McCloskey’s Straw Foe: Retro-Institutional Economics

I’m a big fan of Deirdre McCloskey. She’s become in the past two years one of my favorite intellectuals, alive or dead. At the very least, she’s responsible for introducing me to virtue ethics, my obsession for the past year. So I hate that my first piece for Sweet Talk is rather critical of a recent article of hers.

McCloskey has a new paper titled “Max U vs. Humanonics: A Critique of Neo-Institutionalism” (PDF) appearing in the Journal of Institutional Economics in which she takes the New Institutionalist school to task for failing to account for the influence of words and ideas in economic history, and especially for asserting that the Great Enrichment (the explosion of incomes from roughly 1800 to the present) can be explained without these concepts. The problem is she doesn’t seem to be talking about the same institutional economics that I’m familiar with (loosely, as a rank neophyte in all honesty).

She claims that the neo-institutionalists view institutions as mere rules-of-the-game, and that their attempts to introduce culture and ethics into the mix are tautological.

Norms” are one thing, “rules” are another. The neo-institutionalists turn their arguments into tautologies by melding the two. They end up saying, “Social change depends on society.” One supposes so. “Informal constraints” are not informal if they are constraints, and if they are informal the theory has been reduced to a tautology, because any human action is now by definition brought under the label “institutions.” The neoinstitutionalists have nothing non-tautological to say about ethics, because they have not read the immense literature on ethics since 2000 BCE, including the literature of the humanities turning back to look at the rhetoric of language. Being economist, raised on the childish philosophy that separates positive and normative when most of our scientific lives are spent in their intersection, they are quite unwilling to bring ethics seriously into their history and their economics. As one of them said genially to me, “ethics, schmethics.

But this is not what I have seen. Consider this review article by Alberto Alesina on culture, institutions, and how they interact. Alesina, by the way, is one among several scholars even I’m familiar with in the institutional economics field whom I was puzzled to see absent in McCloskey’s works cited.

Alesina discusses a handful of cultural variables that have been employed in the literature that have obvious ethical correlates. One is “generalized trust”, and it’s studied by survey studies (like the World Values Survey) about how far people feel they can trust others and which kinds of people can be trusted (just family? or people you meet on the street? only white folks?). It’s also measured in behavioral laboratory studies. It’s a component of what various social scientists refer to as social capital, but a Thomist like McCloskey or a McCloskeyan like me might better recognize it as the cardinal virtue, faith. Studying this character trait’s prevalence in populations and across time seems quite apposite of McCloskey’s own project of establishing a place of prominence in explaining the Great Enrichment to newfound dignity for the regular, non-aristocratic, non-privileged person. Bracketed comments are mine:

Trust has been shown to be relevant as an explanatory variable of economic development (Knack and Keefer (1997)) and individual performance (Butler et al. (2013)), financial development, participation in the stock market and trade (see Guiso, Sapienza, and Zingales (2004, 2008a, 2009)) [Faith gives one the hope and courage to participate], innovation (Fukuyama (1995)) [not piling brick upon brick but innovation led to the Great Enrichment] and firm productivity (Bloom, Sadun, and Van Reenen (forthcoming) and La Porta et al. (1997)). For a general review of the impact of trust on various economic outcomes, see the work of Algan and Cahuc (2013).

A closely related subject is “generalized versus particular morality,” which is a measure of how far out from family or other tight social circles should ethical consideration stretch. Does the stranger deserve ethical consideration? A member of a religious/racial/sexual minority? A foreigner? Ethics, schmethics indeed.

Individualism versus collectivism is another trait that is measured, and one can see how an individualism measure might correspond to a concept of dignity. “In individualist societies, the stress is put on personal achievements and individual rights.” These are societies where the individual is accorded dignity, and not merely subsumed into the prerogatives of the State or the Party or the Church or, as a matter of actual fact, the elites who dominate those entities.

The strength and importance of family bonds are measured and their influence on economic outcomes are discussed in the literature, and one can see how this might have similar effects as collectivism, and also be of interest to a humanist scholar of dignity for the individual to formulate and execute his own life plans, relatively free from overbearing illiberal families. This is a trickier trait, admittedly, as the family is important for the individual’s sense of identity (a species of faith, McCloskey might say).

“Attitudes toward work and perception of poverty” are grappled with in this literature. Again, this might be of interest to the author of the Bourgeois Virtues.

There are of course limitations to the research methods employed in this more up-to-date neo-institutional economics. Surveys surely don’t tell the whole story of the human conversation, and laboratory games can be misleading even when they don’t succumb to WEIRD sample problems. These methods can be accompanied and informed by the humanities, even up to the English and Philosophy departments. But this research program and the results it has yielded are better than McCloskey gives them credit for.

I’m decidedly not an expert in this field (I’ve never even taken an economics class!), but it strikes me as not only powerful on its own terms, but also fertile for the kind of rhetorical and ethical investigations McCloskey brings to bear. Alesina’s review discusses the ways culture and institutions influence each other in reciprocally causal ways. Institutions affect the cultural and indeed ethical behavior of individuals. As McCloskey notes, “Once someone is corrupted by life in a communist country, for example, it is hard to reset her ethics. She goes on relying on the “bureau” model of human interaction as against the market.” For sure. But culture influences institutions as well. Cultural traits, the conversation or “conjective” (or the Logos), the virtues as embodied in the people; these all influence the institutions that are formed and how they evolve and eventually fade unto dust.

And there are cultural shocks that can radically change institutions. The Reformation, the Sexual Revolution, Marxism, Christianity, etc. The gay rights revolution is a contemporary example of a rhetoric-ignited cultural shift that is altering institutions right before our eyes. McCloskey’s own thesis embeds nicely within the neo-institutionalist community of rhetoric, if I dare say. The Enlightenment, or certain ideas and conversations therein, acted as a cultural shock whereby the common person began to be seen with a dignity all her own, and this new dignity–and the liberty that accompanied it–encouraged her try out new ideas, to innovate.

My great fear is that McCloskey has not listened, really listened, to the strongest formulations of the ideas she disparages.

 

5 thoughts on “McCloskey’s Straw Foe: Retro-Institutional Economics

  1. Dear Adam,

    You may be right, and I welcome a chance to learn more about the institutionalists. My target is the large number of them, and some very prominent (North, Acemoglu), who say Incentives = Institutions. As I put it in describing what is, you will agree, the current World Bank orthodoxy descended from North, “add institutions and stir.”

    I’m very willing to believe there are others who are more aware of the force of culture (Joel Mokyr, for example, an ally of mine in emphasizing the role of ideas in economic history; Joel and Avner Greif are going to reply to my article). But “culture” is a vague word. I prefer to speak of particular ideas, such as equality of dignity.

    But I certainly need to know more. I’ll check out Alesina.

    Regards,

    Deirdre

    1. You’ve solidified my conviction that we need to change the design of the site so that the author’s name isn’t so obscured…I’m afraid I can’t claim credit for this piece, as credit belongs to Paul Crider.

    2. paulcrider

      Hi Deirdre. I’m flattered you read my post. I have to say I’m looking forward to Bourgeois Equality with a feverish antsiness typically reserved for tween girls in line for boy band concert tickets.

      Best,
      Paul

      1. Dear Paul,

        Sorry about the confusion about authorship. The book is in the can, as they say in Hollywood (I always reserve the movie rights to all my books, btw; a little joke). It’ll be out in January, says the U of Chicago Press. Watch for the HBO series.

        Regards,

        Deirdre

      2. Adam Gurri

        I can hear the trailer narration now. “In a world dominated by pessimistic intellectuals…”

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