Complexity in the theory of economic evolution of Thorstein Veblen: an introduction

Please cite the paper as:
João Vitor Oliveira da Silva, (2017), Complexity in the theory of economic evolution of Thorstein Veblen: an introduction, World Economics Association (WEA) Conferences, No. 2 2017, Economic Philosophy: Complexities in Economics, 2nd October to 7th December 2017

Abstract

Thorstein Veblen is a classic author, recognized for his writings on institutions and economic change. The complexity perspective, on the other hand, is a relatively contemporary approach for studying a considerable range of phenomena both in natural and social sciences. There are important issues concerning the relation between the two lines of inquiry, but, in comparison, few works that undertake the task of investigating those links. This paper attempts to take some introductory steps in that direction in two ways. First, it identifies zones of convergence between the complexity view and Veblen’s theory of economic evolution. Secondly, it makes an effort to interpret the latter in terms of the former. Three major elements are emphasized in this regard, namely the psychology of the agents, the continuous evolution and adaptation of the institutional structure and the role of technology in this process. The conclusion is that, although being a preliminary effort, this paper establishes a good case for a more profound comprehension of Veblen’s work as circumscribed in the more broad complexity approach, providing, moreover, some directions on how this ought to be accomplished.

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  • Yoshinori Shiozawa says:

    Comment on Oliveira da Silva’s Complexity in the theory of economic evolution of Thorstein Veblen: an introduction

    Yoshinori Shiozawa
    2017.10.10

    This is a good paper as a short review of complexity economics. It is amazing that a master course student could write this paper. I feel very hopeful that we are receiving a new generation of powerful economists in complexity economics and for the reconstruction of economics in general.

    I have read a keynote paper by Delorme: A Cognitive Behavioral Modeling for Coping with Intractable Complex Phenomena. I spent a full week to read it but could not understand well what Delorme wants to say and what he is proposing as a new direction for the topic of “coping complexity.” In comparison, da Silva’s paper is well organized and was easy to read. In da Silva’s case, I knew most of technical terms he used. I am also working on the similar subject (Please see my draft paper: Microfoundations of evolutionary economics in ResearchGate) This must be the reason why da Silva’s paper was more readable. However, as far as I notice, da Silva’s contentions were plausible ones and I think he has a firm grip of his subject matter.

    I may be excessively severe to Delorme’s paper, because I was unfamiliar to what Delorme had talked. Even though, as a keynote paper writer, he should try to make his paper more readable. There are many who are interested in complexity question in economics but have not worked on the topic as research subject. As a keynote paper, Delorme is expected to make them understand what our problem is and what we can hope for. I am afraid Delorme did not succeed in it.

    I can say that da Silva’s paper shows the minimal knowledge that we must all have when we argue complexity in economics. In this sense, this paper can even serve as a keynote paper in place of Delorme’s. In fact, Da Silva’s paper can serve as a good introductory paper on complexity topic in economics. For example, he presents three different concepts of complexity: (1) hierarchical complexity, (2) dynamic complexity and (3) computational complexity. Da Silva gives good explanations of these three and gives how they are related with each other. He also successfully treats major concepts that may be related in understanding dynamics of complex systems such as emergence, recursive loop, fundamental uncertainty, non-equilibrium, positive feedbacks, increasing returns, path dependence, and others.

    Da Silva’s intention is clear. He wants to rehabilitate Veblenian evolutionary economics re-enforced by the new knowledge of complexity. I wish his research project will be finished successfully. I am hopeful that he will be one of powerful leaders of the reconstruction of economics in the future.

    • João Vitor Oliveira da Silva says:

      I would like to thank Prof. Shiozawa for his words. As a new researcher, it is very encouraging to receive such support from a more experienced fellow economist.

      I still didn’t have the opportunity to read Delorme’s paper, but to be compared to a keynote author is a great honor. From my point of view as the author, I can say that I am not quite satisfied with the paper. Undoubtedly, nothing more common for a conference paper, due to the preliminary character of the works usually presented on those events. My point is that I was afraid I didn’t make clear my point about the possible convergence zones between the complexity approach and Veblen’s work, even as an introductory attempt. I had some reluctance not only with the theme itself but with the writing methodology and the arrangement of the ideas. I am already working on improving those aspects, but Prof. Shiozawa’s support was important to strengthen my conviction that I am, at least, on the right track.

  • Anne Mayhew says:

    Comment on Oliveira da Silva’s Complexity in the theory of economic evolution of Thorstein Veblen: an introduction

    My congratulations to da Silva for his excellent essay. I offer the following comment not to criticize but rather to suggest how a somewhat different reading of Veblen offers an even stronger, but in no way inconsistent, argument for substantial overlap with the complexity perspective. I completely agree with da Silva that Veblen’s emphasis on evolution and on cumulative causation provides the essential overlap. However, da Silva does not quite complete the argument for it remains unclear what causes the technological change that then causes evolution in the Veblenian system. I suggest a completion for the argument and cite evidence that offers strong support for this completion.

    In an essay, “The Place of Science in Modern Civilisation,” that Veblen is said to have regarded as his best, he argued that there was an “outlying chain” that ran alongside purposeful and “teleological” human activity. (For a more detailed discussion of this essay and its importance see Mayhew 2007/) Purposeful activity was habitual and was undertaken to achieve an intermixture of biological and cultural goals. At the same time, humans had what Veblen called “idle curiosity.” Modern evolutionary biologists might well equate this with an animal tendency to “play.” Here is how Veblen described it: :This idle curiosity formulates its response to stimulus, not in terms of an expedient line of conduct, nor even necessarily in a chain of motor activity, but in terms of the sequence of activities going on in the observed phenomenon (Veblen, 2006 [1990], p. 7).

    It is this idle curiosity that leads to new ways of manipulating the natural world that is the driver of technological change in Veblen’s analysis. Without culturally guided intent something is done differently and humans, with their powers of observation and communication, spread tghe world. While path dependence rules, the crucial element of contingency is introduced into mankind’s history of interacting with the physical world.

    Veblen went on to say that the “interpretation” of the observed sequence of activities depended upon the prevailing cultural concepts of the time. Veblen used the idea that prevailed during the early part of his career to describe a transformation from anthropomorphic and animistic explanations to those of natural laws of the universe. Cultural beliefs determined “the canons of validity” used in explaining the observed sequence of activities et in motion by idle curiosity. What is most important, is that Veblen understood modern science to be yet another set of stories or interpretations, but with a powerful difference. Modern science is a language of the cause and effect observed in the process set off by idle curiosity and a new feedback loop is created.

    What I find particularly compelling is that Veblen’s scheme is powerfully supported by the work of Joel Mokyr, an economic historian. It is important to note that Mokyr did not set out to support or to test Veblen’s scheme. In fact, he makes only a brief reference to Veblen in a footnote. However, in two masterful and richly detailed works, THE LEVER OF RICHES (1990) and THE GIFTS of ATHENA (2002), he provides material for a test of Veblen’s scheme. Central to Mokyr’s work is the relationship of scientific ideas to the creation of new technology. In THE LEVER OF RICHES, he is equivocal about the relationship, because the evidence is that technology aided science more often than science aided technology. This runs counter to most modern understanding but note that it is what would be expected if Veblen is right.

    Then, in THE GIFTS OF ATHENA, Mokyr offers substantial evidence that from around 1850 in some parts of the world, science become more than important than it had been previously. Mokyr posits two kinds of knowledge that together to provide “useful knowledge,: by which he means knowledge that can be used to increase economic production. “Propositional knowledge” is the epistemic base for “prescriptive knowledge.” If we translate into Veblen’s language, “propositional knowledge” becomes :”science” and “prescriptive knowledge” becomes technology. Mokyr then uses his detailed accounts to argue that before 1800 most technological change was the result of “serendipitous discoveries.” After about 1850, serendipity becomes less important as a feedback mechanism develops between “propositional knowledge” and “prescriptive knowledge.”

    As I wrote in my 2007 paper, the result is a cascading interaction between science and technology that is profoundly destabilizing to existing order. In such a world complexity and evolution necessarily overlap both in practical terms and in social science explanations. da Silva’s essay is a good starting point for further exploration of this reality.

    REFERENCES

    Mayhew, Anne. 2007. “The Place of Science in Society: Progress, Pragmatism, Pluralism. In J.K. Knoedler, Robert E. Prasch, D.P. Champlin, eds. THORSTEIN VEBLEN AND THE REVIVAL OF FREE MARKET CAPITALISM. Northampton, MA: Edward Elgar.

    Mokyr Joel. 1990. THE LEVER OR RICHES: TECHNOLOGICAL CREATIVITY AND ECONOMIC PROGRESS. New York: Oxford University Press.

    Mokyr, Joel. 2002. THE GIFTS OF ATHENA: HISTORICAL ORIGINS O F THE KNOWLEDGE ECONOMY. Princeton and Oxford: Princeton University Press.

    Veblen, Thorstein. B. (1906). “The Place of Science in Modern Civilisation,” The American Journal of Sociology, XI *Marc), reprinted in 1990, THE PLACE OF SCIENCE IN MODERN CIVILIZATION,New Brunswick and London;: Transaction Publishers.

    • João Vitor Oliveira da Silva says:

      Thank you for your comment and supporting words, Prof. Mayhew. The issue of the human being’s “idle curiosity” is not one that occurred to me, even though I have had glimpses of it along my readings. Unfortunately, with the purpose of focusing on the economic change per se, I went on to Veblen’s works that treated explicitly with the topic, which left the “idle curiosity” concept undiscussed.

      If I understood Prof. Mayhew’s intervention correctly (please, correct me if I didn’t), the human being’s “idle curiosity” is a pervasive instinct (as I recall Veblen’s own designation) that sets in motion the observed sequence of activities that manipulate the natural world with the purpose of fulfilling a specific collection of biological and cultural goals. As such, technological change is driven by “idle curiosity”.

      A different element is the interpretation of the material expression of this change, which consists of a more epistemological character and does not relate directly to the “idle curiosity” instinct, relying, instead, on the “canons of validity” as determined by the current cultural beliefs. Those beliefs, in their turn, evolve in a constant feedback loop with the material structure of the economic institutions. Since 1850, this feedback mechanism becomes ever more consolidated as the primacy of the instinct and habit of the “prescriptive knowledge” over the reasoning exercise of the “propositional knowledge” begins to fade away.

      If this is correct, maybe it can be connected with Hodgson’s (2004) argument that habits precede reason. I am still having some trouble trying to associate the epistemological nature of this discussion with the ontological character of the technological change and its effects on society, though. I can see clearly the potential of the “idle curiosity” concept, but not as clearly the “science-technology” interplay and how it can be inserted in the assessment of the contiguities between Veblen and the complexity approach.

      I am looking forward to Prof. Mayhew’s response and clarification in this regard, to considerate more profoundly the suggested references, specially her paper, and to include them on my own research. Thank you, again.

  • João Vitor Oliveira da Silva says:

    Thank you for your comment and supporting words, Prof. Mayhew. The issue of the human being’s “idle curiosity” is not one that occurred to me, even though I have had glimpses of it along my readings. Unfortunately, with the purpose of focusing on the economic change per se, I went on to Veblen’s works that treated explicitly with the topic, which left the “idle curiosity” concept undiscussed.

    If I understood Prof. Mayhew’s intervention correctly (please, correct me if I didn’t), the human being’s “idle curiosity” is a pervasive instinct (as I recall Veblen’s own designation) that sets in motion the observed sequence of activities that manipulate the natural world with the purpose of fulfilling a specific collection of biological and cultural goals. As such, technological change is driven by “idle curiosity”.

    A different element is the interpretation of the material expression of this change, which consists of a more epistemological character and does not relate directly to the “idle curiosity” instinct, relying, instead, on the “canons of validity” as determined by the current cultural beliefs. Those beliefs, in their turn, evolve in a constant feedback loop with the material structure of the economic institutions. Since 1850, this feedback mechanism becomes ever more consolidated as the primacy of the instinct and habit of the “prescriptive knowledge” over the reasoning exercise of the “propositional knowledge” begins to fade away.

    If this is correct, maybe it can be connected with Hodgson’s (2004) argument that habits precede reason. I am still having some trouble trying to associate the epistemological nature of this discussion with the ontological character of the technological change and its effects on society, though. I can see clearly the potential of the “idle curiosity” concept, but not as clearly the “science-technology” interplay and how it can be inserted in the assessment of the contiguities between Veblen and the complexity approach.

    I am looking forward to Prof. Mayhew’s response and clarification in this regard, to considerate more profoundly the suggested references, specially her paper, and to include them on my own research. Thank you, again.

  • Anne Mayhew says:

    I quite understand missing the importance that Veblen gave to idle curiosity as after the work that he did in 1906 he did not give it that much prominence in his work. As I read the entire body of his work, it was as though he had satisfied himself in 1906 that he understood the source of novelty in his scheme of cultural evolution and then went on to deal with other things. It is too bad that the importance of the concept has been so thoroughly overlooked by those who have written about him.

    That said, I do want to offer a correction or clarification to your restatement of my restatement of Veblen. You write that “. . . idle curiosity is a pervasive instinct . . . that sets in motion the observed sequence of activities that manipulate the natural world WITH THE PURPOSE OF FULFILLING A SPECIFIC COLLECTION OF BIOLOGICAL AND CULTURAL GOALS.” (I have added the Caps.) Veblen was quite clear that the instinct of idle curiosity, which he did think a pervasive human trait, did not play out with any purposive intent. Indeed he contrasted the manipulation of nature that was done under the impulse of idle curiosity that manipulation done deliberately and with purpose. But, the consequences of playing around under the guidance of idle curiosity would be observed by the person(s) who were messing around and what people learned as a consequence could then be put to use with the purpose of serving a specific set of biological and cultural goals. It is the very fact that idle curiosity leads to actions other than those undertaken with purpose and prior understand that provides the novelty that drives the system.

    I am not sure how this fits with Hodgson’s 2004 argument. Hodgson is much more concerned that I have ever been with trying to fit Veblen’s thought into a Darwinian biological model. My own reading of Veblen is that he invoked the name Darwin, as did many others of his time, to refer to a general set of ideas about evolution as a way of understanding change that was both path dependent and contingent. But, Veblen himself was much more heavily influenced, at least after the somewhat confused reasoning of THE THEORY OF THE LEISURE CLASS, by anthropological rather than biological/psychological thought.

    As to the science-technology interplay, this is how I understand it. Veblen argued that humans, led by idle curiosity and with the advantage of great manual dexterity, had learned how to manipulate nature to do things like making sharp-edged tools, plant crops, breed animals, etc. As part of this process, though neither antecedent nor after-the-fact but rather simultaneously derived, accounts were created to “explain” what was happening. The shape of these accounts and the grounds for judging them adequate were determined by the general understanding of the world, which, in turn, was determined by the technologies and patterns of life of the time. Shepherds gave great explanatory power to an almighty conceived as a supernatural shepherd. Mechanic-craftsmen gave great explanatory power to a supernatural clock maker. What happened in the course of the 19th century was that through the centuries old process of learning by idle curiosity, the story tellers, the “myth makers” became the scientists and scientific knowledge and the actual technological processes merged. The scientist who could describe the steps to be taken to create a chemical compound or manipulate genetic material replaced the supernatural . This created the feedback loop by Joel Mokyr writes about.and increased the speed of technological change. This makes for a much more complex set of feedback loops in modern society.

    This of course runs counter to the more widely conceived view that scientific discovery precedes and is causal of technological change.

    It is tough going but I strongly recommend Veblen’s article on “The Place of Science.”

    Let me know if you want to continue this discuss either in this format or via email.

    –Anne

    • João Vitor Oliveira da Silva says:

      Thank you for your clarification, Prof. Mayhew. It is a lot clearer now what you were trying to mean by “it is this idle curiosity that leads to new ways of manipulating the natural world that is the driver of technological change in Veblen’s analysis”. The “idle curiosity” instinct is not quite the main driver of technological change, but could be interpreted as its primary source through its effects on purposeful activities. People would watch the unintended consequences of manipulating nature “under the impulse of idle curiosity” and would harness the observed phenomena into palpable methods, techniques, tools, instruments etc. with a biological or cultural goal in mind.

      There are two important linkages I would like to note here. First is with Brian Arthur’s 2007 paper, “The structure of invention”, in which he attempts to elaborate a theory of the invention process. One of his main contributions is the conception of technology as a combination of component parts that is based upon a principle (a concept), which, in its turn, exploits an observed effect or phenomena (natural, physical, logical, behavioral and so on). The second is with the notion of complexity itself, or with the intrinsic unpredictability presented by systems that deal with positive feedbacks, which Arthur imputes to most complex systems. The idea of an instinct functioning the way “idle curiosity” does unavoidably evokes an open future subject only to continual “process-and-emergence”.

      In the case of the science-technology interplay, it is also clearer now how Joel Mokyr posits it. I still have to do some thinking over it to establish the proper connections with the broader discussion of the paper, though. In any case, thank you for your recommendation, I am sure his works will contribute to my research.

      I would appreciate a lot to continue this discussion with you after the conference via e-mail. Mine is jv.eco011@gmail.com. For now, I am open for any other comments you would like to submit here.

    • João Vitor Oliveira da Silva says:

      I forgot to leave the bibliography for Arthur’s paper:

      Arthur, W. B. (2007) ‘The structure of invention’, Research Policy, 36(2), pp. 274–287.

  • Dr Dhiresh Kulshrestha Associate Professor Economics Mody University of Science and Technology Laxmangarh Sikar Rajasthan says:

    My heartiest congratulations to da Silva for his contribution as an excellent essay. I read and go through the paper regarding the Veblen and I fully agree with João Vitor Oliveira da Silva that Veblen’s emphasis on evolution and on cumulative causation provides the essential overlap. I am hereby also suggesting to da Silva for the argument and cite evidence that offers strong support for this completion. once again my heartiest congratulations for this wonderful discussion on Complexity in the theory of economic evolution by Veblen.

    • João Vitor Oliveira da Silva says:

      Thank you, Profesor Kulshrestha, for your words. As far as I could scope, the only paper that makes a direct reference to Veblen’s concept of cumulative causation as the basis for economic complexity is Rosser and Rosser (2016).

      ROSSER, J. B.; ROSSER, M. V. Complexity and institutional evolution. Evolutionary and Institutional Economics Review, p. 1–16, 9 nov. 2016.

  • João Victor Souza da Silva says:

    What do you think about the incorporation of the Newtonian model by the classical economists? Is it possible to understand that the evolutionary subject has its basis in the dual subject of Adam Smith and in the relationship of learning and adaptation established by the intermediary of the impartial spectator?

    I think its interesting the evolutionary perspective of subject thinking in Veblen interesting, and I believe that an interesting relation can be established with the Smithian subject of TMS and the Wealth of Nations on the assumption that the admission of the classical scientific method did not necessarily imply the assumption of the generalist individual and synthetic, but put the individual, adaptive and “evolutionary” (why not?) at the center of the ascending capitalist system.

  • Ping Chen says:

    da Silva examined the link between complexity and evolution from Veblen’s work. His discussion can be modeled from physics mechanism of EVOLUTIONARY DYAMICS.
    From physics perspective, biological and social evolution occur in large scale and long-term horizon. Therefore, we must understand the link between micro mechanism and macro phenomena, such as emergence of organization/institution and persistent waves like biological clock or dynastic cycles. In this regards, Linear Hamiltonian dynamics (optimization mechanism) in conservative system could not explain path dependence (= memory > > history) and emergence of non-homogeneous structure. That is why neoclassical economics treats technological innovation as shocks (=white noise or Brownian motions), but not cycles, and waves.
    Nonlinear dynamics discovered that NONLINEAR INTERACTION would lead non-ergodicity or non-Markovian process that is capable of describing psychological behavior such as behavioral/cultural bias, asymmetric risk attitude such as endowment effect in behavioral psychology.
    Non-equilibrium statistical mechanics can further explain social psychology such as fashion, imitation, and Veblen’s “conspicuous consumption” that is not compatible with individual rationality in neoclassical economics. More importantly, social interaction may create polarized society and financial crisis, since probability distribution may change from uni-modual into bi-modual or multi-humped distribution that is NONLINEAR STOCHASTIC DYNAMICS of social differentiation. See. Ping Chen, “Imitation, Learning, and Communication: Central or Polarized Patterns in Collective Actions,” in A. Babloyantz ed., Self-Organization, Emerging Properties and Learning, pp. 279-286, Plenum, New York (1991). Also, in P. Chen, Economic Complexity and Equilibrium Illusion, Routledge( 2010). I wish future computer simulation in CAS may generate similar patterns.
    The real difficulty is to generate long-term evolutionary trend observed in biological evolution and social history. Long-term evolutionary trends, such as Schumpeter’s long Kondratieve cycles, are hard to be generated by Veblen’s cumulative causation or Arthur’s increasing returns at the micro level with large number of independent players, but can be generated at macro level with few variables (such as STRANGE ATTRACTOR) or micro dynamics under CHANGING MACRO/INSTITUTIONAL ENVIRONMENT. Because the law of large numbers would reduce the magnitude of macro fluctuations when large amount of micro fluctuations cancel each other. That is the fundamental cause of MESO foundation of Macro fluctuations and structural changes. See. Ping Chen, “Microfoundations of Macroeconomic Fluctuations and the Laws of Probability Theory: the Principle of Large Numbers vs. Rational Expectations Arbitrage,” Journal of Economic Behavior & Organization, 49, 327-344 (2002).
    One fundamental challenge to econophysics and complexity science is the origin of organizational boundary, such as cell membrane, firm and state organizations. To create a non-equilibrium state with energy gap needs a Maxwell Demon doing work against the thermodynamical law. This is the essence of Prigogine’s mechanism of ORDER OUT OF CHAOS, or Noise Induced Transition (a critical phenomena). In other words, complexity science may better understand qualitative change (rapid revolution, sudden bifurcation or punctuated evolution) caused by quantitative change (gradual evolution). A general perspective of evolutionary economics should be a synthesis of Darwin, Marx, and Veblen that goes beyond methodological individualism by Schumpeter, Menger, and Hayek.
    The most difficult problem is the origin of hierarchical structure. May’s work on ecosystem modeling indicated a trade-off between stability and complexity. So far, complexity science yet to address this issue. Institutional economics and evolutionary psychology may provide useful clue to address this issue. See. Chen, Ping. “Evolutionary Economic Dynamics: Persistent Business Cycles, Disruptive Technology, and the Trade-Off between Stability and Complexity,” in Kurt Dopfer ed., The Evolutionary Foundations of Economics, Chapter 15, pp.472-505, Cambridge University Press, Cambridge (2005). Also, Chapter 3, in P. Chen, Economic Complexity (2010).
    In sum, complexity economics is only an emerging science. We have more question in evolutionary economics and institutional economics to answer by existing models. Physicists and mathematicians should learn and cooperate with economic historian in identifying fundamental issues in economic theory.

    Ping Chen, Peking University and Fudan University