Pragmatism and institutionalism

5PRAGMATISM AND

INSTITUTIONALISM

Habit Social Darwinism Effects Challenge Adaptation

1. PRAGMATISMMini glossary

Charles Sanders Peirce (1839–1914) Founder of American pragmatism (later called by Peirce “pragmaticism”) Important contribution to the general theory of signs (which was often called by Peirce “semeiotic”).

PRAGMATISM: ORIGINS

“A general law of action, such that on a certain general kind of occasion a man will be more or less apt to act in a certain general way.”

“A general principle that acts in the nature of the man to determine how will act.”

«Which determines us, from given premises, to draw one inference rather

than another, is some habit of mind, whether it be constitutional or

acquired»

"Consider what effects, which might conceivably have practical bearings,

we conceive the object of our conception to have. Then, our

conception of these effects is the whole of our conception

of the object"

Our idea of anything is our idea of its sensible effects

An idea is true if it works(William James)

PRAGMATISM: SOCIAL CONTEXTThe survival of the fittest

Danger zone

Amerindians

ChallengeAdaptation

The mind is an organ of adaptation

◦ Active role: Deal with the environment

◦ Passive role: Adjust to the changes

PRAGMATISM: FUNCTIONAL PSYCHOLOGY

William James (1842 –1910)US psychologist and philosopher.Wrote influential books on different branches of psychology and on the philosophy of pragmatism.

PRAGMATISM: WILLIAM JAMES

“A glance at the history of the idea will show you still better what pragmatism means. The term is derived from the same Greek word pragma, meaning action, from which our words ‘practice’ and ‘practical’ come.”

An idea is true if it works: “it is true if it satisfies, is verifiable and verified in experience.”

“Theories thus become instruments, not answers to enigmas, in which we can rest.”

John Dewey (1859-1953) US philosopher, psychologist and educational reformer. Important early developer of the philosophy of pragmatism.One of the founders of functional psychology.

PRAGMATISM: JOHN DEWEY

“Truth is merely the solution that most fully resolved the friction or

strain”

An idea is true if it works(William James)

Collective action composed by:

◦ The action of individuals Truth about individuals

◦ The collective action of society as a whole How political society works

Everything that can be known about social reality

Human action is the attempt to resolve the friction with the environment.

The pragmatic man uses the technic and not any metaphysical illusions

While interest and purpose are the driving forces of action, it is habits in thought and practice which at least in part constitute them.

There is not anything outside the individual acting

Conspicuous consumption Veblen effect Sabotage Institutional economics Industry VS business Evolutionary economics Technocracy Embedding Disembedding

2. INSTITUTIONALISM: VEBLENMini glossary

Thorstein Veblen(1857 – 1929)Norwegian-AmericanOpposed Karl Marx

INSTITUTIONALISM: VEBLEN

“The upper classes are by custom exempt or excluded from industrial occupations, and are reserved for certain employments to which a degree of honour attaches. Chief among the

honourable employments in any feudal community is warfare; and priestly service is

commonly second to warfare.”

Can be found here: http://www.questia.com/PM.qst?a=o&d=104212582

INSTITUTIONALISM: VEBLENThe Theory of the leisure class

http://www.questia.com/PM.qst?a=o&d=104212582

http://www.questia.com/PM.qst?a=o&d=104212582

In the modern capitalist economy, Veblen sees two main institutions: the institution of acquisition/industry (pecuniary interest), and that of production/business (industrial perspective).

The institutions that Veblen spoke about are not organisations, but social (mental and practical) habits

INSTITUTIONALISM: VEBLENInstitutions

Profitable action in business requires that the business person seeks the most profitable investments and actions. However, in order to realize the highest achievable profit, businesspersons engage in manipulations and strategic actions which fall into the general categories of sabotage and monopoly.

Veblen defines sabotage as the “conscientious withdraw of efficiency.” Veblen explicitly identifies in this definition sabotage on the part of the managers and owners of business.

INSTITUTIONALISM: VEBLENSabotage and monopoly

Businesspersons control their industries for the sake of the greatest obtainable profits, not the greatest efficiency of classical economics or the greatest social good.

They achieve “this necessary control of the output of industry” by recourse to “something in the nature of sabotage -something in the way of retardation, restriction, withdrawal, unemployment of plant and workmen - whereby production is kept short of productive capacity


The outcome of this sabotage is less production, more waste, and unbridled inefficiency.

The other means by which business seeks to take advantage of disturbances in the market for the sake of better profits is by the creation of monopoly. Veblen defines “monopoly” as not only as one supplier in a market, but also as one supplier that has created the illusion that their particular product is unique and therefore sold at a premium.


People, rich and poor alike, attempt to impress others and seek to gain advantage through what Veblen coined “conspicuous consumption” and the ability to engage in “conspicuous leisure.” In this work Veblen argued that consumption is used as a way to gain and signal status => Veblen effect.

Through “conspicuous consumption” often

came “conspicuous waste”, which Veblen detested.

INSTITUTIONALISM: VEBLENConspicuous consumption

Abnormal market behaviour where consumers purchase the higher-priced goods whereas similar low-priced (but not identical) substitutes are available. It is caused either by the belief that higher price means higher quality, or by the desire for conspicuous consumption (to be seen as buying an expensive, prestige item).

INSTITUTIONALISM: VEBLENVeblen effect

Are a group of commodities for which people's preference for buying them increases as a direct function of their price, as greater price confers greater status, instead of decreasing according to the law of demand. (example about wine: http://news.stanford.edu/pr/2008/pr-wine-011608.html)

INSTITUTIONALISM: VEBLENVeblen goods

Emulation, which Veblen sees as a natural trait of humans; People emulate what they see others do, and in this way, patterned behaviour (rather than individual variety) comes about. The fact that the poor want to emulate the rich but cannot do so, creates envy, which is what in Veblen’s view gives rise to socialism as a movement.

INSTITUTIONALISM: VEBLENEmulation

Headed the Institutionalist school of thought - it brought together those who wanted to counter the ‘abstract theories of market exchange and price equilibration’ by investigating the real variety of economic practices and their embeddedness in society (Brick, 2006: 65-7).

Applied the Pragmatist principles i.e. light version of Positivism - and the ontology of Social Darwinism (“survival of the fittest”) to economics.

The difference with Marxism is that for Veblen, exchange relations and private property (‘business’) and production (‘industry’) are externally related; hence the institutionalist terminology of ‘embedding’ and ‘disembedding’. This means: the industry is dominated from the outside (pecuniary motif) and by manipulating the markets they create demand for more expensive goods or more goods in general among the public. For them, the leisure class sets standards for what is seen as “good life” which the lower classes try to emulate.

“Conspicuous consumption of valuable

goods is a means of reputability to the

gentleman of leisure.”

Thorstein Veblen

More Veblen:

http://www.philosophy.uncc.edu/mleldrid/SAAP/USC/TP16.html#_ednref1

http://elegant-technology.com/resource/ECO_SCI.PDF http://www.questia.com/PM.qst?a=o&d=104212582 http://socserv2.mcmaster.ca/~econ/ugcm/3ll3/veblen/

econevol.txt http://socserv2.mcmaster.ca/~econ/ugcm/3ll3/veblen/

leisure/index.html http://www1.geo.ntnu.edu.tw/~moise/Data/Books/Social/

08%20part%20of%20theory/veblen%20bourdieu%20and%20conspicuous%20consumption.pdf

http://www0.gsb.columbia.edu/faculty/lhodrick/veblen%2520effects.pdf

Institutional economics Societal approach to social sciences Utopia of self-regulating market Commodification Varieties of capitalism Embedded; Disembedded (Re-embedding) Double movement Social protection

3. INSTITUTIONALISM: POLANYIMini glossary

Karl Polanyi(1886-1964) was an Economic Anthropologist born in Vienna, Austria.Former Hungarian political leader – who became a political refugee;Moved to the UK – where he worked on his greatly acclaimed work: The Great Transformation

INSTITUTIONALISM: POLANYI

“Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution

could not exist for any length of time without annihilating the human and natural substance of

society; it would have physically destroyed man and transformed his surroundings into a wilderness.

Inevitably society took measures to protect itself, but whatever measures it took impaired the self-

regulation of the market, disorganised industrial life, and thus endangered society in yet another way.”

(Polanyi, The Great Transformation, 1957c: 3-4)

INSTITUTIONALISM: POLANYIThe institutional economics

Takes the societal approach to social science - does not begin with the individual, but with society.

Polanyi's view of the economy focuses on social reproduction. - Like John R. Commons (1862-1945) before him as mentioned in the Survey – Polanyi seeks to account for the rise of the large-scale organisation in society. To him, this is planning.

INSTITUTIONALISM: POLANYIThe institutional economics

THE MARKET: The self-regulating market, the utopia of liberal thinking, in Polanyi’s view is an institution like others, but one rooted in a socially destructive illusion. (Survey, 2009)

The liberal illusion rests on the assumption that the market can be dis-embedded from society (Survey, 2009).- This is defined as a situation “where society and humanity become regulated by the market, rather than markets being regulated by societal and human needs. So, instead of an economy being embedded in social relations, social relations [are] embedded in the economic system” (Polanyi, 1957c: 57).

INSTITUTIONALISM: POLANYIThe market and the double movement

IN ESSENCE: The decisive issue is that under capitalism, production itself, including human reproduction and survival becomes dependent on market exchange (Ankarloo, 2002).

Failure to exchange – both goods and labour is detrimental.

- Therefore: The development of the market has all along been accompanied by instances of social protection and planning to mitigate the destructive effects of unfettered market economy (Survey, 2009)


THE DOUBLE MOVEMENT: The market, being an instituted order – not spontaneously evolved from acts of exchange or trade, but the commodification of labour, land and money – sees every step in the introduction of self-regulating market principles provoking sooner or later, measures to protect the spheres of life epitomised by, what he defined as the three fictitious commodities. (Survey 2009; Ankarloo 1999)


The 3 factors of production: Labour Land Money

THE SOCIAL PROTECTION that follows (societal

and government intervention) is the result of societies’ need for protection from fluctuations and price shifts inherent in a so-called – self-regulating market. THEREFORE: re-embedding of the market.


“Since every society solves the problems resulting from market extension and attendant social protection into the three sensitive areas of land, labour and money in different ways, we are confronted not with one, but with many capitalisms.” (Survey, 2009)

“Laissez faire was planned, planning was not”

(Polanyi, 1957c: 141).◦ Or as others have noted - The Economy as an Instituted

Process (J. Ron Stanfield, 1980)◦ If you don’t have rules and institutions – there is no

economic activity.

INSTITUTIONALISM: POLANYIVarieties of capitalism

Economy & Finance

Pragmatism and institutionalism