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Institutional Economic Theory
Economics 451
University of Missouri-Kansas City
Generalizations Regarding Ceremonial Behavior
Although there is enormous diversity of ceremonial patterns of different societies
in different parts of the world, and also great differences in ceremonial patterns of
the same society over time, as, e.g., the differences between ancient and
modern Italian society, nevertheless, it is possible to identify some major features
of ceremonies.
1. Power, authority, class inequality, rank, status, superior/ subordinate are
based on the ceremonial aspect and all purport to rest on differences in
competence and hence are quasi-technological; Veblen described this as
"ceremonial adequacy."
2. Norms justify and sanctify the above. Some are deemed of major importance to the welfare
of society - a prosperity code - and observance of these is binding on all members. The
norms determine friends/enemies, right/wrong, good/evil, and such. They also purport to
rest on tested, quasi-technological, standards.
3. Preliterate societies had legends, mythical stories to authenticate the above. These tend to
evolve into ideologies/theologies under the supervision of professional or semi-
professional
functionaries, e.g., religious theologies; secular ideologies, as, doctrines of capitalism and
fascism.
4. Emotional conditioning paves the way to emotional arousal when appropriate symbols are
invoked. Emotional confirmation tends to reinforce ideological commitment. Thus, although
Marxism and capitalism are primarily secular doctrines, emotional commitment raises them
to the level of religious commitment on occasion. Modern commitments to nationalism and
economic ideologies make them more significant than religious commitments, and also
make them the most dangerous sources of conflict.
5. Legitimacy is conferred by ritual and ceremony.
6. Ceremonies are past-binding and involve combined continuities and discon tinuities with
antecedent ceremonies.
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7. The method of knowing, or arriving at the validity of ceremonial values: tradition,
authority, self-evident truths, faith.
8. The inequalities and authority defined by ceremonies are usually supported by the
socialization process. Every society possesses a set of social traditions, beliefs, and habits
that are deemed necessary, revered, and faithfully taught to each oncoming generation.
"Norms" are standards for such judgments as right and wrong, truth and falsehood,
beautiful, ugly. The norms and mores teach belief in the correctness of the inequalities of
authority. When nations began to adopt public education systems, they were rapidly turned
into instruments for teaching patriotic allegiance to the state, the prevailing economic
institutions and, in countries that support religious schools, religious organizations.
9. The ceremonies form a network of means of which they support and reinforce each
other. Family indoctrination teaches respect and reverence for church and nation, and church
and state support family. ceremonies support great inequalities between humans and, its
beneficiaries or vested interests have the strongest of reasons to support and perpetuate the
status quo.
One of the most powerful reasons ceremonies are past-binding and resistant to
change is that the entire population has been taught to believe in the truthfulness and
worthiness of it’s ceremonies. It is seen as a prosperity code whereby society prospers if it
holds fast to the traditional way of life, but calamity and decline befall the society that departs
from tradition. In addition, vested interests have a supreme incentive to perpetuate
arrangements of which they are the chief beneficiaries. They usually exercise a major
influence over communication systems, including educational ones.
Our medieval ancestors found no intellectual difficulty in holding to the conviction
that a minority of people - monarchs, nobles, and clergy - should control the majority in all of
the affairs of life. It was "obvious" to them that some kinds of people should dominate others.
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Beginning in the 18th century, intellectual inquiry questioned traditional authority as
it had never been questioned before, and this questioning has continued more or
less actively ever since. But the process has not ushered in an egalitarian society
by any means, and has not, by some standards, ushered in a really functional
political democracy. Notwithstanding our tradition of questioning authority, there is
practically universal acceptance of the belief that it is "obvious" that those who
possess money should dominate the economy.
10. Although ceremonies tend to resist change, they do change. Most change
(major) is due to the fact that technological innovations change the environment over
time to such a great extent that the traditional ceremonies ceases to function
effectively. To cite two revolutionary times: the technological revolution that ushered in
domestic plants and animals brought with it such extensive changes in the
environment, that most ceremonies underwent major changes, although in some
cases they were modifications of antecedent ceremonies. The technology that
ushered in the industrial society also changed the environment so greatly that
traditional ceremonies became dysfunctional by way of conflicting with the
requirements of industrial activity, and were modified significantly although, again, the
new ceremonies were modifications of antecedent ceremonies
11.The ways of knowing in the ceremonial realm are different from the ways of knowing in
the realm of science and technology. The surest path to truth, according to medieval
European thought, was by faith in the authority of the holy book, and by revelation, divine
inspiration. Confidence in tradition as a path to truth seemed confirmed by the fact that
tradition had been a sure and reliable guide to humans from time immemorial; its longevity
was evidence of its truth. In every stable society some ideas are so widely accepted
without question that they are seen as self-evident truths, truths that could be accepted a
priori as the foundation upon which to build systems of thought. These would be concepts,
held to be beyond challenge because they are held by faith, rest on authority (divine or
otherwise), and achieve the status of self-evident. They are also seen as absolute, final,
eternal, truths.
12. ceremonies are especially resistant to change when there is a populous
society with long-standing and entrenched traditions. There are situations,
however, in which ceremonies are comparatively weak or fragile and, where they
offer comparatively little resistance to change. A frontier is a place where
ceremonies are likely to be weak, permissive, and offer less resistance to change.
All populations, as in some of the Pacific Islands, often see their ceremonies
shattered when outsiders with more formidable technology impose control. The
question of whether ceremonies may make a positive contribution to change,
facilitate change, is controversial and will not be considered here.
13. ceremonies are not simply non-technological, they are pseudo-technological, in
the sense that they purport to be functional. They purport to 'make-possible'
some essential activities and outcomes upon which the well-being of the society
depends. Thus, the semi-divine pharaohs subsequently provide abundant crops:
correct religious observances are followed by planting, cultivating and harvesting
and abundant crops. The fact that desired consequences follow correct religious
practices are seen as proof of the efficacy of the ceremonial practices and hence
the correctness of valuing these ceremonies.
14. The path to truth in the realm of technology is probably as old as the ceremonial
path to truth, and took the form of discoveries and inventions, accidental or
otherwise, of a tool-making-using character.
15. Since every set of ceremonies provides for or defines inequalities, ranks,
statuses, it is quite understandable that those who are better off in the social hierarchy
should seek to perpetuate it for themselves and their children. Those in the middle and
upper social/economic classes in our society teach their children the importance of
acquiring knowledge and skills that will enable them to enjoy the same benefits. They
are strong advocates of the prevailing system of authority and preach its merits and
belong to interest groups that promote the system.
16. The norms and mores are not commands in the sense that statutes and laws
coming from legislatures and judicial bodies are. They exercise the influence they do
because they are part of a cultural stream going far back into the history of a society;
they have tradition on their side, and they seem to people to be part of immemorial
belief. They owe their strength to the fact that they have become a deeply entrenched
feature of social life and organization, and that is one reason why they are so tenacious,
so enduring, and so difficult to change. Some of our norms and mores have their roots
in antiquity as the predominance in our society of the Judeo-Christian tradition, our
system of private property, our intense competitiveness, and our belief in the use of
military methods to resolve conflicts. Modern "political" democracy is quite young, seen
in terms of the history of civilizations, yet soon after the American revolution and
subsequent adoption of a Constitution, legend-building began.
17. All ceremonies are in practice different mixtures or combinations of traits. We may
say that this activity is predominantly ceremonial, and that predominantly technological,
but we are unable, in view of present knowledge, to assign a verifiable quantitative score
to them.
18. Some ceremonies are more functional, permissive, or less dysfunctional than
others. Thus, large numbers of children were once seen as functional both from the point
of view of individual families and society. Now, while having many children may be seen
as functional from the point of view of the family, they are coming to be seen as
dysfunctional from the point of view of society. Poverty has been growing in some parts of
the world in the 20th century, as in most of Africa, and in parts of Asia. Population is
growing in that part of the world faster than economic growth, and poverty become more
widespread. Furthermore, population imposes great strain on the environment, especially
where the environment is fragile.
Technology
1. Technology is a learned aspect of human behavior. It forms correlated patterns
based upon and deriving from a functional process. This functional process is an
instrumental or tool-using process. This means that the technological aspect of behavior
comes from tool-using activities. But technology is not merely tools. A common mistake is
to think of technology as tools, machines and the like. But technology is not external to
man ‑‑ it is internal, a part of human behavior. It is not like a coat that can be put on or
taken off depending on the temperature. No single person and no society has ever existed
that was devoid of this aspect or type of behavior.
2. Technology is part of the network of social and personal relationships and it permeates all
relationships. Tool existence implies the skills necessary for tool using. A fundamental
principle of Institutional economics is that tools and skills are inseparable. The
technological process is cumulative and progressive. It is a process of tool and skill
accumulation through elaboration and combination of existing tools. All inventions are
combinations of previous inventions or combinations of previously existing tools. Literally
thousands of previously existing inventions make up even the simplest tools in our
economy.
3. This is because inventions or tools include processes or ways of making things as
well as things themselves. The modern use of carpentry tools involves the arts of steel making
and fabricating, wood shaping, and these in turn involve the knowledge included in chemistry,
physics, biology and more. The point is that tool using is complex and interrelated activity. And,
these activities and processes grow and accumulate by combination. The more tools and
inventions and skills there are, the greater the number of combinations are possible and the
faster is the accumulation process. Even if a tool is broken, it can be replaced in much less
time than it took to create it in the first place for the simple reason that all the knowledge and
skill necessary to make it exists. It is a simple job of recreation.
4. Consider how long it took to make the first hammer out of stone and wood, and how
long it took to make the first steel headed hammers. Now we manufacture hammers at the
rate of millions per year. If a hammer is broken it is a "simple and quick" matter to replace
it. But not too many years ago a broken hammer meant long delays in production for the
unfortunate workman whose hammer got broken. Why is this? What has changed? Have
people become naturally or inherently better at making hammers? Are babies now born
knowing how to make hammers?
5. Like all tool using and making activities hammer production is learned and
each new generation is born into an already existing stream of activities, knowledge
and skills. One reason that technology is thought of as tools is that tools and tool-
usings are "part" of this way of behaving. However, "tools" is a broad category. Tools
includes both the physical and mental devices, both concrete and abstract. Tools
include hammers, nails, screwdrivers, the multiplication tables, music scores,
computers, pencils, language, calendars, stirrups, economic theories, books, names,
logical systems, and microscopes. The entire heritage of activities which stems from
doing and thinking. Tool‑using is a physically productive and creative process that
underlies all the achievements of mankind. Even the most ceremonial activities
include tool usage. As obtrusive as technology is most of us take the technological
landscape for granted.
Theory of ProductionIncludes
• Historical Development and Perspective• Resource Theory• Theory of Production organization• Implications
Historical perspective • Nomadic-semi nomadic• Neolithic civilization
wheat and water – basic elements First Agricultural Revolution
Horse Collar & Stirrup Second Agricultural Revolution
Iron Plow & Mechanical Reaper Third Agricultural Revolution
• Surplus – economic surplus – where does it come from and how do we use it.
War as organized theft Consumption Waste
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Production theory and the Veblenian DichotomyCreative forces— Instrumental
KnowledgeWorkmanship
Permissive forces-- CeremonialProsperity Codes resistances inhibitory forces
Theory of Resources
Early ideas and concepts of resources• The doctrine of the harmony of interests – Smith and
laissez-faire• Law of diminishing returns in conjunction with• The population thesis of Malthus• The idea of cost—individual costs sum up to total cost – as
measured by land, labor, capital
Institutional Theory of Resources two levels of discourse about man
man – the animal level has only natural wants and capacities and commands only “natural” resources. Man as part of nature The natural resources available to man are rare (scarce) indeed
nature as non-MAN - unaffected by MAN MAN – human or social level -- every thing is artificial
The sum of the changes wrought by MAN is culture
Creation of resources - the resources process
Stuff
Neutral
Resistances
Resources
Resources as a Dynamic Process
MAN
ABILITIES
arts & sciences
WANTSIncluding cultural
wantsResistances
Resistances
man
Instrumental
CeremonialResourcesCULTURE NATURE
Functional Theory of Resources• Resources a function of knowledge• Neither Scarce nor abundant• They emerge – not ARE, but becoming • dynamic not static
“Factors of Production”
Institutional Approach Standard Approach Nature LandMachines CapitalEnergy Labor Standard theory has its basis in ideology: This particular one is that production is linked to income. Factors of production – not a theory of production, but a distributive formula and rationale.
Path Analysis
Veblen British Rail System in 1914 The mud hole metaphor – more on this later
DavidClio and the Economics of QWERTY – 1985
Keyboard configurationTechnological Lock-inWhy – the nature of a path
ErgodicNon-ergodicSmall events early in a technology
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Path – continued
Arthur Non-linear probability – 1991Example of rings in an urnDraw a sample and replace with color biasWhat happens –
no stable equilibriumNo necessity to pick better technology
VHS – BetaIncreasing returns problem
Possible solution – Positive feedbackStandard approach is – negative feedback system
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Path Dependence – A Story and a Metaphor
• The Reivers
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From Faulkner’s The Reivers
There was something dreamlike about it. Not night-marish: just dreamlike--the peaceful, quiet remote, sylvan, almost primeval setting of ooze and slime and jungle growth . . .
[In it] the expensive useless mechanical toy rated in power and strength by the dozens of horses, yet held helpless and impotent in the almost infantile clutch of a few inches of the temporary confederation of two mild and pacific elements—earth and water— . . .; the three of us, . . . now unrecognizable mud-colored creatures engaged in a life-and-death struggle with it, . . . And all the while, the man sat in his tilted chair on the gallery watching us while Ned and I stained for every inch . . . and Boon . . . strove like a demon, titanic, . . . lifting and heaving it forward; . . . he dropped, flung away his pole. . .
“How much do you have to pay him to get dug out?” Ned asked. “Two dollars,” Boon said.” “Two dollars?” Ned said. “ This sho beats cotton. He can farm right here setting in the shade without even moving. What I
wants Boss to get me is a well-traveled mudhole.” “Morning, boys,” he said. “Looks like you’re about ready for me now.:“Looks like it, “ Boon said. . . . “We might a got through . . . if you folks didn’t raise such heavy mud up here.”“Don’t hold that against us,” the man said. “Mud’s one of our best crops up thisaway.”“At two dollars a mudhole, it ought to be your best,” Ned said. “That was last year,” the man said. “It’s double now.” “It’s six dollars,” he said. “I charge a dollar a passenger. There was two of you last year. That was two dollars. The price is doubled now. There’s three
of you. That’s six dollarsBoon said, “Suppose I don’t pay you six dollars. Suppose I don’t pay you nothing.”“You can do that too,” the man said. “ . . . . Maybe you’d rather walk back to Jefferson than pay two dollars.” (Faulkner, pp. 80-
91)
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• Roads, Cars & Mud holes• Evolution of Roads, Cars • And the Economy becomes dependent on single source
variable route individual transportation systemGM planEconomies are both path dependent and path createdDepends on structure, function and flexibilityFlexibility is inversely related to strength of tradition
Myth, legend and invidious differential advantageStrength of status quo
Flexibility is directly related to strength of learning and growth of community shared knowledge
TechnologyEducationObjective and Experiential knowledge (the interaction of knowing & doing)
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Mud Puddles Mud Holes Quagmires
Wooden baseball bats Typewriter Keyboards Cities located in flood plains
VHS videotapes Computer Operating systems Cities located in deserts
File name extension OPEC and Exxon Railroad gauge
Y2K bug National brand beer Automobile dominated transportation
Language homonyms Sport Utility Vehicles Pecuniary dominated industrial apparatus