Sufficient Reason: Volitional Pragmatism and the Meaning of Economic Institutions / Edition 1

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0691124191 Publisher: Princeton Univ PressDate of Publication: 2006Binding: hard coverEdition: Condition: Very Good/Very GoodDescription: 0691124191 About new with no marks. ... Minimal use if any. Read more Show Less

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Overview

"In the standard analysis of economic institutions - which include social conventions, the working rules of an economy, and entitlement regimes (property relations) - economists invoke the same theories they use when analyzing individual behavior. In this book, Daniel Bromley challenges these theories, arguing instead for "volitional pragmatism" as a plausible way of thinking about the evolution of economic institutions. Economies are always in the process of becoming. Here is a theory of how they become." Bromley argues that standard economic accounts see institutions as mere constraints on otherwise autonomous individual action. Some approaches to institutional economics - particularly the "new" institutional economics - suggest that economic institutions emerge spontaneously from the voluntary interaction of economic agents as they go about pursuing their best advantage. He suggests that this approach misses the central fact that economic institutions are the explicit and intended result of authoritative agents - legislators, judges, administrative officers, heads of states, village leaders - who volitionally decide upon working rules and entitlement regimes whose very purpose is to induce behaviors (and hence plausible outcomes) that constitute the sufficient reasons for the institutional arrangements they create.
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Editorial Reviews

Journal of Economic Methodology
In the absence of a consensus there is still the ongoing debate over the making of policy and judgments concerning welfare. To that debate, Bromley's book is a welcome and valuable addition.
— Malcolm Rutherford
Environmental Values - Bryan Norton
At last, someone has written a hard-hitting demonstration that formulating the problems of economic policy in the 'old institutionalist' framework of analysis yields far greater insights than do attempts to frame these problems of achieving 'economic efficiency'. Daniel Bromley has written such a book: Sufficient Reason . . . and it should be widely read by both the supporters and critics of environmental economics.
Journal of Economic Methodology - Malcolm Rutherford
In the absence of a consensus there is still the ongoing debate over the making of policy and judgments concerning welfare. To that debate, Bromley's book is a welcome and valuable addition.
From the Publisher

"At last, someone has written a hard-hitting demonstration that formulating the problems of economic policy in the 'old institutionalist' framework of analysis yields far greater insights than do attempts to frame these problems of achieving 'economic efficiency'. Daniel Bromley has written such a book: Sufficient Reason . . . and it should be widely read by both the supporters and critics of environmental economics."--Bryan Norton, Environmental Values

"In the absence of a consensus there is still the ongoing debate over the making of policy and judgments concerning welfare. To that debate, Bromley's book is a welcome and valuable addition."--Malcolm Rutherford, Journal of Economic Methodology

Environmental Values
At last, someone has written a hard-hitting demonstration that formulating the problems of economic policy in the 'old institutionalist' framework of analysis yields far greater insights than do attempts to frame these problems of achieving 'economic efficiency'. Daniel Bromley has written such a book: Sufficient Reason . . . and it should be widely read by both the supporters and critics of environmental economics.
— Bryan Norton
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Product Details

  • ISBN-13: 9780691124193
  • Publisher: Princeton University Press
  • Publication date: 3/13/2006
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 256
  • Product dimensions: 6.20 (w) x 9.30 (h) x 0.80 (d)

Meet the Author


Daniel W. Bromley is Anderson-Bascom Professor of Applied Economics at the University of Wisconsin, Madison.
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Read an Excerpt

Sufficient Reason

Volitional Pragmatism and the Meaning of Economic Institutions
By Daniel W. Bromley

Princeton University Press

Copyright © 2006 Princeton University Press
All right reserved.

ISBN: 0-691-12419-1


Chapter One

PROSPECTIVE VOLITION

While the content of knowledge is what has happened, what is taken as finished and hence settled and sure, the reference of knowledge is future or prospective. For knowledge furnishes the means of understanding or giving meaning to what is still going on and what is to be done. -John Dewey, Democracy and Education (1916)

SUFFICIENT REASONS

At midnight on September 2, 1967, the Swedish government undertook a profound institutional change: it altered the side of the road on which automobiles were to be driven. We might suppose that Sunday, September 3 was a day of some considerable adjustment for drivers in Sweden, and it seems probable that the following months were interesting times on Sweden's roads. Why would the government of Sweden undertake such a disruptive institutional change? Why does it matter on which side of the road a people drive, as long as they all do it on the same side? How much did it cost to change all the highway signs? What possible benefits motivated this change? How could those benefits be measured against the known-and presumably large-costs of the change? Was a benefit-coststudy undertaken prior to this massive institutional change? In the absence of such study, how can we be sure that economic efficiency and social welfare have not suffered? In the absence of this evidence, how can we possibly know if the Swedes, in 1967, acted rationally? Surely, some rent-seeking sign makers managed to gain control of the machinery of state with the intent of garnering large contracts to produce millions of new signs. Or, perhaps Swedish politicians and civic leaders saw a future that they imagined would be better if they brought their driving institutions in line with those of their neighbors?

In 1973, approximately a decade after the publication of Rachel Carson's book Silent Spring, the pesticide DDT (dichloro-diphenyl-trichloro-ethane) was banned in the United States for all but emergency uses. Since the end of World War II, DDT had been used to control mosquitoes in order to combat malaria, yellow fever, and typhus-among other diseases. Carson's book documented the extent to which DDT, by entering the food chain, was the probable cause of reproductive problems. The serious decline of the bald eagle (America's national symbol) in the United States was blamed on DDT, and this controversy was apparently an important stimulus to eventual passage of the Endangered Species Act. Many other nations have also banned DDT or placed it under strict control. Was the banning of DDT preceded by a careful benefit-cost study to prove that the ban would be socially beneficial? If not, how can we be certain that the ban of this powerful chemical was socially preferred? How can the U.S. economy remain competitive with the rest of the world if the government is able, quite arbitrarily, to impose regulations in the absence of benefit-cost analysis? Perhaps something else was at work here? Was DDT banned because of some sense that, regardless of how the benefits and costs might look to a Paretian economist, the larger issue of human safety-and environmental integrity-was absolutely compelling?

In 1819 the British social reformer Robert Owen successfully persuaded Parliament to enact a law prohibiting the employment in cotton mills of children less than nine years of age, and limiting the workday for all employees less than sixteen years of age to twelve hours per day. In 1825 and 1831 the law was extended so that all those under eighteen years of age were limited to twelve-hour workdays, and they could not be made to work nights until they reached the age of twenty-one. These measures were so aggressively fought by the millowners that Parliament was persuaded to refuse inspections and monitoring of compliance with the act. In 1844, under pressure from industrialists, the minimum age for entering factory work was pushed back down to eight years of age. Finally, in a series of acts between 1847 and 1853 the workday of women and children was set at twelve hours (6 a.m. to 6 p.m.) with ninety minutes for meals. In 1875 Lord Sandon's Education Act became law requiring that all children must be in school until they reach the age of twelve (Checkland 1964). How is a dedicated welfare economist to look upon these changes? Are these examples of "inefficient institutions"? Did these institutional changes reduce the rate of Britain's economic growth? Were these social reforms accompanied by a complete welfare analysis proving that the benefits of these institutional changes exceeded the costs of change? If not, how can we be sure that efficiency and social welfare did not suffer as women and children were suddenly constrained in the number of hours they might (be made to) work in the factories? How could it possibly happen that politics was allowed to interfere in the market in such an arbitrary fashion? Isn't this but another example of inefficient policies that redistribute income (welfare) away from the owners of factories and toward workers?

In November 2004 the British Parliament outlawed fox hunting with hounds-long regarded as the quintessential defining trait of proper recreation among the rural gentry in England and Wales. The issue had been fought over for at least two decades. Arguments were advanced about the economic impacts on the rural economy. Claims were made that as many as eight thousand people would be put out of work-including saddlers, blacksmiths, grooms, stablehands, and employees of pubs and lodging establishments. In addition, it was alleged that the countryside would soon be overrun with foxes wreaking havoc on all manner of living creatures. How can we explain this dramatic break with England's long and durable institutional tradition? Is nothing sacred? Were welfare economists invited in to offer estimates of the economic value of fox hunting, or to produce estimates of the economic impacts of foxes with and without hunting? Were studies undertaken to determine the willingness to pay on the part of others to see the regal splendor of fine horses and finer riders coursing through verdant hills in hot pursuit of their beagle hounds and the pesky fox? What about the "passive use value" of those who, though never themselves intending to hunt, conjured great value (utility?) merely knowing that somewhere, on a particular Sunday, imperial England was still alive and well-even if its empire had disappeared?

In 1872 Yellowstone National Park in the western United States was created. This park, the first of many areas to be set aside for preservation, covered almost nine thousand square kilometers in Wyoming and part of Montana. Following this action, Yosemite National Park in California and Grand Canyon National Park in Arizona were soon added to the nation's park system. And that system continues to expand slowly as new ideas emerge about particular ecological settings and circumstances. To the best of my knowledge, there was no proper welfare analysis undertaken to make sure that the private and social benefits of these actions exceeded the private and social costs. How can we be sure that efficiency did not thereby suffer, and that social welfare in the United States has not subsequently been permanently undermined by these actions? Are we to conclude that these massive land grabs by the government of the United States placed the American economy on an inefficient growth trajectory from which it will never recover?

These examples highlight the obvious problem facing those who imagine that prescriptive economic analysis offers essential and meaningful advice in the formulation of public policy. When Paretian economists lament the lack of welfare analysis of public actions, are they suggesting that legislation to limit the workday of women and children at the height of the Industrial Revolution was "inefficient"? When Paretian economists insist that important public actions must be subjected to a welfare analysis, are they suggesting that the creation of America's system of national parks was a mistake because they were not consulted to ascertain whether those actions were efficient (Arrow et al. 1996)? When development economists lament the absence of efficient institutions in some nations, do they mean to suggest that Norway and Sweden are somehow deficient because they do not resemble the United States in their institutional structures? Can it be that we have reached the point where it is possible to suggest that the main problem with India is that it is not more like Germany? And that the answer for Somalia is that it must become more like the Netherlands? If the teleology of growth is so compelling, then development economists from the United States need only say, "Become like us." Indeed, the Washington Consensus of the past few years-epitomized by American attitudes toward free trade and open capital markets, and the policies of the World Bank and the International Monetary Fund-seems to have consisted of little else (Stiglitz 2002; Taylor 1997). The financial crisis in Southeast Asia at the end of the twentieth century is what might have been predicted from the convergence of massive inflows of foreign capital into a region of the world without the requisite institutional infrastructure. That missing infrastructure, often dismissed as "regulations," would provide the necessary architecture and institutional scaffolding to make sure that fragile nations were not overwhelmed by massive and quite rapid inflows and outflows of capital.

Not surprisingly, these examples of institutional change reveal that democratic nation-states manage to find sufficient reasons for new policies (new institutions)-and those reasons stand despite the absence of monetary evaluations from Paretian economists. Does optimality and social welfare suffer accordingly?

REASONS VERSUS CAUSES

Public policy is concerned with debating reasons for collective action, and those reasons necessarily are found to reside in the circumstances of the future. The standard Paretian approach tends to evaluate public policy choices using decision rules predicated on individualistic utility maximization. But it seems worthy of notice that this approach to public policy employs methods whose failures precipitate the new-felt need for institutional change. That is, public policy-collective action-issues arise precisely because of the clear failure of atomistic maximizing behavior to yield aggregate outcomes that are considered to be socially redeeming. Does it not seem odd to use as a truth rule for collective action intended to correct existing problems the very same analytical algorithm that produced the particular circumstances suddenly found unacceptable?

In addition to using a flawed prescriptive rule for collective action, traditional economic approaches to policy analysis fail on other grounds as well. When considering individual choice, it is generally understood that we must assess the alternative states to be occupied by the individual in the future. John flips the light switch because he desires that the front yard be lighted. This desire for a future state (a particular outcome) is the reason for the choice, while the cause is that he flipped the light switch. The flipping of the switch is merely a necessary though quite uninteresting step in a process that starts with reason, entails a causal sequence, and ends with a desired outcome. The prospector rises early and digs hard well into the evening because of the prospect of finding gold. That is the reason he works hard. Notice that we need not introduce the notion that the utility of actors is thereby enhanced by their choice. It is quite enough to admit that the actors have sufficient reason for their actions. Our task is to understand those reasons. The economist may well insist that the actors' utility is thereby increased, but this embellishment of the reason for the action is unnecessary. To say that an action increases the actor's utility is neither necessary nor sufficient for us to explain a particular action. Quite obviously the individual imagines (and desires) being better off, or the action under consideration would not have been taken. But the pertinent idea in the mind of the prospector is that if he digs in a particular place, the chances are good that he will find gold. Indeed, he has convinced himself that he is digging in the most efficacious place-otherwise we might expect to find him digging elsewhere.

We see that individual actions are both explained and justified in terms of the future states they are expected to bring about, whether it be a nicely lighted front yard or a leather pouch bulging with valuable gold nuggets. Both individuals-John of the porch light and the prospector-are acting with the future clearly in mind. Notice that their reasons run from the future back to the present and not the other way around. This conceptualization of the choice problem requires us to comprehend that the imagined purposes of the future drive choice in the present. This vision of the choice problem entails the concept of final cause in which the "final cause of an occurrence is an event in the future for the sake of which the occurrence takes place.... things are explained by the purposes they serve" (Russell 1945, p. 67).

The gold prospector digs early and diligently (an occurrence in the present) for the prospect of an event in the future (finding gold). The prospect of gold in the future explains the digging in the present. The enhanced appearance of John's front yard in the future-and the future begins the minute he flips the switch-explains the flipping of the switch in the present. We see that plausible outcomes in the future motivate and therefore explain choices. Humans act with an eye to the future, not to the past, and not to the present. We are not pushed by the circumstances of the past or the present, but rather we are moved by the desire to alter future states we might occupy. Or, perhaps, we are moved by the realization that if we do not act now, the future will be worse than the present.

The first step in the quest for new public policy is not that current and future outcomes are found to be economically inefficient. Rather, existing settings and outcomes lead to questions about why those particular circumstances exist. Why is the health system so horrible? Why are highways not safer? Why are rivers fouled by pollution? From these challenges to the status quo will arise consideration of new institutional arrangements that might deliver improved outcomes for individuals in society. Perhaps newly published information about the effects of DDT will induce some individuals to question whether the future will be well served by the existing institutional arrangements that allow DDT to be used as a pesticide. The matter might be put: "If it is true that DDT causes particular environmental problems, as the evidence seems to suggest, then do we wish to continue down that path?" Notice that the pertinent question is not a matter of whether efficiency will suffer. Nor is it an issue of determining whether there is a bona fide "market failure" in our midst. Rather, the question concerns whether we want that particular future to be realized.

When reformers such as Robert Owen pressured the British Parliament to modify working conditions in the cotton mills, the debate undoubtedly focused on the life prospects of very young children laboring twelve to sixteen hours per day. The millowners could certainly be counted on to raise economic arguments against a change in the rules. If current debates serve as a guide, it would be asserted that the new institution prohibiting child labor would make their product more expensive (that is, the institutional change would be inflationary). We might also suppose that the millowners would complain that the change would render them less able to compete against foreign firms in nations whose institutional structure was more "business friendly." Finally, millowners might well have expressed concern that the new institution would lower the income of families whose children could no longer be in the labor force. By casting a social choice of this nature in purely economic terms, we see immediately that the debate gets framed in economic-efficiency terms. The reformers could only fall back on the argument that it was uncivilized at this time in history to have children in the mills rather than in school. The opponents of institutional change would likely cast the debate so that static calculations of an economic kind were advanced as arguments against a new institutional arrangement that has little to do with economics, yet a great deal to do with alternative visions of the future-children who are in school rather than in the mills. We are reminded that institutional change concerns whose interests will be advanced or impeded by some particular institutional arrangement. These choices are inherently of a rationing nature. And this is why I refer to them here as rationing transactions.

(Continues...)



Excerpted from Sufficient Reason by Daniel W. Bromley Copyright © 2006 by Princeton University Press. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Ch. 1 Prospective volition 3
Ch. 2 The task at hand 20
Ch. 3 Understanding institutions 31
Ch. 4 The content of institutions 43
Ch. 5 Institutional change 67
Ch. 6 Fixing belief 87
Ch. 7 Explaining 103
Ch. 8 Prescribing and predicting 115
Ch. 9 Volitional pragmatism 129
Ch. 10 Thinking as a pragmatist 155
Ch. 11 Volitional pragmatism and explanation 166
Ch. 12 Volitional pragmatism and the evolution of institutions 180
Ch. 13 Volitional pragmatism and economic regulations 199
Ch. 14 Sufficient reason 212
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