Understanding the Process of Economic Change

Understanding the Process of Economic Change

Understanding the Process of Economic Change

Understanding the Process of Economic Change

Excerpt

What kind of a theoretical framework must we develop to understand the process of economic change? The theory we possess is static; and while a truly dynamic theory may be beyond our reach we can incorporate the dimension of time as an integral part of the analysis. We must develop a body of generalizations about the operation of economies over time. Our objective must be to focus on those elements in the society that undergird and account for that process. Economics is a theory of choice—so far so good. But the discipline neglects to explore the context within which choice occurs. We choose among alternatives that are themselves constructions of the human mind. Therefore how the mind works and understands the environment is the foundation of this study. But what is the environment? The human environment is a human construct of rules, norms, conventions, and ways of doing things that define the framework of human interaction. This human environment is divided by social scientists into discrete disciplines— economics, political science, sociology—but the constructions of the human mind that we require to make sense out of the human environment do not coincide with these artificial categories. Our analytical frameworks must integrate insights derived from these artificially separate disciplines if we are to understand the process of change. Moreover we must understand what is the underlying force driving the constructs that the mind makes. Why do rules, norms, conventions, and ways of doing things exist? What induces the mind to structure human interaction in this way? The new institutional economics (NIE) takes us partway. It focuses on the beliefs that humans develop to explain their environment and the institutions (political, economic, and social) that they create to shape that environment. Part I of this book explores what drives humans to undertake these artificial constructs and then develops and expands on the tools of the NIE to provide a framework for explicitly exploring the nature of economic change.

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