1. PRAGMATISM AND
INSTITUTIONALISM

2.  Habit
 Social Darwinism
 Effects
 Challenge
 Adaptation

3.  Charles Sanders Peirce
(1839–1914)
Founder of American
pragmatism (later called by
Peirce “pragmaticism”)
Important contribution to the
general theory of signs
(which was often called by
Peirce “semeiotic”).

4.  “A general law of action, such that on a
certain general kind of occasion a man will be
more or less apt to act in a certain general
way.”
 “A general principle that acts in the nature of
the man to determine how will act.”

7. Danger zone
Amerindians
Challenge
Adaptation

8.  The mind is an organ of adaptation
◦ Active role: Deal with the environment
◦ Passive role: Adjust to the changes

9.  William James
(1842 –1910)
US psychologist and
philosopher.
Wrote influential books on
different branches of
psychology and on the
philosophy of
pragmatism.

10.  “A glance at the history of the idea will show
you still better what pragmatism means. The
term is derived from the same Greek
word pragma, meaning action, from which
our words „practice‟ and „practical‟ come.”
 An idea is true if it works: “it is true if it
satisfies, is verifiable and verified in
experience.”
 “Theories thus become instruments, not
answers to enigmas, in which we can rest.”

11.  John Dewey
(1859-1953)
US philosopher,
psychologist and
educational reformer.
Important early developer
of the philosophy
of pragmatism.
One of the founders
of functional psychology.

14.  Collective action composed by:
◦ The action of individuals
 Truth about individuals
◦ The collective action of society as a whole
 How political society works
Everything that can be known about
social reality

15.  Human action is the attempt to resolve the
friction with the environment.
 The pragmatic man uses the technic and not any
metaphysical illusions
 While interest and purpose are the driving
forces of action, it is habits in thought and
practice which at least in part constitute
them.
 There is not anything outside the individual acting

16.  Conspicuous consumption
 Veblen effect
 Sabotage
 Institutional economics
 Industry VS business
 Evolutionary economics
 Technocracy
 Embedding
 Disembedding

17.  Thorstein Veblen
(1857 – 1929)
Norwegian-American
Opposed Karl Marx

18. “The upper classes are by custom exempt or
excluded from industrial occupations, and are
reserved for certain employments to which a
degree of honour attaches. Chief among the
honourable employments in any feudal community
is warfare; and priestly service is commonly
second to warfare.”
 Can be found here:
http://www.questia.com/PM.qst?a=o&d=1042125
82

19. INSTITUTIONALISM: VEBLEN
Institutions
 In the modern capitalist economy, Veblen
sees two main institutions: the institution
of acquisition/industry (pecuniary
interest), and that of production/business
(industrial perspective).
 The institutions that Veblen spoke about
are not organisations, but social (mental
and practical) habits

20. INSTITUTIONALISM: VEBLEN
Sabotage and monopoly
 Profitable action in business requires that the
business person seeks the most profitable
investments and actions. However, in order to
realize the highest achievable
profit, businesspersons engage in
manipulations and strategic actions which fall
into the general categories of sabotage and
monopoly.
 Veblen defines sabotage as the “conscientious
withdraw of efficiency.” Veblen explicitly
identifies in this definition sabotage on the
part of the managers and owners of business.

21. INSTITUTIONALISM: VEBLEN
Sabotage and monopoly
 Businesspersons control their industries for
the sake of the greatest obtainable
profits, not the greatest efficiency of classical
economics or the greatest social good.
 They achieve “this necessary control of the
output of industry” by recourse to
“something in the nature of sabotage -
something in the way of
retardation, restriction, withdrawal, unemplo
yment of plant and workmen - whereby
production is kept short of productive
capacity

22. INSTITUTIONALISM: VEBLEN
Sabotage and monopoly
 The outcome of this sabotage is less
production, more waste, and unbridled
inefficiency.
 The other means by which business seeks to
take advantage of disturbances in the market
for the sake of better profits is by the creation
of monopoly. Veblen defines “monopoly” as not
only as one supplier in a market, but also as
one supplier that has created the illusion that
their particular product is unique and therefore
sold at a premium.

23. INSTITUTIONALISM: VEBLEN
Conspicuous consumption
 People, rich and poor alike, attempt to impress
others and seek to gain advantage through
what Veblen coined “conspicuous
consumption” and the ability to engage in
“conspicuous leisure.” In this work Veblen
argued that consumption is used as a way to
gain and signal status => Veblen effect.
 Through “conspicuous consumption” often
came “conspicuous waste”, which Veblen
detested.

24. INSTITUTIONALISM: VEBLEN
Veblen effect
 Abnormal market behaviour where
consumers purchase the higher-priced
goods whereas similar low-priced (but not
identical) substitutes are available. It is
caused either by the belief that higher price
means higher quality, or by the desire for
conspicuous consumption (to be seen as
buying an expensive, prestige item).

25. INSTITUTIONALISM: VEBLEN
Veblen goods
 Are a group of commodities for which
people's preference for buying them
increases as a direct function of their
price, as greater price confers greater
status, instead of decreasing according to
the law of demand.
(example about wine:
http://news.stanford.edu/pr/2008/pr-
wine-011608.html)

26. INSTITUTIONALISM: VEBLEN
Emulation
 Emulation, which Veblen sees as a natural
trait of humans; People emulate what they
see others do, and in this way, patterned
behaviour (rather than individual variety)
comes about. The fact that the poor want
to emulate the rich but cannot do
so, creates envy, which is what in Veblen‟s
view gives rise to socialism as a
movement.

27.  Headed the Institutionalist school of
thought - it brought together those who
wanted to counter the „abstract theories of
market exchange and price equilibration‟ by
investigating the real variety of economic
practices and their embeddedness in society
(Brick, 2006: 65-7).
 Applied the Pragmatist principles i.e. light
version of Positivism - and the ontology of
Social Darwinism (“survival of the fittest”) to
economics.

28.  The difference with Marxism is that for
Veblen, exchange relations and private property
(„business‟) and production („industry‟) are
externally related; hence the institutionalist
terminology of „embedding‟ and „disembedding‟.
This means: the industry is dominated from the
outside (pecuniary motif) and by manipulating the
markets they create demand for more expensive
goods or more goods in general among the public.
For them, the leisure class sets standards for what
is seen as “good life” which the lower classes try to
emulate.

29. “Conspicuous consumption of valuable
goods is a means of reputability to the
gentleman of leisure.”
Thorstein Veblen

30.  http://www.philosophy.uncc.edu/mleldrid/SAAP/USC/TP16.h
tml#_ednref1
 http://elegant-technology.com/resource/ECO_SCI.PDF
 http://www.questia.com/PM.qst?a=o&d=104212582
 http://socserv2.mcmaster.ca/~econ/ugcm/3ll3/veblen/econe
vol.txt
 http://socserv2.mcmaster.ca/~econ/ugcm/3ll3/veblen/leisur
e/index.html
 http://www1.geo.ntnu.edu.tw/~moise/Data/Books/Social/08
%20part%20of%20theory/veblen%20bourdieu%20and%20cons
picuous%20consumption.pdf
 http://www0.gsb.columbia.edu/faculty/lhodrick/veblen%252
0effects.pdf

31.  Institutional economics
 Societal approach to social sciences
 Utopia of self-regulating market
 Commodification
 Varieties of capitalism
 Embedded; Disembedded (Re-embedding)
 Double movement
 Social protection

32. INSTITUTIONALISM: POLANYI
 Karl Polanyi
(1886-1964) was an Economic
Anthropologist born in
Vienna, Austria.
Former Hungarian political
leader – who became a political
refugee;
Moved to the UK – where he
worked on his greatly
acclaimed work: The Great
Transformation

33. INSTITUTIONALISM: POLANYI
The institutional economics
“Our thesis is that the idea of a self-adjusting market
implied a stark utopia. Such an institution could not
exist for any length of time without annihilating the
human and natural substance of society; it would
have physically destroyed man and transformed his
surroundings into a wilderness. Inevitably society
took measures to protect itself, but whatever
measures it took impaired the self-regulation of the
market, disorganised industrial life, and thus
endangered society in yet another way.”
(Polanyi, The Great Transformation, 1957c: 3-4)

34. INSTITUTIONALISM: POLANYI
The institutional economics
 Takes the societal approach to social science
- does not begin with the individual, but with
society.
 Polanyi's view of the economy focuses on
social reproduction.
- Like John R. Commons (1862-1945) before
him as mentioned in the Survey – Polanyi
seeks to account for the rise of the large-
scale organisation in society. To him, this is
planning.

35. INSTITUTIONALISM: POLANYI
The market and the double movement
 THE MARKET: The self-regulating market, the
utopia of liberal thinking, in Polanyi‟s view is an
institution like others, but one rooted in a socially
destructive illusion. (Survey, 2009)
 The liberal illusion rests on the assumption that the
market can be dis-embedded from society
(Survey, 2009).
- This is defined as a situation “where society and
humanity become regulated by the market, rather than
markets being regulated by societal and human needs.
So, instead of an economy being embedded in social
relations, social relations [are] embedded in the
economic system” (Polanyi, 1957c: 57).

36. INSTITUTIONALISM: POLANYI
The market and the double movement
 IN ESSENCE: The decisive issue is that under
capitalism, production itself, including human
reproduction and survival becomes dependent on
market exchange (Ankarloo, 2002).
 Failure to exchange – both goods and labour is
detrimental.
- Therefore: The development of the market has all
along been accompanied by instances of social
protection and planning to mitigate the destructive
effects of unfettered market economy (Survey, 2009)

37. INSTITUTIONALISM: POLANYI
The market and the double movement
 THE DOUBLE MOVEMENT: The market, being an
instituted order – not spontaneously evolved from
acts of exchange or trade, but the commodification
of labour, land and money
– sees every step in the introduction of self-regulating
market principles provoking sooner or later, measures
to protect the spheres of life epitomised by, what he
defined as the three fictitious commodities. (Survey
2009; Ankarloo 1999)

38. INSTITUTIONALISM: POLANYI
The market and the double movement
The 3 factors of production:
 Labour
 Land
 Money
 THE SOCIAL PROTECTION that follows (societal and
government intervention) is the result of societies‟
need for protection from fluctuations and price
shifts inherent in a so-called – self-regulating
market.
THEREFORE: re-embedding of the market.

39. INSTITUTIONALISM: POLANYI
Varieties of capitalism
 “Since every society solves the problems resulting
from market extension and attendant social
protection into the three sensitive areas of
land, labour and money in different ways, we are
confronted not with one, but with many
capitalisms.” (Survey, 2009)
 “Laissez faire was planned, planning was not”
(Polanyi, 1957c: 141).
◦ Or as others have noted - The Economy as an Instituted
Process (J. Ron Stanfield, 1980)
◦ If you don‟t have rules and institutions – there is no
economic activity.