Economics and Institutions: The Socioeconomic Approach of K. William Kapp

By Heidenreich, Regine | Journal of Economic Issues, December 1998 | Go to article overview

Economics and Institutions: The Socioeconomic Approach of K. William Kapp


Heidenreich, Regine, Journal of Economic Issues


Most of the existing reviews of K. William Kapp's concept of social costs and his critique of economic theory originate in the seventies and eighties when Kapp was rediscovered as one of the founders of environmental policy. A review of his works pertaining to his theoretical approach to institutional economics is lacking, however. The main purpose of this survey is to trace the key concepts of Kapp's theoretical approach and to show how that approach was influenced by cultural anthropology, social psychology, and sociology. Kapp's revision of economics and economic policy is based on a philosophy of science often neglected in the discussion about his concept of social costs, and his contribution to institutional theory goes beyond a theoretical foundation of the concept of social costs.

First, I present a review of the core ideas of Kapp's institutional theory. The reconstruction of Kapp's socioeconomic approach concentrates on both published and unpublished works and correspondence.(1) Focusing on the lifework of Kapp, I show that the older or historical institutionalism in the tradition of Thorstein Veblen, Gunnar Myrdal, Adolph Lowe, and Kapp has a theoretical framework based on a model of social action. Commonalities have not yet been recognized. This leads to a different concept of rationality and to a search for alternative institutional arrangements capable of producing social welfare. It will be shown how Kapp's institutional approach to economics therefore bears important implications for economic policy and welfare analysis.

In keeping with the tradition of the American (Veblen, Commons) and European institutionalism (Myrdal, Lowe, Perroux), Kapp believed the economy to be embedded in cultural practice. Economic action thus forms part of an extensive social context. Economic development is an ongoing cultural process in a changing world. Institutions, as Kapp defines them in an unpublished manuscript,(2) are habitual patterns of thought and action, engendered by social arrangements. Economic evolution is linked to the institutional structure. In this process, the adjustment of institutions alternates between ceremonial patterned behavior and progressive institutional change. This is a non-teleological approach since the final form is not given. Throughout his works, Kapp insisted on a historical and empirical approach to an integrated social inquiry [Kapp 1957]. This perspective is related to time and space and thus incorporates social and cultural features. The institutional economics of K.W. Kapp lies at the point of intersection of economic theory, cultural anthropology, and modernization theory.(3)

In both a biographical and theoretical sense, Kapp is an important mediator between American and European institutionalism. A scholarship from the Institute of Social Research - the Frankfurt School of Critical Theory in exile, situated at the New School for Social Research - enabled Kapp to establish himself in the United States. Coming via Geneva to New York as a refugee from Nazi Germany, he became familiar with the philosophy of science of Charles S. Peirce, William James, and their successors. Compared to Kapp's European background, American social philosophy, Dewey's pragmatism and its further development, and symbolic interactionism provided a distinctive perspective on economics. "American and European institutionalism," says Kapp [1968b, 1], "... look at the dehumanization of our economic thinking as the result of isolating so-called pure economic phenomena from their social context - an isolation that stands in contradiction to the epistemological demands, for instance, of contextualism as propounded by John Dewey." The perception of the social world, of institutions, and of objective and symbolic power is part of the pragmatic approach. Peirce's theory of signs made it clear that raw sense data are to be interpreted by signs, by symbolic representations, or by patterns [Peirce 1967, 1970; Liebhafsky 1993].

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