Hegel, Institutions and Economics

Carsten Herrmann-Pillath, Ivan Boldyrev

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317907541
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Hegel's philosophy has witnessed periods of revival and oblivion, at times considered to be an unrivalled and all-embracing system of thought, but often renounced with no less ardour. This book renews the dialogue with Hegel by looking at his legacy as a source of insight and judgement that helps us rethink contemporary economics. This book focuses on a concept of institution which is equally important for Hegel's political philosophy and for economic theory to date.

The key contributions of this Hegelian perspective on economics lead us to the synthesis of traditional approaches and new ideas gained in economic experiments and advanced by neuroeconomists, sociologists and cognitive scientists. The proper account of contemporary 'civil society' involves comprehending it as a historically evolving totality of individual minds, ideas and intersubjective structures that are mutually dependent, tied by recognitive relations, and assert themselves as a whole in the ongoing performative movement of 'objective spitit'. The ethics of recognition is paired with the ethics of associations that supports moral principles and gives them true, concrete universality.

This unusual constellation of seemingly remote fields suggests that Hegel, read in a pragmatist mode, anticipated the new theories and philosophies of extended mind, social cognition and performativity. By providing a new conceptual apparatus and reformulating the theory of institutions in the light of this new synthesis, this book claims to give new meaning both to Hegel as interpreted from today, and to the social sciences. Seen from this perspective, such phenomena as cooperation in games, personal identity or justice in the version of Amartya Sen's 'realization-focused comparisons' are reinscribed into the logic of institutional theory. This 'Hegel' clearly goes beyond the limits of philosophical discussion and becomes a decisive reference for economists, sociologists, political scientists and other scholars who study the foundations and consequences of human sociality and try to explore and design the institutions necessary for a worthy common life.

1	Setting the scene Hegel and economics

Bringing the universal back in

Economics today is one of the most developed and all-encompassing social sciences, with distinct imperialist tendencies. It not only aims at explaining phenomena in the realm of ‘the economy’, but also across all social domains, and even extends its ambitions to the life sciences (Noë et al. 2001). This is possible because economics perceives itself to be a universal logic of analysis, enshrined in mathematical formalisms, implying no particular material reference. This claim is not limited to the so-called ‘mainstream’ models of rationality and optimization, but also applies to ‘mainstream pluralism’ (Davis 2006): for example, behavioural economics may appear to correct the standard model of homo economicus, but may itself be interpreted as a considerable extension of the economic argument into previously unrelated areas, such as neurosciences, leading to claims that ‘neuroeconomics’ actually also means to apply economics in the neurosciences (Glimcher 2003). These developments very quickly turn out to imply a new, overarching paradigm seeking to integrate game-theoretic logic and various behavioural foundations of economic action supported by experimental evidence (see, for example, Gintis 2007, 2009).

This ambition to embrace the totality of social relations may be compared, notwithstanding some obvious reservations, to the universalistic attitude that characterized one particular philosophical project some 200 years ago, namely that of G. W. F. Hegel (1770–1831). Hegel’s philosophy is one of the last comprehensive philosophical systems to retain the unity of what later became the social sciences, in particular economics, sociology, and political science. However, relatively little has been done to establish connections between Hegel’s influential thinking and economic theory as it stands today. This is puzzling given the rise of interest in Hegel in the last two decades coming from various disciplines such as analytical philosophy (Redding 2007) or business ethics (Neschen 2008) and given the universalistic ambitions of contemporary economics, which clearly aims at acquiring the status of the social science.

Of course, disciplinary inertness, traditional distrust towards any ‘continental’, ‘metaphysical’, and ‘speculative’ theories on the part of (mainly Anglophone) scholars in economics, ethics, or political philosophy, the seemingly outdated status of the Hegelian system, its dubious connections to Marxism¹ and, generally, a problematic relationship between Hegel’s dialectics and contemporary economics aiming to be as ‘scientific’ as possible and to suppress any social metaphysics – all these reasons can explain this situation fairly well. The crux of our approach, however, is that both economics itself and the disciplines communicating with it (ranging from neuroscience to philosophy and ethics) are undergoing a profound transformation that might radically change intellectual priorities.

Therefore, in the twenty-first century, we might ask whether and how a bridge can be built from the nineteenth century legacy to the current situation in the social sciences which shows increasing mutual penetration, methodological openness and pluralism, and possibly a renewed effort at unification, if only due to research practice and not ‘system building’.

But even if we deal only with economics, how could we make sense of Hegel given the diversity of contemporary approaches? The most obvious way would be to interpret Hegel’s social philosophy as a meta-reflection grounding the inquiry in the theory of institutions (for a closely related view, see Testa 2011). The reason is twofold: on the one hand, modern economics is, in its deepest theoretical commitments, an institutional analysis (whatever that means for any concrete economist), and, on the other, an account of institutions is also central to Hegel’s own social philosophy.

By qualifying economics as institutional analysis we do not refer to certain branches of economic theory such as the New Institutional Economics or ‘institutional and evolutionary economics’, but to the universal claim that what is indeed ubiquitous in the economic inquiry, including contemporary economics as a theory of social interactions, is the ‘market’, and that markets are institutions insofar as they presuppose certain rules of behaviour, such as property rights, rules of price setting and so forth (Plott and Smith 2008). Furthermore, we assume that institutions are creative – that is, that economic behaviour is not reducible to some ‘natural’ determinants such as neurobiological factors. Economic institutions, for example the modern corporation do not reflect any kind of ‘state of nature’ but are seen as autonomous creations of human rational action. Finally, the economy is interpreted as a transformative process that continuously produces new institutions, but also changes the natural conditions of human life through technology and its effects upon the human environment. In this sense, the economy becomes what Hegel called the ‘second nature’ of human institutions:

But if it is simply identical with the actuality of individuals, the ethical [das Sittliche], as their general mode of behaviour, appears as custom [Sitte]; and the habit of the ethical appears as a second nature which takes the place of the original and purely natural will and is the all-pervading soul, significance, and actuality of individual existence.

(PR: 195)

So, it is quite legitimate to ask whether the notion of ‘institution’ can build a bridge between Hegel’s philosophy and today’s economics. In recognizing this we also maintain that economics as an account of the ‘second nature’ can also be interpreted as ethics in the sense of the normative theory of action. We thus take Hegel to be relevant in terms of both positive reflection on economic (and, generally, social) institutions and normative concerns inside and outside the economics of institutions. While it is commonly held for economics, and for some parts of sociology, that institutions are essential for comprehending ‘the social’, it is also quite clear that the general strategy of understanding the nature of sociality is indispensable for any insightful work in institutional theory since the agreement on fundamentals inevitably structures any further research. Against this background, Hegel’s philosophy certainly deserves serious attention, for Hegel advanced the idea that the autonomy of the modern individual – the backbone of contemporary economic theory – essentially results in and depends upon institutions and interaction with other individuals.

This idea differs from standard economics, which posits individuals as theoretical entities that are independent from markets, though not seen as ‘natural’ entities, and also claims that institutions are reducible to individual choices and actions. Hegel, on the contrary, argued that the very notion of ‘individual’ itself describes an institutional fact, referring to the ‘person’. In the Philosophy of Right he calls the person the ‘supreme achievement’ (PR: 68) that marks a certain stage in the history of modern civilization and is the result of its institutional development (compare Laitinen 2011).² In fact, as we show, what Hegel calls the ‘objective spirit’ and what, according to his view, is the necessary framework of genuine individuality is precisely the institutional armature of society. So, Hegel’s contribution to modern economics might rest upon his idea that individuals as free and autonomous actors are institutional – and, hence, in some sense, ‘endogenous’ – phenomena. We wish to pursue this idea and its ramifications in detail. Interestingly, similar ideas have recently emerged in the methodological debates about the status of neuroscience-based reductionism in economics – that is, the attempts to ‘naturalize’ theoretical notions such as utility. For example, Ross (2005, 2011) argues that the agents of economic theory are by no means reducible to neuroscience facts, because they are conceptual constructs in computational theories about the complex systems of markets: that is, markets constitute the empirical subject matter of economics, and agents in those markets are only defined relative to the pertinent reconstructions as computational systems. In this sense, agents in economic theory are not ‘natural’ entities and hence ‘givens’, but are artificial products of market evolution. We will show that these views might, in fact, be read as a (somewhat belated) tribute to Hegel.

In this chapter, we summarize the main features of Hegel’s social philosophy relevant to the subsequent analysis. But since our task is not exegetical, we will restrict ourselves to a very brief discussion referring mainly to some of the established interpretations. Drawing on them helps to clarify the ideas we want to adopt and develop. Our account is surely selective: an overview of the existing Hegel literature even in social and political philosophy would clearly reach beyond the scope of our book and, perhaps, beyond the scope of all conceivable and manageable accounts.

Hegel’s social philosophy as we (and some others) see it

The institutional nature of spirit

Hegelian scholarship has recently undergone a strong revival in the Anglophone world (Beiser 2008). In some important contributions (such as Pinkard 1994 or Pippin 2008) Hegel’s philosophy is seen as a continuation of the Kantian project (as he himself saw it, taking Kant’s philosophy in all its dimensions to be improved and overcome; see Siep 2000: 24ff.). Kant’s transcendental method famously implied the rejection of the simple subject–object relationship in the theory of knowledge. The Kantian subject gets its legislation not from some external sources, but from itself. It draws from itself the norms that structure and govern its experience, but also its free autonomous action. Fichte took over this Kantian insight and pushed it to the extreme form. For him, the free activity (Tathandlung) of the ‘I’ became the only source of objectivity and was constitutive of freedom. Here, as well as in Hegel, we find the most important structure of the idealistic argument: any grounds and reasons in both the epistemological and ethical sphere are not to be found in some other realms but within this sphere, in conscious human action. Again, this is true for the theory of knowledge: no external source of objectivity exists for spirit that ‘posits’ (setzt) the truth for itself. This is equally valid in the social realm, where only in realizing the activity can we provide an internal basis for judging it correctly – there is no other way of assessing its validity and of achieving real freedom.

The most illuminating version of this argument is presented in Hegel’s treatment of spirit in the Encyclopedia:

[I]t is of the very nature of spirit to be … this process, to proceed forth from naturality [Natürlichkeit], immediacy, to sublate, to quit its naturality, and to come to itself, and to free itself, it being itself only as it comes to itself as such a product of itself; its actuality being merely that it has made itself into what it is.

(PSS, Vol. 1: 6–7; quoted in an altered translation by Pippin 2008: 56)

That is, only spirit can make itself free by producing itself, by spelling out its own conditions and establishing its own domain which is the domain of freedom since, as Hegel famously states in the Introduction to the Lectures on the Philosophy of History, ‘[t]he substance of the spirit is freedom’ (WH: 55).

The epistemological consequences of this shift were enormous. Hegel’s notions of concept (Begriff), spirit, and their actuality became closely linked to the idea of objectivity.³ German idealism could be seen as an intellectual consequence of previous philosophical efforts to establish that all human knowledge building on arguments related to the external world is fallible. All these arguments are subject to universal scepticism. An alternative proposed by the German idealists was to reflect upon the ways in which the human mind creates knowledge about the external world. Analysing the conceptual structures of spirit, we can achieve knowledge about the world; this is a position that radicalizes idealism far beyond the Kantian view which keeps the ‘Ding an sich’ outside the reach of human knowledge. On the contrary, Hegel posits that the gap between mind and world can be overcome by understanding the world as evolving structures of spirit. Spirit in its cognitive and practical activity is not separated from ‘reality’ any more. As Pippin (2008: 108) states,

the issue of objectivity, or the problem of actual content, has ceased to be an issue about the correct (clear and distinct) grasping or having of an idea or representation, and has become, most broadly, a problem of legality, of our being bound by a rule of some sort that prohibits us from judging otherwise.

Perhaps this emphasis on rules may bring closer the idea of accommodating Hegelian philosophy within various traditions of institutional economics: after all, it was in the now classic (and formative for the contemporary generation of economists) definition by North (1990: 3) that institutions were explicitly linked to rules.

Hegel is credited with the new insight of linking this idealistic philosophy with the socio-historical account of the development of human collectivity (Westphal 2009). The truth itself is not just an adequate account of the world out there; it should be ontologically – and hence, socially – established. The ‘institutionalized’ epistemological position described by Pippin and inspired in part by Brandom’s (1994) pragmatism is paired with a more general account of spirit as an institutional phenomenon.

For a reader trained in modern economics, this starting point and some of the basic claims of Hegel’s social dialectics are certainly difficult to accept, given the positivist orientation of current economic inquiry. Yet, questioning the foundations of economic knowledge can leave much space for a debate. What is ‘objective’ cannot ultimately be determined to be independent of the institutions or rules that guide economic research (such as the collection of data) – that is, the scientific conventions that justify the acceptance of certain ‘empirical facts’ in a community of scholars. Objectivity is thus essentially dependent upon this historically evolving set of institutions.

The majority of economists in the twentieth century subscribed to the standard model of individual rationality and, hence, to the axiomatic approach in dealing with the most basic explanatory principles. This model, applied and universalized by its masters such as Gary Becker in the expansion of ‘economic imperialism’ (Radnitzky and Bartley 1987), has often been interpreted as the standard of economic knowledge. In this process a conceptual structure differentiates itself internally by reflecting upon certain basic principles of choice under constraint and interacting with the external world. But there is no conclusive way to establish economic ‘truth’ independent of this conceptual framework: it is economics that generates the criteria of truth, thus rendering futile any attempts at ‘reducing’ or ‘validating’ economic propositions about reality that refer to non-economic facts and theories, as in the recent debate about neuroeconomics (Gul and Pesendorfer 2008; Rubinstein 2008).⁴ In our Hegel-inspired view it makes much sense to assert that economics legislates economic objectivity. This could serve as an epistemological starting point for reconsidering the Hegelian legacy in the context of modern economic science.

Hegel advanced a philosophy of the ‘absolute spirit’ that comes to itself in a historical process of self-articulation, with the steps taken from the ‘subjective’ to the ‘objective spirit’. In modern terms, subjective spirit could be thought of as the process of differentiating and expressing human consciousness, and objective spirit might be treated as an evolving structure of expressions of the consciousness in cultural artefacts, i.e. the external products of human action in its social context. The spirit comes to know itself; this knowledge is identified with its freedom, understood to be the appropriation of its own norms, laws and principles within itself. The more that the world becomes the spirit’s own, the more freedom it gets, and, since freedom is the essence of spirit, its historical unfolding becomes the realization of freedom (Drüe et al. 2000: 117f.).

As in the example of the corporation mentioned previously, the forms of human social life in modernity have become increasingly independent from any external determinants such as biological mechanisms; human individuals are free to create whatever forms of life that they wish to choose, such as gender roles that are independent from biological sex. However, these creations of human spirit are not based on arbitrary individual ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of figures
• Foreword
• Introduction
• 1. Setting the scene: Hegel and economics
• 2. Hegelian principles of economics
• 3. The institutional nature of economic action
• 4. Hegel, ethics and economics
• 5. Hegelian economics in a pragmatic mode: performing the economy
• References
• Index