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Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution, Instinct and Habit 1 Gülenay Baş Dinar * Abstract: The concepts of instinct, institution, and habit constitute the foundation of Veblen’s economic analysis. Veblen makes his evaluations on institutional evolutionary process over these concepts. This study analyzes the roles of these concepts in the theory of Veblen’s institutional evolution, and argues that Veblen’s theory brings a new perspective to the discussions in the literature on the role of the individual in the process of social and institutional evolution, especially to the approach called “New Economic Sociology”. Keywords: Institution, instinct, habit, Veblen, institutional evolution, new economic sociology. This article is based on the PhD dissertation “The Instability of Capitalism: Veblen, Keynes, and Minsky”. Assoc. Prof., Abant İzzet Baysal University, Faculty of Economics and Administrative Sciences, Department of Economics, 14280, Gölköy Campus/Bolu/Turkey. 1 * Review of Public Administration, Volume 7, Issue 4, December 2013, p.29-50. 30 Review of Public Administration, Volume 7 Issue 4, December 2013, p.29-50. Introduction The question of whether the society or the individual is more decisive in the society-individual relationship has become the subject of important debates in both sociology and economic theories. In this framework, in economy, this issue is discussed rather in the context of the society and the individual, while in sociology, it is debated in the context of the structure/agency dilemma. The origin of these debates dates back to Durkheim, who emphasized the constraining impacts of social realities on individuals’ actions. Durkheim argued that society had priority over the human as individual. In this point of view, society is considered a phenomenon beyond individual actions. According to Durkheim, social institutions come before the existence of any individual. Although Durkheim’s thesis that ignores the impact of individual action is accepted by a significant group of followers, it has also become the subject of serious criticisms. The most important of these criticisms is that when considered separately, society can be outside the individuals; but it is considered along with individuals, social world cannot exist outside the individual. In this context, even though the things Durkheim call “social phenomenon” constrain the individuals’ actions, they cannot determine them. According to Giddens, the individuals not only maintain their existence in society in a passive manner, but also change the social structure, which constrains them by their choices (Giddens, 2008: 143-144). According to this view, although there is an order in the behavior pattern of the individuals within the social structure and a power of sanction that emerges due to this order, the social structure cannot be approached as a physical structure like a building that exists independent of human conduct (Başak, 2003: 151). Another group of debates over this mutual relationship between institutions and individual action is based on Mark Granovetter’s article of 1985, “Economic Action and Social Structure: The Problem of Embeddedness”. In his article, Granovetter points out that there are two theories at extreme ends that explain the relationship between human behavior and institutions. A group of these theories addresses the action theory as an “oversocialized”2 manner. There is a concept of an oversocialized human action particularly in the field of sociology. Approaching to human action in such way considers the individual as a being entirely shaped by society, and thus, leaves him outside the economic The concept of “oversocialized human” was first coined in Dennis Wrong’s article, “The Oversocialized Conception of Man in Modern Sociology” (1992). In his article, Wrong complains that sociologists assume that the individuals automatically obey the ideas of other people and the existing norms and behavior. According to Granovetter (1992), this oversocialized view arises from the attempt to compensate the ignorance of social impacts in the utilitarian tradition. 2 Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution… 31 field. In the undersocialized3 action theories, the individual is accepted as an atomized, and isolated being independent of society. In this case, human action is explained wholly by the economic field. In his article, Mark Granovetter uses the concept of “embeddedness”, which was previously used by Polanyi, and argues that the economic sphere is embedded in social, cultural, and political processes. Economic action incorporates not only economic elements, but also non-economic ones. With the concept of “embeddedness”, Granovetter has contributed to the debates of “New Economic Sociology” that has emerged in the 1980s, and points out that his views are among the theories, which he call under-socialized and oversocialized. Granovetter, in his article of 1992,“Economic Institutions as Social Constructions: A Framework for Analysis”, uses the concept of embedded, and argues that “new economic sociology” can be constructed on the basis of three sociological assumptions. First, economic goals are accompanied by non-economic ones. In other words, economic action is embedded in the network of social relations network (Yılmaz, 2012: 12). Second, economic action is socially situated, and thus, cannot be explained by individual motives alone. Third, economic institutions are socially built (Granovetter, 1992: 4). As in Granovetter or Giddens, Veblen’s institutional evolution theory argues that the human is neither a social being, whose actions are determined by society, nor is an individual being acting on his own motives In brief, Veblen addresses the economic decision-making units neither independent of the social structure, nor he accepts that human action is totally determined by the social structure. Thus, Veblen conceptualizes the human as an active element, who determines the social structure, which he lives in, and at the same time, who is determined by the institutional structure. In this respect, it brings a concrete and realistic nature to these two extreme theorems debated in the literature and to the structure-action relationship. This aspect of Veblen’s institutional evolution theory comes out with the central importance he attaches to the concepts of institution, instinct, and habit in his analysis. By the term “instinct”, he refers to the human’s inherent instinctual tendencies, while by the concepts of institution and habit; he points to the human’s aspects shaped by the social structure. In this study, the role of these concepts in Veblen’s theoretical evolution theory will be scrutinized, and it will be argued that Veblen’s theory can provide a new perspective to the discussion on the individual’s role in the social and institutional evolution process in the literature, particularly to the approach called “New Economic Sociology”. 3 Most of the utilitarian tradition, human conduct in classical and neoclassical economy are among its examples. 32 Review of Public Administration, Volume 7 Issue 4, December 2013, p.29-50. Fundamental Concepts of Veblen’s Economic Analysis: Institutions, Motives and Habits The most important of concepts that constitute the basis of Veblen’s economic analysis is undoubtedly the concept of institution. Veblen defined institution as “generally accepted habits of thought and behavior (Veblen, 1973 (1898): 133)4. In this sense, in Veblen’s analysis, institutions reflect the whole of habits of thought inherited from the past, and are addressed as a major element that mold the tendencies, preferences and values of individuals (Rutherford, 2001: 174). Veblen’s definition of institution also encompasses the concept of habit, another prevailing concept in his analysis. In this context, this definition of institution requires a group of people engaged in a common activity for the emergence and survival of an institution. Besides, these common activities should be continuously repeated, and should turn into habit or rule within the society. Here, the action of habit performs the function of identifying how people tend to think and behave first, at the individual level and then, at the collective level. In this respect, habits of thought come out as an outcome of habits relating to the social life. Lastly, it is pointed out that the relevant habits or rules should reflect common perspective about what will be accepted as good or bad in the society (Neale, 1988: 227-256). Veblen thinks that institutions do not have necessary functions to promote the social benefit, as they reflect the habits of thought of the past. The reason that according to Veblen, institutions display conservative and inert characteristics. Therefore, they tend to fail to keep pace with new technological means as well as with the economic issues and social problems they generated In this context, Veblen qualifies the existing legal and social institutions of America as outdated and inadequate to the task of meeting the requirements of modern large-scale industry of the present day (Rutherford, 2001: 175). In this respect, Veblen regards institutions static, retroactive, and change-resistant structures (Rutherford, 1984: 331).5 It can be said based on these explanations According to Gürkan (2007: 241-242), “habits of thought can be defined as social consciousness, which arises from traditional social experiences, whose legitimacy are not questioned and which get stricter in time, and which determines the individuals’ way of thinking, behavior and their attitude towards incidents”. 5 Leisure class plays major role in the conservatism of institutions. According to Veblen, leisure class hinders cultural development first by the inertia peculiar to the class itself, and secondly, through its example of conspicuous waste and of conservatism, and indirectly, through causing unequal distribution of wealth and sustenance. In this respect, leisure class continuously plays role in retarding the adaptation to this environment, which is called social development. The institution of a leisure class, by force or class interest and instinct, and by precept and prescriptive example, ensures the maintenance of the existing maladjustment of institutions. The leisure class not only delays the development of society, but also 4 Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution… 33 that in his analysis, Veblen lays emphasis rather on the repressive and constraining characteristics of institutions. For Veblen, desires, goals, and activities of the individual are determined by highly complex institutional structure. Here, the existing institutional structure shapes and at the same time, restricts the activities of individuals. Likewise, the individual is able to change the institutional structure via generating new social habits. In this process, along with traditions and laws, human nature, too, undergoes significant changes. In other words, the changed habits not only change human behavior, but also lead certain changes in human nature (Veblen, 1973 (1899): 146). Another concept that constitutes the basis of Veblen’s analysis is the concept of instinct. In Veblen’s analysis, instinct is the fundamental element that guides human behavior.6 Human instincts determine human conduct and behavior, and accordingly, the habits of thought and institutions of society. However, although Veblen says that instincts of the individual have major role in determining institutions, he opposes the idea that institutions emerge merely based on these instincts. Veblen expresses this thought of his as follows: “In economic life, as in other lines of human conduct, habitual modes of activity and relations have grown up and have by convention settled into a fabric of institutions These institutions, and the usual concepts involved in them, have a prescriptive, habitual force of their own, although it is not necessary at every move to ravel out and verify the intricate web of precedents, accidents, compromises, indiscretions, and appetites, out of which in the course of centuries the current cultural situation has arisen. If the contrary were true, if men universally acted not on the conventional grounds and values afforded by the fabric of institutions, but solely and directly on the grounds and values afforded by the unconventionalised propensities and aptitudes of hereditary human nature, then there would be no institutions and no culture. But the institutional structure of society subsists and men live within its lines” (Veblen, 1954 (1934): 143). According to Veblen, there are two sorts of instinct in man. One of them is enduring instincts peculiar to human nature, which express the essence of man. Veblen also mentions about instincts referring to individual activities, which are a sub-product of natural instincts of man, and which can change according to 6 sometimes pioneers its development. However, this is usually possible only if social development does not lead to a change in economic institutions (Veblen, 1973 (1899): 141). Veblen’s comprehension of instincts as major factors that determine should not be interpreted that he approached to human behavior, which can be interpreted as biological reductionism. Veblen did not argue that human nature was predetermined by instincts alone (Dugger, 1984: 978). Mayberry (1969) stated that Veblen’s goal was not to make empirical or analytical generalizations by basing his statements about human nature on instincts. His aim was to build a conceptual framework for the interpretation of institutional evolution (Mayberry, 1969: 318). 34 Review of Public Administration, Volume 7 Issue 4, December 2013, p.29-50. time and space. This instinct constitutes the basis for people’s having different lifestyles and habits of thought. Veblen explains it by the concept of cultural relativity. In this context, instints such as workman ship instinct, idle curiosity instinct and parental bentare incorporated in human nature, and by presenting continuity, determine the institutions of society.Such instincts exist in every human. However, the consequences of these instincts are determined by cultural environment. Although Veblen states there are many instincts that guide human behavior, in his analyses, he focuses on instincts that determine the institutions of society. Thus, the concept of cultural relativity coined by Veblen shows why the institutional environment that surrounds the individual diversifies in terms of time and space. In this context, just as instincts are the main essence that makes human a human, culture is accepted as the essence of institutions. This can be considered as an explanation of different levels of development in different societies. Different levels of development in different societies stem from the fact that individuals live in different cultural environments. The instinctive reactions given by the individuals existing in different cultural environments will differ, and accordingly, they develop different habits of thought. Thus, such an explanation assigns an active role to both instinctive tendencies of man and the cultural environment he lives in (Özçelik, 2007: 225226). Here, cultural instincts are the reflections of institutional environment, while instinctive reactions are those of human conduct. Cultural instincts or institutional powers produce a cluster of specific individual activities. This cluster of specific individual activities creates certain habits of thought, which are generally accepted as new institutions at societal level. New institutions mean new cultural instincts, and new cultural instincts cause new instinctive reactions; this goes on like this (Özçelik, 2007: 227). Therefore, here, Veblen says that as a social being, man forms institutions, and at the same time, is formed through institutions, and conceptualizes institutions and the institutional evolution based on mutual and cumulative causation.7 “Like all human culture this material civilization is a scheme of institutions — institutional fabric and institutional growth. But institutions are an outgrowth of habit. The growth of culture is a cumulative sequence of habituation, and the ways and means of it are the habitual response of human nature to exigencies that vary incontinently, cumulatively, but with something of a consistent sequence in the cumulative variations that so go forward, — incontinently, because each new move Veblen’s approach to institutional evolution as mutual and cumulative causation is very closely related with Veblen’s understanding of science. Veblen, with his principle of mutual and cumulative causation, points out that economics must be the theory of a process. This is what Veblen implies with scientificity. According to Harris (1953), the Veblen economics cannot totally be reduced to a mechanical or behavioral science (Harris, 1953: 30). 7 Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution… 35 creates a new situation which induces a further new variation in the habitual manner of response; cumulatively, because each new situation is a variation of what has gone before it and embodies as causal factors all that has been effected by what went before; consistently, because the underlying traits of human nature (propensities, aptitudes, and what not) by force of which the response takes place, and on the ground of which the habituation takes effect, remain substantially unchanged” (Veblen, 1909: 628). According to Hodgson (1988), the interaction between the individual and the institution put forth above, that is to say, cultural and institutional environment’s determination of goals and activities of the individual and at the same time, their influence on the structure of society, which the individual lives in, is a matter that should absolutely be considered in an actual evolutionary analysis. Veblen’s analysis can be defined as some kind of behavioral economics due its addressing human behavior and habits in economic analysis. In this framework, Veblen’s behavioral economics presents an approach based on the intersection of human nature, institutions, and technology. Human behavior is determined by a set of natural tendencies innate in the nature of a person and the habits, which he or she acquires within the society. The human’s way of thinking and habits, too, change over time depending on these habits. The driving force behind the change in habits is the change in the physical power of the society, i.e. technology (Stabile, 2005: 56). The Emergence and Role of Institutions In Veblen’s economic analysis, both the individual and the existing institutional structure have major role in the emergence of institutions. Therefore, for Veblen, neither the individual, nor the existing institutional structure alone is adequate the emergence of institutions. In other words, the activities of individuals cannot provide the emergence of institutions without a specific institutional environment. Likewise, without the activities of the individual, a specific institutional environment remains inadequate in bringing out institutions. Thus, in this sense, Veblen thinks that individuals and institutions are in a mutual interaction. By such an analysis, Veblen, based on the principles of mutual and cumulative causation, considers the individual as a being, who influences the formation of institutions and who, at the same time, is influenced by the existing institutional structure. In this respect, it can be said that Veblen’s economic analysis lays emphasis on both the rational and socially conditioned aspects of individuals’ behaviors. Veblen opposes the consideration of the individual as a rational and hedonistic being, who is in pursuit of optimization and who continuously calculates benefit 36 Review of Public Administration, Volume 7 Issue 4, December 2013, p.29-50. and loss. For Veblen, the individual is a social being, and he is constrained and shaped by his social environment. However, at this point, Veblen does not exclude rational aspects of individuals (Baş Dinar, 2011a: 105).Veblen lays emphasis on intentional and goal-directed characteristics of the individual behavior, and accepts that individuals use their intelligence in order to find the best ways to attain their goals. For Veblen, although individuals do not pursue maximization, they set their habits and routines so as to produce better alternatives over time. According to Veblen, individuals are conditioned by their social and economic surroundings within certain patterns of thought (Rutherford, 1995: 448-449). Thus, in Veblen’s analysis, the individual is addressed as both a rational and social being. As an extension of such a perception of the individual, in Veblen’s economic analysis, the conception of “habit” emerges as a key concept describing the formation and sustenance of institutions. Here, what the concept of habit means is extremely important. According to Hodgson (1998), habits form part of cognitive abilities of individuals. In addition, these cognitive abilities are learned within the existing institutional structures. When habits become a common part of a group or social structure, they transform into routines or customs. The concept of habit refers to “established ‘habits of thought’ in a society”. These habits of thought are usually incorporated in main institutions of the society and they reflect the society’s opinion of what is wrong or right. Although habits of thought are incorporated in the institutions of the society, they are not of stable or inertia nature. With the actions of the individual, habits of thought change in time, and begin to conflict with the existing institutions of the society. The prevalence of such habits of thought exert a strong pressure towards change in institutions, and a result of, social institutions change in the course of time. In brief, in Veblen’s economic analysis, institutions are formed by habits of thoughts conveyed from the past. Hence, the actions of the individual are shaped by institutional structures that are molded by habits. Likewise, individual, with his or her actions, molds institutional structures. The said interaction provides stability in institutions and social structure. According to Hodgson, institutions provide a cognitive framework that would ensure the transformation of the existing habits in a society into useful knowledge. The individuals, by using this cognitive framework, have the opportunity to foresee the outcomes and impacts of their actions. Thus, in the guide of prevalent habits of thought accepted by the society, they, by ensuring the spread of behaviors that are considered good in the society and the restriction of those that are regarded as unacceptable by the society, serve as mediator and conciliator in the social system (Hodgson, 1998: 171-180). Moreover, institutions ensure the Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution… 37 transfer of skills, techniques, and habits of thought to the next generations. In this context, institutions constitute the foundation of the technological development that will create the physical conditions of the society. The relationship between the individuals and institutions in Veblen’s economic analysis can be explained by the help of the following figure. Figure 1 shows “action” and “knowledge” as to the two factors that provide the interaction between the individuals and institutions. Thus, habits in a society spread via the individuals’ imitation or emulation of certain behaviors, which thus leads to the emergence of institutions. Institutions develop behaviors and habits, and help transmit them to new members of the society. Hence, institutions are formed by the actions of individuals, and in return, they mold the actions of individuals (Hodgson, 1998:180). Figure 1.The Interaction Between Institutions and the Individual Source: (Hodgson, 1998: 176) Hence, such a conceptualization of institution does not definitely exclude individual action. For Veblen, desires, goals, and activities of the individual are determined by highly complex institutional structure. Here, the existing institutional structure shapes and at the same time, restricts the activities of individuals (see: Dugger, 1984: 981). Likewise, the individual is able to change the institutional structure via generating new social habits. In this process, along with traditions and laws, human nature, too, undergoes significant changes. In other words, the changed habits not only change human behavior, but also lead certain changes in human nature (Veblen, 1973 (1899): 146). In this respect, 38 Review of Public Administration, Volume 7 Issue 4, December 2013, p.29-50. Veblen considers the individual from both sociological and biological perspective (Cordes, 2005: 2). The Process of Institutional Evolution in Veblen’s Economic Analysis Veblen explains the process of institutional evolution based on a Darwinian selection theory. The Darwinian selection theory8 suggests that in the evolution of social structure, the most appropriate and efficient habits of thought (and thus, institutions) will be selected, and these will replace the institutions with lower quality. Accordingly, Veblen defines social evolution as “a process of selective adaptation of temperament and habits of thought under the stress of the circumstances of associated life.” Thus, when a particular tendency or viewpoint is socially accredited, it will shape the habits of thought of society, it will guide the tendencies and desires of individuals. Those who do not comply with the methods required by the accepted order will be excluded from society (Veblen, 1973 (1899): 130-131). It is possible to assert based on these explanations that in Veblen’s analysis, the driving force of institutional evolution is the change in the habits of thought of society. The change in the habits of thought stems from the fact that man is in a struggle of survival in social life like all other living beings, and as an outcome of this struggle for survival, he constantly endeavors to adapt to the environment. As an outcome of these efforts, material conditions of society changes, and this leads to change in the habits of thought and thus, institutions and society (Baş Dinar, 2011c: 108). Therefore, here it is stated that the changes in the institutional structure can be achieved only by the pressure of technological development. In this sense, Veblen uses the idea of technological development in a broad sense so as to lead to new habits of thought and new ways of thinking.9 In the institutional economic analysis, institutional evolution occurs as a consequence of mutual and cumulative causation between the individual and the institution. Therefore, in Veblen’s works, the phenomenon of mutual and cumulative causation is of great importance in understanding institutional evolution. For Veblen, mutual and cumulative causation connotes that the existing institutions and social norms are incorporated in human behaviors and it means that prevailing habits of thought in the society and the motive system For the place and importance of Darwin’s evolution theory in Veblen’s economic analysis, see: Jennings and Waller (1998); Hodgson (2003); Hodgson (2004a); Hodgson (2004b), Hodgson (2008), Baş Dinar (2011a). 9 Rutherford (1984) says, although the idea of dynamic institutional change caused by technological change is important in Veblen’s analysis, such an analysis does not denote ignoring other major elements in Veblen’s analysis. Rutherford, in this article, studies different processes that constitute Veblen’s evolutionary change system. 8 Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution… 39 affect the speed and direction of technological knowledge. Thus, in Veblen’s analysis, changes in the main direction of life lead to changes in institutions and cultural norms (Rutherford, 1995: 447). In other words, changes in institution and social norms occur as an outcome of a cumulative array of habits. The reason is that each new situation is the result of a preceding change, and they incorporate all causal factors affected previously. Veblen states that technology, which is the major factor lying behind the process of institutional evolution, likewise occurs in a cumulative process. Thus, Veblen defines technology as a joint stock of knowledge derived from experience, a joint effort (Veblen, 1990 (1914): 103). Veblen explicitly expressed his views on the institutional theory in his book, “The Theory of the Leisure Class”, which he wrote in 1889. In this work, Veblen describes how the habits of thought of the society–i.e. institutions–have changed and evolved from the primitive society phase until the phase of modern capitalist society. To this end, Veblen divided the Western history into four successive eras. These are the savagery peaceable economy of the Neolithic era (peaceable era), the predatory barbarian economy, where ownership, belligerence, male supremacy and the leisure class emerged (the barbarian era), the pre-modern times in the form of handicraft economy (handicraft era), and modern era, which is determined by machinery factory production (machine era). According to Veblen, the basic element that determines these phases is their different levels of technology. In this respect, in Veblen’s analysis, technology is the main element that determines social and institutional evolution (Veblen, 1973 (1899): 32). Veblen says that at the peaceable, savage phase, when social development, which is a peaceable stage, was at primitive level, societies were comprised of small groups, and generally displayed peaceable characteristics. The reason is that since in such a society, the individual ownership was not developed yet, dynamic that would push into competition, and thus, to the conflict people were few in number. The basic characteristics of such a society can be said to be efficiency and productivity. Here, productivity and efficiency were associated with whether or not people provide benefit to the society by their activities. To work in such a society was considered a virtuous behavior (Veblen, 1973 (1899): 30). With the transition of the society from the peaceable phase to the barbarian and predatory phase, now the society began to lose its peaceable nature due to the domination of competition, and “competence” and “competition” came to the prominence as the distinguishing characteristic of the human. In that phase, things people gained by fighting and struggling began to be considered 40 Review of Public Administration, Volume 7 Issue 4, December 2013, p.29-50. valuable, while things gained by hard-working were regarded as worthless achievements (Veblen, 1973 (1899): 30-31). Veblen says that this development in the institutional evolution, that is to say, the shift from a peaceable society to a barbarian and predatory one made plunder a general habit and an approved mental attitude for the group members; thus, the habits of thought of society changed in favor of such a society (Veblen, 1973 (1899): 32). The change in institutions and habit of thoughts of society occurs as a result of need and pressure exerted byte social structure lived in. According to Veblen, the society’s capacity to change depends on to what degree the members of the society are subjected to the restricting forces of the environment.10 Thus, in Veblen’s analysis, the main factor that that leads the institutions to change is material requirements. Although Veblen says that the habits of thoughts of the society change in the process of institutional evolution, he also emphasizes that this change is never easy, and it takes a long time. For Veblen, the difficulties in change stems from the fact that people instinctively fear and avoid there-adaptation process entailed by change (Veblen, 1973 (1899): 139). Veblen says that in the barbarian society, women traditionally served in the fields, which the industrial occupations would develop in the subsequent periods; these tasks were considered vulgar and dirty works, and thus, men were exempt from such types of work. Hence, the origin of today’s leisure11 class is based on this distinction in the barbarian era. In the barbarian society, the occupation of the man ensures the continuity of the group, while the occupation of the woman is regarded as simple, and it is underestimated.12 In the barbarian phase, the distinction that emerged as “the occupation that required prowess and courage” and “heavy and boring occupation” constitutes the division of labor as industrial and non-industrial occupation in the contemporary capitalism (Veblen, 1973 (1899): 25). Veblen categorizes people with “non-industrial occupations” as “the leisure class”, and asserts that the leisure class has emerged with the transition of humanity from the peaceable phase to the predatory phase. According to According to Veblen, leisure class’s degree of being influenced by the powers that require institutions’’ readjustment is low. That is to say, the leisure class does not need to struggle for the means of life as much as other classes of the society. Thus, this class shows conservative features. Moreover, the leisure clashes great interests in the maintenance of existing institutional structure or social order. This is one of the major reasons for the conservative attitude of the leisure class. For Veblen, the task of the leisure class in social evolution is to retard the movement, and to preserve what is obsolescent (Veblen, 1973 (1899): 137). 11 Here, Veblen does not use the term, “leisure” in the meaning of “laziness” or “inertia”; he tries to imply “unproductive consumption” with these concepts. 12 Veblen, with these ideas, not only demonstrates how the society and institutions evolve, but also explains the evolution of the woman’s place in the social system, and thus, greatly contributes to the comprehension of the woman’s present status in the society. 10 Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution… 41 Veblen, the emergence of the leisure class coincided with the emergence of the private property institution, and these two institutions are different forms of realities of the same social structure (Veblen, 1973 (1899): 33). Therefore, Veblen investigated the origins of these two institutions in order to understand capitalism, and to this end, conducted an anthropological study. For Veblen, the private property institution is approached as an element that represents the yield of the property ownership’s efficient labor in the classical theory of natural rights. Veblen opposes to the consideration of production as an individual activity by classical economists in this process as well. According to Veblen, production is the outcome of a social process. Veblen explains this view of his in his study called “The Beginning of Ownership” as follows (Veblen, 1954 (1934): 33-34): “This natural-rights theory of property makes the creative effort of an isolated, self-sufficing individual the basis of the ownership vested in him. In so doing it overlooks the fact that there is no isolated, self-sufficing individual. All production is, in fact, a production in and by the help of the community, and all wealth is such only in society. Within the human period of the race development, it is safe to say, no individual has fallen into industrial isolation, so as to produce any one useful article by his own independent effort alone. Even where there is no mechanical co-operation, men are always guided by the experience of others... Production takes place only in society-only through the co-operation of an industrial community…There can be no production without technical knowledge; hence no accumulation and no wealth to be owned, in severalty or otherwise. And there is no technical knowledge apart from an industrial community. Since there is no individual production and no individual productivity, the natural-rights preconception that ownership rests on the individually productive labor of the owner reduces itself to absurdity, even under the logic of its own assumptions.” In Veblen’s analysis, production is a social phenomenon and against it, private property is individual. This manifests a struggle in the society. In this sense, production, which is a social activity conducted for social benefit in modern capitalism is controlled by individuals, whose in pursuit of commercial profit, and property owners “who does not personally manage the business they own”(absentee ownership)”. Veblen states that the machine era that represent modern age, is the last of social phase, which the Western world has developed to utilize the institutional and social evolution it has undergone. According to Veblen, this era was realized as a consequence of a number of technical and institutional developments at the end of the 18th century, and it led to major social and institutional transformations. The mechanical inventions that took place in this era radically transformed the organization of production, and caused significant changes in the habits of thoughts of engineers, workers, and technicians. As a 42 Review of Public Administration, Volume 7 Issue 4, December 2013, p.29-50. result of this transformation, industrial production, industrial processes, and industrial products in modern culture became the main elements that directed daily actions of people, that is to say, that determine people’ habits of thought. It is possible to explain through the Figure 2. below how the process of institutional evolution works in Veblen’s analysis. As seen in Figure 2., Veblen explains the source of the process of institutional evolution by the concept of instinct.13 In this framework, Veblen argues that instincts inherent in human nature determine the direction and speed of the process of institutional evolution, and divides these instincts into two as “peaceable instincts” and “predatory instincts”. According to Veblen, “peaceable instincts” refer to behavioral tendencies of the human towards improving the material living conditions. “Predatory instincts” are behavioral tendencies of the human to preserve his existing habits of thought, and thus, to resist to the process of institutional process. Hence, in Veblen’s analysis, while “peaceable instincts” are the source of new institutions that will ensure the transformation of the society, “predatory instincts” are comprised of instincts that want the maintenance of old institutions incorporating old habits of thought. However, Veblen does not see predatory instincts as the fundamental characteristic of mankind; he asserts that these characteristics appeared during the transition from the primitive savage society to the barbarian phase (Veblen, 1973 (1899): 24). Thus, Veblen believes that in historical terms, peaceable instincts precede predatory instincts, and are more important than they are. Then, Veblen divided the peaceable instincts into three groups as parental bent, idle curiosity and the instinct of workmanship. “Parental bent” is based on social solidarity and sharing of the produced products, and constitutes the foundation of social and family welfare. “Idle curiosity” is part of the instinct of workmanship and parental bent, and shows the human’s pursuit of scientific knowledge. “The instinct of workmanship”, to which Veblen gives the utmost importance, refers to that the human considers production, endurance, and efficiency as virtue, whereas he sees futility, incompetence, and inefficiency as defect. This instinct is the basis for the success and competitiveness of people. For Veblen, the instinct of workmanship is also a source of technological development that lies behind social and institutional evolution. The reason is that according to Veblen, production is a social activity, and is evoked by the instinct of workmanship. Therefore, for Veblen, workmanship, as a competitive show of strength, is the primary instinct that ensures increase in production and efficiency (Veblen, 1973 (1899): 29-30). 13 Although Veblen attributes the evolution process to the instincts inherent in human nature, he does not overlook rational aspects of individuals, and thus, he also places emphasis on intentional and goal-directed characteristics of individuals. In this context, the role of instincts in the process of institutional evolution should be evaluated in view of the explanations on the concept of instinct provided in the previous section. Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution… 43 Veblen describes the place of the instinct of workmanship in human life in his book, “The Instinct of Workmanship and the Irksomeness of Labor “as follows: “Obscurely and persistently, throughout the history of human culture, the great body of people have almost everywhere, in their everyday life, been at work to turn things to human use. The proximate aim of all industrial improvement has been the better performance of some workmanlike task” (Veblen, 1954 (1934): 84). Figure 2. The Process of Institutional Process in Veblen’s Analysis The consideration of the instinct of workmanship as a competitive show of strength and a source of technological development by Veblen indicates that this instinct is addressed as a dynamic element that compels the institutional structure to change. As in the primitive savage era, the technological level of the society did not yet allow for its adequate nourishment and survival, in this era, the instinct of workmanship prevailed in human activities. Individuals had to be engaged in industrial activities to survive. In the predatory phase, the technological 44 Review of Public Administration, Volume 7 Issue 4, December 2013, p.29-50. development increased efficiency, and brought the production to a level that would ensure the livelihood of a non-working leisure class. With the transition to a peaceable society to a predatory society, the instinct of workmanship began to be counteracted by the predatory instincts. As a result of this, in the predatory phase, when private property emerged, workmanship-associated old values were depreciated to be replaced by new values dominated by plunder: “As the predatory culture reaches a fuller development, there comes a distinction between employments. The tradition of prowess, as the virtue par excellence, gains in scope and consistency until prowess comes near being recognized as the sole virtue. Those employments alone are then worthy and reputable which involve the exercise of this virtue. Other employments, in which men are occupied with tamely shaping inert materials to human use, become unworthy and end with becoming debasing. The honorable man must not only show capacity for predatory exploit, but he must also avoid entanglement with the occupations that do not involve exploit. The tame employments, those that involve no obvious destruction of life and no spectacular coercion of refractory antagonists, fall into disrepute and are relegated to those members of the community who are defective in predatory capacity; that is to say, those who are lacking in massiveness, agility, or ferocity. Occupation in these employments argues that the person so occupied falls short of that decent modicum of prowess which would entitle him to be graded as a man in good standing...Therefore, the able-bodied barbarian of the predatory culture, who is at all mindful of his good name, severely leaves all uneventful drudgery to the women and minors of the group. He puts in his time in the manly arts of war and devotes his talents to devising ways and means of disturbing the peace. That way lies honor” (Veblen, 1954 (1934): 93-94). The distinction of “heavy and boring employments” and “employments requiring prowess and courage” that emerged in the predatory phase manifests itself as industrial employments and non-industrial employments in the machine era. Veblen, by industrial employments, implies the activities of workers, laborers, operators, and technicians, who emerged as an outcome of the instinct of workmanship, for increasing the material welfare of the society and production, and the machine process. He qualifies the activities of property owners, investors, bosses, employers, entrepreneurs and businessmen, which are not directly related with material production, instead, which are performed in order to obtain financial gains and to exploit people as “pecuniary employments” or “business enterprise”. For Veblen, this distinction constitutes the foundation of the institutional structure of modern capitalist civilization. In this sense, Veblen states that the industrial activity incorporate dynamic characteristics, while non-industrial activity involves conservative features. Industrial employments or the machinery industrial production process are regarded as the source of institutional change by Veblen, while he considers pecuniary employments or business enterprise as obstacle to institutional Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution… 45 change. Thus, in modern capitalism, a conflict appears between the two institutions.14 Veblen, after putting forth the process of industrial evolution from the primitive ages to the phase of modern capitalism, focused on the functioning of modern capitalism. In this framework, in his books “The Theory of Business Enterprise” of 1904 and “Absentee Ownership” of 1923, he thoroughly analyzed the characteristics of modern capitalism, and explained the roots of the institutional causes of instabilities created by capitalism over the concepts of institution, instinct, and habit.15 Accordingly, in Veblen’s institutional evolution process, the peaceable instincts inherent in the human bring the industrial activity and production to the forefront, and thus, ensure the advancement of societies, and in this respect, display dynamic characteristics. The predatory instincts embedded in the human bring out business and financial activities that prevent production increase, and exhibit conservative characteristics. Moreover, as financial and business enterprise is based on the goal of achieving sustained profit, it requires artificial curbing of production, and in this sense, as the cause of sabotage of industry, it is seen as an obstacle before dynamic industrial institutions in the long run. Conclusion Veblen addressed to the process of institutional evolution in the framework of the principle of mutual and cumulative causation in the context of a Darwinian selection theory. To this end, Veblen put forth the purpose of economics as the analysis of the cumulative process of change undergone by the material life, and investigated institutional evolution from the ancient eras to the present. In Veblen’s economic analysis, the institutional evolution has occurred as an outcome of change in the habits of thought of the society. The change in the habits of thought of the society as a consequence of change in material conditions of the society, that is to say as a result of technological change. In this sense, technological development is the engine of the institutional evolution. What lie behind technology are instincts highlighted by Veblen regarding human nature. The instinct of workmanship, parental bent and idle curiosity, which Veblen define as peaceable instincts, forms the source of dynamic institutions that ensure the development of society. Private property and the leisure class, which Veblen qualifies as the predatory instincts, generate 14 For Veblen, a number of practices specific to Modern America such as real estate speculation, price inflation, credit manipulation, imitation, sabotage of production, excessive competitive environment, disparagement of neighbors, salesmanship, sanctification of businessman, etc. were evolved from the values of America’s rural society of the pre-industrial revolution era. According to Veblen, these rural values laid the foundations of the emergence of the industrial order (Levy, 1994: 12-13). 15 For an evaluation of the role of instincts in the development of corporate culture under the conditions of modern capitalism, see: (Cordes, 2007). 46 Review of Public Administration, Volume 7 Issue 4, December 2013, p.29-50. conservative institutions that impede the development of conservative institutions. After describing the process of industrial evolution from the primitive ages to the phase of modern capitalism, Veblen focused on the functioning of modern capitalism; he highlighted the conflict between dynamic institutions and conservative institutions, and drew attention to how financial activities, which he called static institutions, prevent the development of dynamic industrial activities in modern capitalism conditions, posing an obstacle to the welfare of the state. The concepts of institution, instinct, and habit have a central importance in Veblen’s views on the process of institutional theory. Veblen carried all his discussions about capitalism through these concepts. Veblen pointed out that the human should be considered as a social being, rather than a being in pursuit of merely pleasure. To this end, he intensely used the concept of habit in his analysis. Veblen argues that human beings, while living within the society, acquire some habits accumulated within the institutional and social structure, and that these habits direct the individual’s behavior accompanied by the instincts inherent in humans. According to this understanding, the primary instinct that guides human behaviors is not pain or pleasure. Here, the fact that Veblen considers the concept of instinct, which directs human behaviors, along with the concept of habit indicates that the human is approached as a being, which is influenced by both cultural and social structure, and also as a unique being with some natural instincts. In this sense, the concept of instinct refers to the human’s innate and unique tendencies, and thus, to individual specificities, while the concept of habit refers to the aspects of individual shaped by the social and cultural system (Kilpinen, 2003: 298). The concept of habit reveals that human behavior is not just about rationality, and in this sense, it helps with the conceptualization of human beings as beings with the habits and instincts. Thus, the conceptualization of the human as a concrete being, who does nothing but endeavors to maximize his self-interest, is abandoned. Thus, the concept of habit allows for explaining the world in a more realistic16 way (Hodgson, 2004c: 407). Veblen, with these concepts, did not restrict his analysis merely to the economic field, but he included the non-economic fields as well. In this context, Veblen’s analysis has been conveyed beyond the economic field, wherewith scarce resources, production, distribution, and exchange transactions are carried out. In addition, Veblen did not restrict his analysis to the economic field. He In the literature, there are many studies, which argue that Veblen’s economic analysis is closely related with pragmatist philosophy of science. For the place and importance of pragmatist philosophy of science in Veblen’s economic analysis, see: (Baş Dinar, 2011b; Tillman, 1984; Kilpinen, 1998; 2003; Hodgson, 1996). 16 Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution… 47 analyzed the economic field from a sociological viewpoint as well, along with economic elements. In fact, his definition of institution encompasses changeresistant institutions in the society and, at the same time, emphasizes that change-resistant institutions may change in the course of time, and it may lead to new behaviors and trends. Even though Veblen, in his theory of institutional evolution, criticizes neoclassical economics, and particularly its notion of passive individual, his main issue is not to exclude the individual from the economic analysis, but to include the influence of changes in the social structure on both the individual and institutional structures. In this respect, it can be asserted that Veblen’s theory is positioned between oversocialized and undersocialized, which are on the extreme ends of the spectrum in the literature. Thus, as Yılmaz (2012) states, Veblen’s analysis displays significant similarities with Granovetter’s (1985; 1992) method of institutional analysis called New Economic Sociology, which is intensely debated. Veblen’s theory of institutional evolution, which he formed based on the concepts of instinct, habit, and institution, brings a more realistic explanation to the emergence, functions and evolution of institutions by placing emphasis on mutual causation between the institution and the individual. Such a point of view ensures the analysis of the roles of institutions created by both the individual and the society in the process of institutional evolution. Due to its nature, Veblen’s theory of institutional evolution may bring a new perspective to debates on “New Economic Sociology”, one of the most important debates in the literature. As Yılmaz (2012) states, the movement of new economic sociology, in an ironic manner, has engaged in an intense interaction not with Veblenian tradition of institutional economics, but with mainstream economics. 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