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These seven points do not capture the whole of Institutionalist theory, but they do give some indication of the divergence of the conception of economic rationality from that characteristic of neoclassical theory. As previously noted, the first generation of institutionalists generally derived their pragmatism from William James, John Dewey, and other sources more accessible than Peirce. This path of influence made a mark on their writings; among other more subtle effects, it induced an image of science which was excessively vague. This weakness, especially in Veblen and Ayres, resulted in a vulnerability to neoclassical complaints that their appeals to science were less legitimate than those of the neoclassicists. Somewhat later, John Commons made more explicit reference to Peirce’s philosophy of science, and consequently built upon a more robust philosophical foundation. Nevertheless, Commons’ book Institutional Economics signals the end of the first phase of the development of institutionalist economic theory. This watershed was not so much due to the merits or demerits of Commons’ work as it was to the rapid decline of the pragmatist philosophy of science in the US and its supersession by a Cartesian logical positivism.7

THORSTEIN VEBLEN

It has been observed that Veblen owed a number of debts to the Pragmatist tradition (Dyer 1986). What has not been noticed is that Veblen’s conception of science and economic rationality owes more to Dewey and James than Peirce, with its stress that science is a process which has no goal or end; and that much of his initial ideas grew out of a struggle with Kantian antinomies. In his famous essay The Place of Science in Modern Civilization Veblen wrote:

modern science is becoming substantially a theory of the process of cumulative change, which is taken as a sequence of cumulative change, realized to be self-continuing or self-propagating and to have no final term…. Modern science is ceasing to occupy itself with natural laws—the codified rules of the game of causation—and is concerning itself wholly with what has taken place and what is taking place…. A scientific point of view is a consensus of habits of thought current in the community.

(Veblen 1969, pp. 37–8)

The influence of Dewey and Darwin here is fairly self-evident, but the key to understanding Veblen’s use of the term ‘natural law’ derives from his first paper on Kant’s Critique of Judgement (Veblen 1934, pp. 175–93). Veblen was absorbed by Kant’s problem of the conflict of freedom and determinism, and thought that he had struck upon a new solution to the problem, making use of the notions of ‘adaptation’ and evolution. Veblen (1934) noted that: The principle of adaptation, in its logical use, is accordingly the principle of inductive reasoning.’ (Curiously enough for a student of Peirce, Veblen chose the term ‘adaptation’

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rather than Peirce’s ‘abduction’.) As Veblen became acquainted with economic theory, it dawned on him that neoclassical theory was beset with the very same Kantian conundrum—namely, it purported to be a mechanistically deterministic theory predicated upon teleological principles. In his famous article on the ‘Limitations of marginal utility’ he declared:

[neoclassical] theory is confined to the ground of sufficient reason instead of proceeding on the ground of efficient cause. The contrary is true of modern science, generally (except mathematics).… The two methods of inference—from sufficient reason and from efficient cause—are out of touch with one another and there is no transition from one to the other. … The relation of sufficient reason runs only from the (apprehended) future into the present, and it is solely of an intellectual, subjective, personal, teleological character and force; while the relation of cause and effect runs only in the contrary direction, and it is solely of an objective, impersonal, materialistic character and force. The modern scheme of knowledge, on the whole, rests, for its definitive ground, on the relation of cause and effect; the relation of sufficient reason being admitted only provisionally.

(Veblen 1969, pp. 237–8)

One might have expected a student of Peirce to see a third, transcendent, option: sufficient reason and efficient cause could have been united by recourse to an evolutionary epistemology and ontology, where both laws and our understanding of them jointly were altered by the activity of inquiry. In the sphere of the economy, institutions, defined as habits of thought and action, could serve as the connecting link between efficient cause and sufficient reason (McFarland 1986, p. 621). Yet this was not the road taken by Veblen’s subsequent intellectual career. Instead, he tended towards an increasingly pessimistic Manichaeanism— with ‘sufficient reason’ as the darkness, and ‘efficient cause’ (now conflated with Peirce’s pragmatic maxim) as the light. Since there was no necessary connection between the pragmatic maxim and ‘objective, impersonal, materialistic’ law, he was increasingly driven to have recourse to a very idiosyncratic version of a theory of ‘instincts’, especially ‘the instinct of workmanship’—a nonphysiological entity whose ‘functional content is serviceability for the ends of life, whatever these ends may be’ (Veblen 1914, p. 31). The pragmatic maxim, which started out as a solution to a difficult problem in metaphysics, ended up as a reified ‘instinctive’ entity.

Early in his career, Veblen’s antinomies resonated with the pragmatist philosophy and produced some of his most profound work. For instance, The Theory of the Leisure Class may be read as a skilful deployal of the pragmatic maxim, showing that the consequences of an action are an important part of its interpretation, wryly pointing out that ‘serviceability’ might actually be consistent with waste. ‘The Economic Theory of Woman’s Dress’ (1934, pp. 65– 77) is a tour de force of Peircian semiotics. By The Theory of Business

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Enterprise another antinomy was posited, pitting ‘the machine process’ against pecuniary enterprise. This antinomy also resulted in fruitful economic theory (Mirowski 1985), but the tendency to conflate ‘science’, efficient causal reasoning, and the working or engineering class made its first appearance. Progressively, Veblen came to see the conflicts of science vs. religion, efficiency vs. waste, capitalist vs. worker, and knowledge vs. ignorance as all prototypes of one large dichotomy (Veblen 1914). Everything seemed to conspire to drag down the march of scientific progress as Veblen got older, and this Manichaeanism blunted his earlier sensitivity to the subtle interplay of science and culture—what we have dubbed Peircian hermeneutics—so that by the time he reached Absentee Ownership, he could write:

The technology of physics and chemistry is not derived from established law and custom, and it goes on its way with as nearly a complete disregard of the spiritual truths of law and custom as the circumstances will permit. The reality with which technicians are occupied is of another order of actuality, lying altogether within the three dimensions of the material universe, and running altogether on the logic of material fact.

(Veblen 1923, p. 263)

Perhaps Veblen believed that he could break out of the ‘logical circle’ (see Veblen 1969, p. 32) by resort to this lofty and other-worldly conception of science, and then use it to claim that he was merely applying ‘matter-offact’ attitudes to the economic sphere. Instead of Peirce’s community of inquirers, scientists became for Veblen almost automatons, closer to Dewey’s Thought Thinking Itself. In striking similarity to Marx, Veblen also wished to argue that there was a certain inevitability to the whole process: the matter-of-fact efficiency characteristic of the technician would necessarily clash with the anachronistic appeal to inefficiency propped up by the legitimation of natural law by ‘captains of industry’; and Veblen intimated that the technicians would defeat the business interests in the long haul (Layton 1962).

Although Veblen’s writings are a fertile source of insights into economic theory, the Achilles heel of his later system was his naïve conception of science and the exalted place of the engineer. This epistemological weakness led to two further flaws. First, Veblen did not understand that the neoclassical theory which he so adamantly opposed had a more powerful claim to his brand of scientific legitimacy than he realized, because it later turned out that those self-same engineers would be attracted to the neoclassical brand of social physics. Second, certain particular evolutionary or Peircian aspects of Veblen’s thought stood in direct conflict with his later image of science.

The first flaw can go quite some distance in explaining the neglect of Veblen’s profound critiques of neoclassical theory, particularly the theory of capital and the theory of production. Veblen clearly believed that naturallaw explanations were on the wane in physics, and that economics would eventually follow suit.

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Obviously, things have not turned out as anticipated. Veblen’s neglect of the hermeneutical aspects of science prevented him from understanding how deeply rooted natural-law explanations are in the western cultural matrix, and how significant they were in the nineteenthcentury science which he admired: in mechanics; in chemistry; and in energetics. In other words, Veblen had an inadequate comprehension of the DMD thesis.8 Because of this, he could not comprehend the primal attraction of neoclassical theory, or the extent to which it was a model appropriated lock, stock and barrel from nineteenth-century physics (Mirowski 1984a and 1989). Veblen’s assertions that he was a partisan of modern scientific methods appeared weak and unavailing in comparison with the shiny surfaces of neoclassical economic theory. The engineers, with whom Veblen was so enamoured, flooded into economics after his death, and opted to work for the theoretical tradition which they recognized as closest to their previous training (i.e., neoclassicism).

The second flaw in Veblen’s epistemology was that he did not realize that some of the more intriguing aspects of his economic theory were in open conflict with his conception of science. In his early essay on Kant, he claimed that ‘the play of the faculties of the intellect is free, or but little hampered by the empirical elements in its knowledge’ (Veblen 1934, p. 181), but did not maintain this insight in his later work using anthropological sources. He was also very scathing when it came to others’ adherence to a naïve sense-data empiricism, as in his critique of the German historical school (Veblen 1969, p. 58), but oblivious to instances of it in some of his descriptions of science.

In his profound series of essays on the preconceptions of economic science, he observed:

since a strict uniformity is nowhere to be observed in the phenomena with which the investigator is occupied, it has to be found by a laborious interpretation of the phenomena and a diligent abstraction and allowance for disturbing circumstances, whatever may be the meaning of a disturbing circumstance where causal continuity is denied. In this work of interpretation and expurgation the investigator proceeds on a conviction of the orderliness of natural sequence… The endeavor to avoid all metaphysical premises fails here as elsewhere.

(Veblen 1969, p. 162)

This heightened awareness of the presumption of natural sequence was put to good use in Veblen’s critique of the ‘obvious’ neoclassical proposition that the value of outputs must necessarily be equal to the value of inputs, for example.

There are other Peircian themes in Veblen which languish in an underdeveloped state because of his epistemological position on science. His earliest work on the theory of the leisure class could be read as a prolegomena to a semiotics of economic transactions (Mirowski 1990). The phenomenon of conspicuous consumption indicates that desires and wants can not simply be read