------------ EH.NET BOOK REVIEW -------------- 
Published by EH.NET (January 2005) 
 
Geoffrey M. Hodgson, _The Evolution of Institutional Economics:  
Agency, Structure and Darwinism in American Institutionalism_. London  
and New York: Routledge, 2004. vix + 534 pp. $135 (hardcover), ISBN:  
0-415-32252-9; $43.95 (paperback), ISBN: 0-415-32253-7. 
 
Reviewed for EH.NET by Sherry Davis Kasper, Department of Economics,  
Maryville College. 
 
 
At the beginning of this book, Hodgson gratefully acknowledges the  
time to read, think and research his new position at the University  
of Hertfordshire has provided him. The remarkable array of ideas he  
imparts in this book bears witness to that gift. They range from the  
development of Charles Darwin's concept of natural selection in the  
nineteenth century to late twentieth-century developments in  
psychology, philosophy, complexity theory and economics. Along the  
way, the reader learns about ways of thinking about the relationship  
between agency and structure; the evolution of social theory,  
psychology, and philosophy; the life, times, and intellectual  
accomplishments and failures of Thorstein Veblen; the development of  
American institutionalism in the twentieth century; and the ripe  
conditions for a revival of Veblenian institutionalism at the present  
time. In addition, Hodgson provides readers with detailed footnotes  
and an extensive bibliography, both of which can serve as a launching  
point for their education in these ideas. 
 
Hodgson views this book as a companion to his earlier volume _How  
Economics Forgot History_ (2001). The theoretical focus of the first  
book was "the limits of general theory in the social sciences" and  
the consequent necessity for scholars to study how "socio-economic  
systems [move] through time and space" (p. xiv). To explore these  
ideas, he examined the effect of the German historical school on the  
development of American institutional economics. This new book  
changes its theoretical focus and moves forward in time. "The  
theoretical focus here is on the interaction between the individual  
and society," that is the relationship between agency and structure.  
The time period covered runs from the development of Darwin's ideas  
to the decline of institutional economics after World War II. 
 
Hodgson divides the book into five sections. Part I serves as an  
introduction to the book and to the core concepts on which Hodgson  
hopes to found the revival of Veblenian institutionalism. Chapter 1  
introduces the nature and scope of the argument. Chapter 2 provides a  
discussion on how social theorists have analyzed the relationship  
between agency and structure. Chapter 3 ends this section with an  
examination of the evolutionary perspective of analysis, including  
descriptions of Darwinism, Lamarckism, and Weismannism. 
 
Part II, titled "Darwinism and the Victorian Social Sciences,"  
examines the "origin and meaning of Darwinian ideas and the early  
impact they had on the social sciences" (p. 10). Chapter 4 elucidates  
and contrasts the principles of Darwinism with those of social  
Darwinism as developed by Herbert Spencer and William Graham Sumner  
during the late 1800s. Chapter 5 describes "early attempts to apply  
Darwin's ideas to social evolution" (p. 10). In this section, Hodgson  
focuses on the work of philosopher George Henry Lewes, natural  
scientist Conwy Lloyd Morgan, and philosopher David Lloyd Ritchie to  
establish that Veblen could build on earlier attempts to apply the  
Darwinian principle of natural selection to both the levels of the  
individual (agency) and the institutional evolution (structure). 
 
Part III, titled "Veblenian Institutionalism," "discusses Veblen's  
institutionalism and measures his achievement" (p. 10). In chapter 6,  
Hodgson begins his account by providing biographical detail about  
Veblen, including potential influences on his thinking. He spends a  
section of the chapter expanding further on the ideas and possible  
influence of Morgan. Though Hodgson cannot confirm that Veblen and  
Morgan met, he does establish that both were at the University of  
Chicago at the same time. He speculates that Morgan's ideas about  
emergence paid an important role in Veblen's contribution that  
"individual and social structures were in a process of coevolution,  
rather than one being the determinant of the other" (p. 133). 
 
In chapters 7 and 8, Hodgson describes Veblen's development of a  
Darwinian institutional economics. Initially he spends time  
documenting his position that Veblen made his primary theoretical  
contributions to economics from 1896 to 1909. He continues with an  
extensive discussion of how Veblen drew on the evolutionary theory of  
Darwin, the instinct-habit psychology of William James and William  
McDougall, and pragmatist philosophy of James and Charles Sanders  
Peirce to develop institutional economics. Hodgson concludes by  
arguing that Veblen rejected both methodological individualism and  
methodological collectivism in favor of a theory that views  
"institutions as both units of evolutionary selection and  
repositories of knowledge" (p. 10). 
 
In chapters 9 through 11, Hodgson critically evaluates some of  
Veblen's ideas to explain why Veblenian institutionalism never took  
hold. First, he describes the "defects in [Veblen's] account of the  
'instinct of workmanship' and its alleged conflict with pecuniary  
motives" (p. 10). In Chapter 10 Hodgson delineates the two research  
programs present in _The Theory of Business Enterprise_ (1904). The  
first focuses on the "role of expectations and financial speculation  
in business cycles" (p. 10). Hodgson laments that if Veblen had  
focused more on developing this idea then he could have "upstaged"  
Keynes by several decades (p. 10). Unfortunately, in Hodgson's view,  
Veblen dissipated his energy developing the second research program  
-- "the alleged influence of the machine process on habits of  
thought" (p. 11). Hodgson concludes by arguing that the development  
of institutional economics was irreparably harmed by Veblen's  
decision to abandon the study of philosophy by 1909. This desertion  
meant that Veblen missed connecting with the developers of  
emergentist philosophy during the 1920s. Their ideas about evolution  
on the social level could have rescued Veblenian institutionalism  
from the contamination of those who used principles of biological  
evolution to justify racist, sexist and imperialistic practices, such  
as the Nazis. 
 
In chapter 12, Hodgson concludes this part with a description of the  
launch of American institutionalism. In it, Hodgson asserts that its  
Veblenian foundations were harmed by two factors. First, the  
development of behavioral psychology and positivism challenged the  
instinct-habit psychology and pragmatist philosophy on which Veblen  
founded his institutionalism. Second, a movement emerged to separate  
social science from biology, due to racist, sexist and imperialistic  
policies that groups such as the Nazis were justifying on  
evolutionary grounds. 
 
Part IV, titled "Institutionalism into the Wilderness," provides an  
overview of the birth and decline of American institutionalism during  
the interwar period. Initially, Hodgson presents case studies  
describing how individuals that he classifies as institutional  
economists dealt with the relationship between agency and structure  
in their work. These include John R. Commons, Wesley Mitchell, Frank  
Knight and Clarence Ayers. Chapter 18 returns to a general discussion  
of institutional economics after World War II. Hodgson highlights  
external and internal reasons for its decline. External factors  
include an inability to provide a theoretical explanation for the  
Great Depression, a failure to provide a remedy for the Great  
Depression, the focus of economics during World War II, and the  
change in the nature and scope of economics to "a greater  
technocratic bias" after the war (p. 388). Internal factors include  
the absence of a "systematic treatise on institutional theory";  
Ayers' reinterpretation of institutions as inhibitors rather than  
promoters of evolution; the abandonment of price theory by leading  
institutionalists; the lack of consensus on fundamental  
methodological and psychological issues; and the focus on ideology  
and moral pronouncements to the detriment of theoretical developments  
(p. 391). 
 
Part V, titled "Beginning the Reconstruction of Institutional  
Economics," serves as Hodgson's manifesto about ways to generate "the  
revival of a Veblenian-style institutionalism" (p. 11). Chapter 19  
outlines recent developments in psychology, philosophy, complexity  
theory and economics that support the reintroduction of Veblen's  
ideas. Chapter 20 illustrates how institutional economists can use  
Veblenian institutionalism to solve current problems. This chapter  
concludes with a summary of lessons learned from reconstructing the  
history of institutional economics and outlines the promise of  
Veblenian institutionalism for the future. 
 
In terms of assessing this book, as a scholar of the development of  
economics during the interwar period, I was not fully persuaded by  
Hodgson's description of the decline of institutionalism, because it  
was not always clear to me why he selected for analysis the four  
economists that he did. He states that he chose Commons, because he  
wanted to evaluate his "attempt to provide institutional economics  
with a systematic methodological foundation," an effort Hodgson  
judges as a failure (p. 287). Hodgson seems to have selected  
Mitchell, because his success during the interwar period at the  
National Bureau of Economic Research (NBER) and in developing  
macroeconomics made him "the second most important figure in the  
history of institutional economics" (p. 309). He appears to have  
chosen Ayers because his theory of the dichotomy between technology  
and ceremony "was to sustain and become central for the dwindling  
numbers of American institutionalists for more that fifty years" (p.  
355). He states that his purpose for examining the ideas of Knight is  
"to situate [him] in the broad tradition of American institutional  
economics, and to consider his views on the relationship between  
neoclassical and institutional economics, on the problem of agency  
and structure, on psychology and its relation to economics" (p. 323). 
 
Yet, these choices seem arbitrary. Commons, Mitchell and Ayers do  
stand out as leading institutional economists. At the same time,  
during the interwar period, other individuals were identified as  
providing successful models of institutional economics, such as  
Walton Hamilton and his study of the coal industry and John Maurice  
Clark and his study of costs. In addition, no consensus exists on the  
fact that Knight was an institutionalist. In fact my reading of  
Knight's work suggests that ultimately he epitomizes the questioning  
skeptic who aimed to keep his fellow social scientists aware of and  
accountable for the limitations and possibilities of their methods of  
analysis. Thus after reading Part IV, I was left wondering if  
Hodgson's historical narrative and subsequent interpretation would  
have been different if he had selected a different set of interwar  
economists. 
 
On a different level, the amazing breadth of this book emerges as  
both a virtue and a vice. Its virtue is that it enlightens the reader  
immensely. For example, I decided to accept this review, because I  
wanted to learn more about Darwinism and its influence on the  
development of the social sciences in America. Reading this book  
enabled me to accomplish that goal. Hodgson provides a detailed  
description of Darwinism and the ideas that Darwin drew on to develop  
his ideas about evolution. This introduction to the foundations of  
Darwin's thought took the reader to discussions of philosophy, social  
theory, psychology and philosophy. Hodgson also clearly explained the  
differences between Darwinism proper and its corruption to the social  
Darwinism of Spencer and Sumner. I then learned how Veblen drew on  
the ideas of Darwin to develop his multiple-level evolutionary  
economics. Finally, I gained a fuller understanding of why the  
majority of social scientists abandoned evolutionary ideas. Due to  
the book's expansive range, other readers can come to this book with  
a different interest and come away enlightened. 
 
Yet, there is also a vice inherent in this amazing breadth. First,  
its complexity sometimes makes following Hodgson's argument a  
challenge. For example, Hodgson examines pieces of emergentist  
philosophy in various ways throughout in the book. Some of the times,  
the text is an historical narrative. For example, in chapter 5, he  
describes the ideas that were precursors to this philosophy. In  
chapter 11, when discussing how Veblen got institutional economics  
off track, Hodgson continues with the historical narrative, providing  
a detailed description of the "flowering" and "importance" of  
emergentist philosophy in the 1920s (pp. 237, 242). But suddenly at  
the end of chapter 11, he moves from historical narrative to  
theoretical explication to present his view of what Veblenian  
institutionalism would consist of on "emergentist foundations" (p.  
246). Since Part V of the book is designed to present the  
reconstruction of Veblenian institutionalism, an abbreviated  
rebuilding at this point in the book diverts the reader from the  
historical narrative and makes following the argument more  
complicated. On some level, Hodgson seems aware of this problem.  
Throughout the book, he adds statements letting the reader know that  
he will return to a particular train of thought in a later chapter,  
or that the reader can return to an earlier section of the book to  
refresh her understanding. Thus, I think Hodgson could have made a  
more persuasive argument if he had organized it more logically. 
 
Second, the breadth of the book also detracts from his proposal to  
rebuild institutionalism. I sense that Hodgson believes that he must  
provide much detail in order to convince readers of the necessity and  
possibility for reconstruction of institionalism at this place and  
time. But the reader has to sift through so much to get to his  
manifesto, that I fear Hodgson will lose many along the way. And that  
loss would be disturbing, because twenty-first-century economics is  
in need of some reconstruction so that it can understand and  
remediate the problems of real people. And Hodgson has provided some  
ideas that might help move institutional economics in a more fruitful  
direction. 
 
(Geoffrey Hodgson is Research Professor in Business Studies at the  
University of Hertfordshire, UK. He was formerly a Reader in  
Economics at the University of Cambridge, UK.) 
 
 
Sherry Davis Kasper, Professor of Economics at Maryville College  
(Maryville, Tennessee) is an historian of economics who studies the  
evolution of American economic thought in the twentieth century. She  
recently published _The Revival of Laissez-Faire in American  
Macroeconomic Theory: A Case Study of the Pioneers_ (2003). 
 
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