Institutions, Network Relations, and Economic Systems: A Counter to Oleinik's Reply

By Barnett, Vincent | Journal of Economic Issues, September 2005 | Go to article overview
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Institutions, Network Relations, and Economic Systems: A Counter to Oleinik's Reply

Barnett, Vincent, Journal of Economic Issues

What is the most fundamental aspect or building block of economic activity? Is it human instinct, the institution, the network, the overall system structure, or some other aspect of human behavior? Or even a mutual interrelation of a number of such elements? In the natural sciences, the evolution of knowledge continually pushes the frontiers of understanding to ever more fundamental levels of analysis, for example, in physics from proton/neutron/electron to hadrons/baryons/photons to strings and superstrings and so on. In the social sciences such levels are less clearly identifiable, but it still might be worth the effort to try. Consequently, this counter to Anton Oleinik's detailed reply to my brief note on the Russian peasant commune (2004) first attempts to analyze the relation between some important building blocks of economic theory that have been central to the evolutionary tradition--namely, institutions, networks, and systems--and asks how they might be related and whether any of them have precedence over any others in terms of explanatory ability or empirical application. It then examines the content of Oleinik's reply in more detail.

Two Views of the Nature of Economic Systems

In the essentialist conception, economic systems like capitalism or socialism have an essence that characterizes their fundamental nature. For example, the institutions of private ownership and the free market might be seen to characterize capitalism, and social ownership and bureaucratic control might characterize socialism. Of course, in concrete examples 100 percent purity is never maintained--capitalism can accept limited social ownership and socialism can accommodate limited free markets--but it is a question of the percentage weight of the features examined. It would be reasonable to suggest that, on this account, a particular system could not be called capitalism if 90 percent of all property in it were collectively owned. Hence all real world economic systems are in fact mixed, but it is the weight of the mix that counts in defining the essential nature of the system.

The opposite view to this is necessary to consider--the anti-essentialist conception. In this approach there is no one defining "essence" to an economic system, only a number of separate and interchangeable institutional components that could be used one way or another way, depending on the context under review. For example, socialism might employ 100 percent private ownership but make up for the ideological deficit by continually redistributing property equally to all citizens, thus preventing inequality from gaining a permanent hold. But note here that a new, more fundamental element has been introduced--equality--and hence the essentialist would respond by arguing that a new underlying essence has been established.

For what it is worth, this author would like to suggest that the essential feature of an economic system is how the power to influence production and consumption is organized and distributed within it. In twentieth century capitalism, the managerial elite and the state made most production decisions, and consumers with vastly more personal wealth than others made a disproportionate number of the consumption decisions. In Soviet socialism, the planning bureaucracy made most production decisions, and consumption decision power was often linked to party connections and nonlegal markets.

Preferring the term "social formation" to economic system, Geoffrey Hodgson defined capitalism as a social formation in which markets and commodity production were pervasive, with most production occurring in firms. Feudalism was a highly stratified social formation based on land tenure and rank (2001, 323). Neither of these definitions invoked network relations in any essential way. Hodgson saw the essence of any social formation in underlying habits of thought and activity, that is, in institutions as durable systems of social rules that structured social interactions (295).

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