From Old Economics to New Economics- Radical ... - Bruce Nixon

Standard, neoclassical economics strains out the gnats of allocative inefficiency while swallowing the
twin camels of unjust distribution and unsustainable scale. 19
The ‘new economics’ that underpins our vision of the economy of the future draws upon the
work of these thinkers, but also incorporates other traditions within what is commonly called
‘heterodox economics’. 20
5.3. Heterodox economics
An interested question to pose is the following: given that it is increasingly clear that our
lifestyles a) do not make us happy, b) create and maintain huge social inequalities and c) are
leading us to environmental disaster, why do we persist in following the same, well-worn
path
From a neoclassical perspective, the answer is straightforward: our behaviour is that which
maximises our individual utility, given our set of preferences and within a particular budget
constraint. That is, we choose to act as we do because we want to.
From the earliest days, however, critics have pointed out some major problems with this
framework. One such critique is the idea that individual preferences – i.e. what people want –
are both ‘fixed’ (in that they do not change over time) and ‘exogenous’ (in that they simply
arrive fully formed).
At the turn of the 20 th Century, an important critic of this view of decision-making was
Thorstein Veblen, who was one of the originators of ‘institutional economics’. Veblen argued
that individuals did not take decisions by objectively assessing the relative utility that would
result from each in terms of their own fixed preferences. Rather he stressed the importance of
‘institutions’ – defined broadly as “enduring systems of socially ingrained rules 21 ” – in
shaping these decisions.
It has long been accepted that:
All processes of rational decision-making depend on acquired cognitive frames for the selection,
prioritization, interpretation and understanding of the huge volume of sensory stimuli that reaches the
human brain. 22
Furthermore, these ‘cognitive frames’ or ‘rules’ must be learned in a social context. Thus
‘preferences’ in this sense are indeed partly learned and culturally specific. To some extent
this describes the process of the ‘socialisation’ of children, but an institutionalist would argue
that this is certainly not the end of the story. Veblen argued that institutions shape preferences
throughout life: ‘wants and desires’ are therefore not fixed but malleable, and a key driver is
the transformation of habit into preference.
Hodgson (2000) describes the role of institutions in this respect as follows:
They channel and constrain behavior so that individuals form new habits as a result. People do not
develop new preferences, wants or purposes simply because “values” or “social forces” control them.
Instead, the framing, shifting and constraining capacities of social institutions give rise to new
perceptions and dispositions within individuals. Upon new habits of thought and behavior, new
19 Daly (2003)
20 ‘Heterodox economics’ is simply that which is not ‘orthodox’ (i.e. neoclassical) economics.
21 Hodgson (2000)
22 Ibid.
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