The terms of the discussion: “orthodox” and “evolutionary

We have above made the first of many references to something called “orthodox” economic theory. Throughout this book, we distinguish our own stance on various issues from the “orthodox” position. Some such usage is inevitable in any work that, like the present one, argues the need for a major shift of theoretical perspective on a wide range of issues. However, there may be some who would deny that any “orthodoxy” exists in economics, apart from a widely shared commitment to the norms and values of scien tific inquiry in general. O thers would agree that an orthodoxy exists in the descriptive sense that there are obvious commonalities of intellectual perspective and scientific approach that unite large numbers of economists. But they would strenuously deny there is an orthodox position providing a narrow set of criteria that are conventionally used as a cheap and simple test for whether an expressed point of view on certain eco­ nomic questions is worthy of respect; or, if there is such an ortho­ doxy, that it is in any way enforced. Our own thought and experi­ ence leave us thoroughly persuaded that an orthodoxy exists in this last s ense, and that it is quite widely enforced. We do concede that contemporary orthodoxy is flexible and ever-changing, and that its limits are not easily defined. It therefore seems important to attempt if not an actual definition, at least a clarification’ of our use of the term.

We s hould note, first of all, that the orthodoxy referred to repre­ sents a modern formalization and interpretation of the broader tradi­ tion of Western economic thought whose line of intellectual descent can be traced from Smith and Ricardo through Mill, Mars hall, and Walras. Further, it is a theo retical orthodoxy, concerned directly with the methods of economic analysis and only indirectly with any spe­ cific questions of substance. It is centered in microeconomics, although its influence is pervasive in the discipline.

To characterize the actual content of contemporary orthodoxy is a substantial undertaking, with which we will concern ourselves re­ curringly in this book. Here we address the question of how one might check our claims that particular views and approaches are “orthodox”- or, alternatively, the question of how we would defend ourselves against a claim that we are attacking a straw man or an ob­ solete, primitive form of economic theory. The first recourse should be to the leading t extbooks used in the relatively standardized undergraduate courses in intermediate microeconomics. These texts and courses expound the theoretical foundations of the discipline at a simplified level. They are generally viewed as providing important background for understanding applied work in economics- often, in fact, as providing essential background for applied work done at a respectable intellectual level. The best of the texts are notably insis­ tent on the scientific value of abstract concepts and formal theorizing, and offer few apologies for the strong simplifications and stark abstractions they employ. Neither do they devote much space to caveats concerning the theory’S predictive reliability in various circumstances. In these respects and others, they prefigure the treat­ ment of the same issues in advanced texts and courses in theory. In­ deed, it often appears that doctoral-level courses in economic theory are distinguished from intermediate-level courses primarily by the mathematical tools employed, at least so far as the core topics are concerned.

There is, admittedly, a degree of caricature involved when texts aimed at college sophomores and juniors are nominated to represent modern economic theory. Many of the strong simplifying assump­ tions commonly employed-perfect information, two commodities, static equilibrium, and so on- are emphasized in such texts for reasons having to do with the perceived limitations of the students, and not because the discipline has nothing better to offer. And if the conclusions of the analysis are sometimes put forward without due emphasis on the qualifications to which they are subject, it is not necessarily because the importance of those qualifications is not rec­ ognized by the author. It is more likely because the students are seen as deserving a reward for their struggles with the logic of the argument, and as positively demanding clear-cut answers to put in the exam book. In many respects, orthodoxy is more subtle and flex­ ible than the image of it presented in the intermediate texts.

There are, however, some very important respects in which the portrait is drawn true. First of all, the logical structure of the interme­ diate texts underlies much of the informal discussion of economic events and policies engaged in by economists and others with sub­ stantial economics background. This is particularly the case with views concerning the efficiency properties of market systems: there seems to be a remarkable tendency for discussion of this question to throw off the encumbrances of advanced learning and revert to a more primitive and vigorous form. In this sen se, the conclusions of intermediate analysis seem much more indicative of “where the dis­ cipline stands” than do appraisals that are theoretically more sophis­ ticated, but also more difficult and less familiar to nontheorists. Sec­ ond, the strong simplifying assumptions of the intermediate texts often have close analogues in advanced work, right out to the theo­ retical frontiers . It is a caricature to associate orthodoxy with the analysis of static equilibria, but it is no caricature to remark that con­ tinued reliance on equilibrium analysis, even in its more flexible forms, still leaves. the discipline largely blind to phenomena asso­ ciated with historical change. Similarly, defenders of orthodoxy may j ustifiably disdain to reply to criticisms of perfect-information as­ sumptions, but they have something at risk if the criticism focuses instead on the assumption that all possible contingencies can be foreseen and their consequences weighed. Thus, although it is not literally appropriate to stigmatize orthodoxy as concerned only with hypothetical situations of perfect information and static equilibrium, the· prevalence of analogous restrictions in advanced work lends a metaphorical validity to the complaint.

Last, there is one key assumption in the structure of orthodox thought that does not get significantly relaxed or qualified as one passes from intermediate to advanced theory; on the contrary, it be­ comes stronger to s upport a greater weight. This is the assumption that economic actors are rational in the sense that they optimize. In elementary instruction or in popular exposition, this assumption of economic rationality may be presented as a conceptual expedient jus­ tified by the realistic observation that people have objectives which they pursue with a certain amount of consistency, skill, and fore­ thought. At the intermediate level, the assumption takes on a stark appearance  that  strains  credulity,  but  then  intermediate  theory  is pretty stark overall. In advanced forms of orthodoxy, while recogni­-tion of informational and other “imperfections” softens the general theoretical picture regarding what the actor knows, no such compro­ mise with reality affects the treatment of economic rationality. As theoretical representations of the problems faced by economic actors increase in realistic complexity and recognition of uncertainty regarding values of the variables, there is a matching increase in the feats of anticipation and calculation and in the clarity of the stakes imputed to those actors. Never is such a theoretical actor confused about the situation or distracted by petty concerns; never is he trapped in a systematically erroneous view of the problem; never is a plain old mistake made. It is a central tenet of orthodoxy that this is the only sound way to proceed; recognition of greater complexity in the problem obligates the theorist to impute a subtler rationality to the actors. Thus, with regard to rationality assumptions, to allow orthodox theory to be championed by its elementary and intermedi­ ate versions is to waive a set of objections that become particularly telling at the advanced level.

The  foregoing  discussion  should make clear the  sources  of a problem that will arise repeatedly in the analysis that follows. Theo­ retical orthodoxy is manifested at a variety of levels, and displays a variable mix of strengths and shortcomings. Some of the shortcom­ ings of elementary versions are corrected in advanced treatments; others are merely papered over. Sometimes a deficiency undergoes mutation to a new but analogous form, and some deep problems get exacerbated as the theory gets “better. ” We attempt to cope with this complex situation by modifying our references to orthodoxy with clarifying phrases -“textbook” or “simple” orthodoxy versus “ad­ vanced” or “recent developments,” and so forth. We also dis tinguish between “formal” orthodoxy, displayed in logically structured theorizing, and the “appreciative” version which is more intuitive and modified by judgment and common sense. (This distinction is discussed further in the following chapter.) These devices are not en­ tirely adequate to the task, but it does not seem reasonable to inter­ rupt our discussion repeatedly for the sake of clarifying and doc­ umenting each criticism of orthodoxy. We hope that we have here provided an adequate guide, at least for those familiar with eco­ nomic theoryI to the way in which such detailed indictments might be developed.

Our use of the term “evolutionary theory” to describe our alterna­ tive to orthodoxy also requires some discussion. It is above all a signal that we have borrowed basic ideas from biology, thus exer­ cising an option to which economists are entitled in perpetuity by virtue of the stimulus our predecessor Malthus provided to Darwin’s thinking. We have already referred to one borrowed idea that is cen­ tral in our scheme- the idea of economic “natural selection.” Market environments provide a definition of success for business firms, and that definition is very closely related to their ability to survive and grow. Patterns of differential survival and growth in a population of firms can produce change in economic aggregates characterizing that population, even if the corresponding characteristics of individual firms are constant. Supporting our analytical emphasis on this sort of evolution by natural selection is a view of 1/ organizational genetics”-the processes by which traits of organizations, including those traits underlying the ability to produce output and make prof­ its, are transmitted through time. We think of organizations as being typically much better at the tasks of self-maintenance in a constant environment than they are at major change, and much better at changing in the direction of “more of the same” than they are at any other kind of change. This appraisal of organizational functioning as relatively rigid obviously enhances interest in the question of how much aggregate change can be brought about by selection forces alone.

The broader connotations of “evolutionary” include a concern with processes of long-term and progressive change. The regularities observable in present reality are interpreted not as a solution to a static problem, but as the result that understandable dynamic pro­ cesses have produced from known or plausibly conjectured condi­ tions in the past-and also as features of the stage from which a quite different future will emerge by those same dynamic processes . In this sense, all of the natural sciences are today evolutionary in fun­ damental respects. Perhaps the most dramatic illustration of this point is the increasing acceptance of the cosmological theory of the Big Bang, a conception that regards all of known reali ty as the contin­ uously evolving consequence of one great antecedent event. At a less cosmic level, science has come to see the continents as shifting with sporadic violence beneath our feet, the changing behavior of the Sun as a possible factor in human history, and the world’s climate as threatened with major and perhaps irreversible change as a conse­ quence of industrialization. Against this intellectual background, much of contemporary economic theory appears faintly anachronis­ tic, its harmonious equilibria a reminder of an age that was at least more optimistic, if not actually more tranqUil. It is as if economics has never really transcended the experiences of its childhood, when Newtonian physics was the only science worth imitating and celes­ tial mechanics its most notable achievement.

There are other connotations that have at most a qualified rele­ vance to our own evolutionary approach. For example, there is the idea of gradual development, often invoked by an opposition between “evolutionary” and “revolutionary,” Although we stress the importance of certain elements of continuity in the economic process, we do not deny (nor does contemporary biology deny) that change is sometimes very rapid. Also, some people who are particu­ larly alert to teleological fallacies in the interpretation of biological evolution seem to insist on a sharp distinction between explanations that feature the processes of “blind” evolution and those that feature “deliberate” goal-seeking. Whatever the merit of this distinction in the context of the theory of biological evolution, it is unhelpful and distracting in the context of our theory of the business firm. It is neither difficult nor implausible to develop models of firm behavior that interweave “blind” and “deliberate” processes. Indeed, in human problem solving itself, both elements are involved and diffi­ cult to disentangle. Relatedly, our theory is unabashedly La­ marckian: it contemplates both the “inheritance” of acquired charac­ teristics and the timely appearance of variation under the stimulus of adversity.

We emphatically disavow any intention to pursue biological anal­ ogies for their own sake, or even for the sake of progress toward an abstract, higher-level evolutionary theory that would incorporate a range of existing theories. We are pleased to exploit any idea from biology that seems helpful in the understanding of economic problems, but we are equally prepared to pass over anything that seems awkward, or to modify accepted biological theories radically in the interest of getting better economic theory (witness our espousal of Lamarckianism). We also make no effort to base our theory on a view of human nature as the product of biological evolution, although we consider recent work in that direction to be a promising departure from the traditional conception of Economic Man.

Source: Nelson Richard R., Winter Sidney G. (1985), An Evolutionary Theory of Economic Change, Belknap Press: An Imprint of Harvard University Press.

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