaches in which the incessant creation of novelty in evolutionary processes is emphasized and that deny the possibility of explaining aggregate “wholes” entirely in terms of their elemental, constitutive parts.

Part 3 is fully dedicated to the best-known pioneers and representatives of NEAR evolutionary economics: Richard Nelson and Sidney Winter. Particularly insightful is Hodgson’s point that Nelson and Winter’s Evolutionary Theory of Economic Change (1982) is more consonant with “old” (Veblen style) institutional economics than Nelson and Winter think it is. Nelson and Winter mention Robert Gordon as one of the precursors of their own evolutionary theory, but fail to notice that Gordon in turn was heavily influenced by “old” institutionalism.

Finally, part 4 addresses evolutionary theories of the firm. Hodgson argues that evolutionary elements that now remain implicit in Ronald Coase’s and Oliver Williamson’s transaction cost theories should be brought out into the open. Hodgson is quite confident that if this were done, it would turn out that key propositions about hierarchy and efficiency are unwarranted. Special attention is paid to competence-based theories of the firm. Hodgson discusses prominent forerunners of these theories, notably Edith Penrose, argues that evolutionary theories of the firm can be regarded as a subset of competence-based theories, and examines their various relationships with contractarian theories of the firm.

The above overview hopefully gives a flavor of the stunning richness of Hodgson’s book. Not only does the book cover a multitude of authors, schools of thought, historical episodes, and areas of research, it also does this from a plethora of perspectives. Hodgson draws on the history of economic thought, on philosophy, and on methodology, but also engages in sociological analyses of economics (or “the institutions of economics,” as he prefers to call it) and citation analyses.

Hodgson’s book also has its weaknesses, however. In an undertaking...