LECTURE 8. HISTORICAL SCHOOL AND INSTITUTIONALISM

1. The contribution of the historical school to the development of economic theory

Representatives of both classical and neoclassical (the founder of which A. Marshall is considered) directions of economic science were characterized by the idea of ​​​​the dominance of universal economic laws that act independently of the will and consciousness of people. This resulted in their confidence in the universality of models of economic behavior and the undesirability of government intervention in the economy. This approach was opposed by representatives of the German historical school, which can be divided into “old” and “young”. They viewed political economy not as a science about the general laws of development, but as a science about the national economy, believing that the theory of the classical school was cosmopolitan and abstract. The ideologist of the “old” historical school, which was formed in the 40s of the nineteenth century, is F. List (1789-1846). In his main work, “The National System of Political Economy” (1841), List argues that the economies of individual countries develop according to their own laws and therefore each country is characterized by its own “national political economy,” the task of which is to determine the most favorable conditions for the development of the productive forces of the nation . Thus, List actually crossed out political economy, replacing it with economic policy. Essentially, he takes a step back in comparison with classical political economy, defining the subject of political economy in the spirit of the mercantilists, who precisely considered political economy as the science of the prosperity of the national economy. But not only this shows the similarity of the views of F. List and the mercantilists.

Like them, List justified the need for a policy of protectionism and emphasized the decisive role of the state in the development of the economy, in protecting the national market, putting forward the so-called principle of "industrial education of the nation." Criticizing the principle of unlimited freedom in international trade, List insisted on the need to develop industries that at the moment could not withstand competition with foreign countries. List proposed to consider the loss of values ​​as a result of such a policy as a payment for the industrial education of the nation and, completely in the spirit of the mercantilists, recommended using such instruments of protectionist policy as high customs duties on imported goods to protect domestic production.

Other representatives of the old historical school, in particular W. Roscher (1817-1894) and K. Knies (1821-1898), following List, rejected the idea of ​​unchangeable, “natural” laws of economics and essentially led to the replacement of economic theory with economic history, which would be engaged in collecting and describing economic facts. Roscher never tired of repeating that political economy is the science of social economy. And from his point of view, to study it you need to know seven aspects of social life - language, religion, art, nationality, law, state and economy. As for the motives of action of an economic subject, it is based, according to Roscher, not only on egoism, but also on the desire for justice, its orientation towards morals and customs.

Representatives of the “young” historical school, which formed in Germany in the 80s of the nineteenth century, continued the traditions of the “old” historical school in denying the role of scientific abstractions and in their tendency to simply collect factual material. As a challenge to the classical school, one can regard the statement of one of the representatives of this school, L. Brentano (1844-1931), that “an accurate description of even the most modest phenomena of economic life has incomparably greater scientific value than the most ingenious deductions from egoism.” Criticizing the position of representatives of the classical movement on the issue of removing all restrictions on freedom of economic activity, they rightly noted that there are no purely economic processes; they are always regulated by customs or law. And if, according to classical political economy, competition is a mechanism for ensuring justice, then according to the views of representatives of the historical school, it is in law and morals that the highest judgment of justice is realized. And the state exists precisely in order to harmonize the forms of economy with ethical ideas about justice, that is, to carry out the task that was previously solved by the church. But even if we assume the absence of government intervention, then, according to representatives of the historical school, free enterprise is always limited by moral frameworks: honesty, commitment, loyalty to one’s word, etc. Therefore, the figure of an “economic man” (a competent egoist striving exclusively for his own benefit) , which has been included in economic theory since the time of A. Smith, was a meaningless abstraction for representatives of the historical school. They not only opposed scientific abstractions, but also opposed mathematical research in economics, believing that the reaction of the human psyche was too complex a problem for differential calculus. Being consistent in refusing to know universal objective laws, elevating national characteristics (national character, national soul, national destiny) to an absolute principle, representatives of the historical school considered it necessary to include in economics such disciplines as history, ethics, law, psychology and even ethnography .

Criticizing the concept of "economic man", representatives of the German historical school noted that in their behavior a person is guided not by considerations of rationality, but by habits and traditions. This applies primarily to the labor market (for example, the son of a shoemaker will almost certainly become a shoemaker) as well as the principle of establishing payments, in particular rent. Last but not least, moral norms also influence human behavior, according to representatives of this school.

Without introducing anything new into “pure” economic theory, representatives of the historical school did a lot in the field of specific economic disciplines, the study of individual aspects of economic life based on the widespread use of historical and statistical material. With good reason we can say that the works of representatives of the “young” historical era laid the foundation for such a scientific direction as economic sociology, in which economic processes were considered from somewhat unusual positions. In this regard, the views of E. Durkheim (1858-1917) on the reasons for the division of labor are of interest. As you remember, for A. Smith, the reasons for the division of labor were the inherent tendency to exchange and selfishness, understood as the desire for one’s own benefit; and the consequence of the division of labor was an increase in its productivity and an increase in the wealth of the nation. Durkheim highlights the social function of the division of labor, which he sees in the creation of solidarity in society. In his opinion, the division of labor exists because it helps preserve society in conditions of increasing population density. As is known, in a limited territory, homogeneous objects are always in a state of conflict; in relation to human society, this means that the sameness of people and social groups will inevitably give rise to tension and aggression. But where there is differentiation of activity, it is possible to restore general order without restricting freedom. Thus, according to Durkheim, the division of labor exists because it helps to preserve society in conditions of differentiation of activities and increasing solidarity.

Not only economic processes but also economic categories were analyzed from the point of view of sociology. In particular, Simmel (1858-1918) considers money as a social phenomenon in his work “The Philosophy of Money”, analyzing the influence of money culture on changes in human psychology. Simmel notes that money culture creates extravagance (prestigious consumption - in the terms of T. Veblen), gives rise to cynicism and makes human existence characterless and work indifferent, since the latter has meaning only if it brings income.

As already noted, representatives of the historical school are characterized by the attitude that “man belongs to the world of culture.” It is no coincidence that for a prominent representative of the “young” historical school, W. Sombart (1863-1941), the task of economic analysis is to find the spirit of the economic era, something rooted in the social foundations, morals and customs of a given people. He argued that the capitalist economic system arose from the depths of the Western European soul - from the spirit of restlessness and entrepreneurship, combined with a thirst for profit.

M. Weber (1864-1920), who can equally justifiably be considered a representative of the historical school and institutionalism, dedicated his most famous work “The Protestant Ethic and the Spirit of Capitalism” to this problem. Capitalism, according to Weber, is not just the desire for profit, it is the rational curbing of the thirst for profit, it is professional work to make a profit based on peaceful exchange, it is economic accounting when comparing costs and results. The spirit of capitalism presupposes a system of thinking and behavior characterized by a rational and systematic desire to obtain legitimate profit within the framework of one's profession. But why was this system possible? Why did this type of person arise and why do changes occur in human character? Weber believes that capitalism owes its existence to the Protestant ethic, for which the highest qualities are hard work, modesty, honesty, charity and which stem from the religious teachings of Luther and Calvin, the teachings of the Reformation era.

According to Luther's teachings, a person fulfills his duty to God in worldly life; his professional calling is the command of the Lord. Thus, worldly activity is seen as the fulfillment of religious duty, in contrast to early Christianity, which initially acted as a religion hostile to economic life. The basis of Calvin's religious teaching is the dogma of election to salvation. According to this teaching, a person who has come into this world already bears the mark of being chosen or cursed, and a person cannot change anything through his actions. But he can see the divine sign: economic success is a sign of God's mercy, and failure is a sign of rejection. The moral of Calvin's teaching is to focus the believer's energy on increasing and accumulating wealth for the glory of God. Both Calvinism and Lutheranism form new human qualities: frugality and the desire to accumulate (remember A. Smith’s thesis that the one who accumulates is the benefactor of the nation), asceticism, and an overwhelming sense of duty.

M. Weber's contribution was that he explored the relationship between religious ideas and the economic organization of society, confirming the thesis of the historical school that the functioning of ideas is an essential basis for economic growth. However, in modern capitalism we do not grasp this connection. Weber responds to this as follows. When capitalism has become the dominant system, the system itself selects those who satisfy the conditions of its existence. It selects those who know how to adapt and survive based on economic variables such as profits, prices, wages. It is not surprising, therefore, that the thirst for profit has supplanted the concept of professional duty, and economic activity, instead of a thin shell of religious life, has become, as Weber put it, a shell through which nothing spiritual can break through.

As we can see, among the representatives of the historical school, religion, cultural and ethical norms act not as an external framework for economic activity, but as essential elements that determine the economic behavior of a person. As for the field of economic policy, representatives of the historical school were supporters of a tough policy of protectionism, which unites them with the mercantilists.

2. Institutionalism. Economic views of T. Veblen

Many elements from the "historical school" were adopted by such a direction of economic thought as institutionalism. Institutionalism is a trend in economic thought based on the postulate that social customs regulate economic activity. A distinctive feature of the representatives of institutionalism is that in the interpretation of socio-economic phenomena they proceed from the determining role not of the individual (as in the political economy of the classical direction), but of group psychology. There is a clear connection here with the historical school, which demanded that economic analysis be placed on a broader sociological and historical basis, emphasizing that the national economy belongs to the world of culture.

The emergence of institutionalism is associated with the name of the American economist T. Veblen (1857-1929), who placed not the “rational” but the “living” person at the center of his research and tried to determine what dictates his behavior in the market. As is known, the economic theories of the nineteenth century, especially the marginalist trend in science, in their constructions explicitly or implicitly proceeded from the premise of the existence of “economic man,” whose appearance in economic analysis is associated with the name of A. Smith. This is a person with independent preferences, striving to maximize his own benefit and knowing very precisely what this benefit is. In other words, economic man is a rational egoist. Veblen questioned two fundamental tenets of the classical school:

▪ provision on consumer sovereignty;

▪ provision on the rationality of his behavior.

Veblen proved that in a market economy, consumers are subjected to all sorts of social and psychological pressures to make unreasonable decisions. It was thanks to Veblen that the notion of "prestigious or conspicuous consumption", known as the "Veblen effect", entered economic theory. Prestigious consumption is based on the existence of the so-called "leisure class", located at the top of the social pyramid. The feature indicating belonging to this class is a large property. It is she who brings honor and respect. The characteristics of the class of large owners are conspicuous idleness ("not labor" - as the highest moral value) and conspicuous consumption, closely associated with monetary culture, where the object receives an aesthetic assessment not for its qualities, but for its price. In other words, goods begin to be valued not for their useful properties, but for how much their possession distinguishes a person from others (the effect of envious comparison). The more extravagant a person becomes, the higher his prestige rises. It is no coincidence that at present there is such a thing as "representation costs". The highest honors are given to those who, through control of property, extract more wealth from production without engaging in useful labor. And if conspicuous consumption is a confirmation of social significance and success, then this forces middle-class and poor consumers to imitate the behavior of the rich. From this, Veblen concludes that the market economy is characterized not by efficiency and expediency, but by conspicuous waste, envious comparison, a deliberate decrease in productivity.

The category of "envious comparison" plays an extremely important role in Veblen's system. With this category, Veblen not only explains people's propensity for prestigious consumption, but also the desire for capital accumulation: the owner of a smaller fortune is envious of the larger capitalist and strives to catch up with him; when the desired level is reached, there is a desire to overtake others, etc. As for prestigious consumption, according to Veblen, it leads to the misuse of productive energy and, ultimately, to the loss of real income for society. It is no coincidence that the target of Veblen's criticism in his most famous work, The Theory of the Leisure Class (1899), is artificial psychology and the false idea of ​​expediency. Veblen cannot recognize the thesis, which is implicitly present in classical political economy with its dominance of rational human behavior, about the justification of any demand. The classics "forget," Veblen believes, that demand is a manifestation of the economic system and, as such, is both the result and the cause of economic action. All the evils of the economic system lie in the nature of the demand (prostitution, child labor, corruption). Consequently, ethics cannot but be an integral part of economic theory. Veblen's thoughts about the driving motives of human behavior can be considered as a challenge to classical political economy. Not profit maximization, but the instinct of mastery (the desire for creativity originally inherent in a person), the instinct of idle curiosity (the continuation of the instinct of the game as a form of knowing the world) and parental feeling (caring for one's neighbor) form the face of the economy as a whole. Obviously, the rejection of the position of the classical school, that a person seeks to obtain the maximum benefit for himself, subordinating his actions to the "arithmetic of benefit." Veblen believes that man is not a machine for calculating the sensations of pleasure and pain, and his behavior cannot be reduced to economic models based on the principles of utilitarianism and hedonism. Veblen, and after him other representatives of institutionalism, believed that a theory that gives a satisfactory interpretation of human economic behavior should also include non-economic factors and explain behavior in its social aspect. From this followed an important requirement for institutionalists to apply the data of social psychology to economic theory. It must be said that Veblen can rightfully be attributed to the founders of such a science as economic sociology.

Veblen's view of the main contradiction of capitalism, which he considered as a contradiction between "business" and "industry", is also interesting. Under the industry, Veblen understood the sphere of material production based on machine technology, under business - the sphere of circulation (exchange speculation, trade, credit). The industry, according to the views of Veblen, is represented by functioning entrepreneurs, managers and other engineering and technical personnel, workers. All of them are interested in the development and improvement of production and therefore are the bearers of progress. Representatives of business are focused exclusively on profit and production as such does not bother them.

In Veblen's theory, capitalism (in his terminology - "money economy") goes through two stages of development: the stage of domination of the entrepreneur, during which power and property belong to the entrepreneur, and the stage of domination of the financier, who does not take a direct part in production. The dominance of the latter is based on absentee property, represented by shares, bonds and other securities (fictitious capital), which bring huge speculative profits. As a result, the securities market expands exorbitantly, and the growth in the size of "absentee property", which is the basis for the existence of the "leisure class" (financial oligarchy), is many times greater than the increase in the value of the tangible assets of corporations. As a result, the contradiction between "business" and "industry" is aggravated, since the financial oligarchy receives an increasing part of its income through operations with fictitious capital, and not through the growth of production, increasing its efficiency. Veblen constantly emphasized that the development of industry leads to the need for transformations and predicted the establishment in the future of the power of the technical intelligentsia - "technocracy" (persons going to power based on a deep knowledge of modern technology). In Veblen's interpretation, the main goal of "technocracy" is the best work of industry, and not profit, as for a businessman who, moreover, does not perform production functions and is engaged only in financial activities, thereby becoming an extra link in the economic organization. Veblen's future scenario assumes a strike of technicians, which will immediately lead to "paralysis of the old order" and force businessmen to give up leadership positions in production, from power. Veblen argues that it is enough for a small number of engineers (up to one percent of their total number) to unite for the "idle class" to voluntarily relinquish power. In a society run by a technocracy, production will function to meet needs, there will be an efficient distribution of natural resources, a fair distribution, etc.

These ideas of Veblen were picked up and developed by the American economist and sociologist J. Galbraith. His most famous book is The New Industrial Society (1961). At the center of Galbraith's concept is the concept of "technostructure". This refers to the social stratum, including scientists, designers, specialists in technology, management, finance, that is, in all specialties that are required for the normal operation of a large corporation that produces tens or hundreds of types of products. Galbraith argues that the goal of the technostructure is not to make a profit, but to keep economic growth going, which alone ensures wage growth and stability. However, the interests of economic growth, the necessary condition of which is the growth of consumption, leads to further pressure on consumers from producers (through advertising and other forms of pressure, which Veblen wrote about, calling into question the postulate of consumer sovereignty in a market economy). Galbraith notes that the apparatus of suggestion and persuasion associated with the sale of goods has grown enormously. In terms of the resources that are spent on this activity and the abilities that are used in it, it increasingly competes with the process of production of goods. As a result, there is a hypertrophied growth of individual needs, and social needs, to which Galbraith attributed investment in human capital by expanding the education system, are declining. The goals of the technostructure come into conflict with the interests of society. This contradiction lies not only in the intensification of consumer psychosis, but also in the fact that the result of the dominance of the technostructure is the squandering of natural resources, inflation and unemployment. These negative processes are, according to Galbraith, the result of the conciliatory policy of the technostructure, which wants to live in peace with all sectors of society. One of the consequences of such a policy is the growth of wages, outpacing the growth of labor productivity, thereby opening the way for inflation. Based on the analysis of the "harmful" aspects of the domination of technocracy, Galbraith comes to the conclusion about the need for social control over the economy by the state, which would include state regulation of social needs, state planning of the main national economic proportions, and a number of other areas. By the way, the idea of ​​the need for social control over the economy by the state is characteristic of all representatives of institutionalism.

Concluding the acquaintance with the ideas of institutionalism, it should be noted that in economic theory this direction is rather not constructive, but critical. The main contribution to the theory of economic thought lies in the fact that representatives of institutionalism questioned the central postulates of classical political economy: the rationality of the individual's behavior, the automatic achievement of the optimal state of the economic system, the identity of private-proprietary interest to the public good. Noting the shortcomings of the functioning of the capitalist system (conspicuous consumption, the elimination of competition, the restriction of the release of goods), they insisted on the need for regulatory measures on the part of the state. They also insisted that the object of study in economic theory should not be a rational, but a real person, often acting irrationally under the influence of fear, poorly conscious aspirations and pressure from society. As noted, the behavior of people is affected by the motives of conspicuous consumption, envious comparison, the instinct of imitation, the law of social status, and other innate and acquired inclinations. Therefore, representatives of institutionalism are supporters of an interdisciplinary approach, and insist on the inclusion in economic analysis of such disciplines as psychology, anthropology, biology, law, and a number of others. Institutionalism as a current of economic thought is rather vague, there is no economic model, no clear premises that are so characteristic of classical political economy; in constructive terms, he did little, but his critical charge influenced the further development of economic theory, influencing the views of twentieth-century economists, in particular, such an outstanding economist as J. Schumpeter.

Author: Agapova I. I.

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