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Frankfurt School – Working Paper Series Naturalizing Institutions Frankfurt School – Working Paper Series No. 182 Naturalizing Institutions: Evolutionary Principles and Application on the Case of Money by Prof. Dr. Carsten Herrmann-Pillath November 2011 Sonnemannstr. 9 – 11 60314 Frankfurt an Main, Germany Phone: +49 (0) 69 154 008 0 Fax: +49 (0) 69 154 008 728 Internet: www.frankfurt-school.de Abstract In recent extensions of the Darwinian paradigm into economics, the replicator-interactor dual- ity looms large. I propose a strictly naturalistic approach to this duality in the context of the theory of institutions, which means that its use is seen as being always and necessarily de- pendent on identifying a physical realization. I introduce a general framework for the analysis of institutions, which synthesizes Searle’s and Aoki’s theories, especially with regard to the role of public representations (signs) in the coordination of actions, and the function of cogni- tive processes that underly rule-following as a behavioral disposition. This allows to conceive institutions as causal circuits that connect the population-level dynamics of interactions with cognitive phenomena on the individual level. Those cognitive phenomena ultimately root in neuronal structures. So, I draw on a critical restatement of the concept of the ‘meme’ by Aunger to propose a new conceptualization of the replicator in the context of institutions, namely, the replicator is a causal conjunction between signs and neuronal structures which undergirds the dispositions that generate rule-following actions. Signs, in turn, are outcomes of population-level interactions. I apply this framework on the case of money, analyzing the emotions that go along with the use of money, and presenting a stylized account of the emer- gence of money in terms of the naturalized Searle-Aoki model. In this view, money is a neu- ronally anchored metaphor for emotions relating with social exchange and reciprocity. Money as a meme is physically realized in a replicator which is a causal conjunction of money arte- facts and money emotions. Keywords: Generalized Darwinism; institutions; replicator/interactor; Searle; Aoki; natural- ism; memes; emotions; money JEL classification: B52; D02; D87; E40; Z1 ISSN: 14369753 Contact: Prof. Dr. Carsten Herrmann-Pillath Academic Director, East-West Centre for Business Studies and Cultural Science Frankfurt School of Finance and Management Sonnemannstraße 9-11 60314 Frankfurt am Main, Germany Email [email protected] This article was published in Frankfurt. Naturalizing Institutions: Evolutionary Principles and Application on the Case of Money Inhalt 1 Introducing naturalism into the evolutionary approach to institutions..................................4 2 Institutions, distributed cognition and neuromemes: Outline of a naturalistic approach to institutions............................................................................................................................10 2.1 Institutions and functions in evolutionary causal circuitry: Merging Searle’s and Aoki’s theories of institutions..............................................................................................11 2.2 Status functions and the neuronal theory of metaphor: Establishing the larger framework of Neuronal Darwinism.....................................................................................16 3 Darwinizing money..............................................................................................................25 3.1 The pivotal role of emotions in the naturalistic approach to institutions .................25 3.2 Money emotions.......................................................................................................27 3.3 Money, signal selection and the human instinct to social exchange ........................31 3.4 The emergence of money as the creation of a new metaphor ..................................35 4 Conclusion and outlook .......................................................................................................41 Frankfurt School of Finance & Management Working Paper No. 182 3 Naturalizing Institutions: Evolutionary Principles and Application on the Case of Money 1 Introducing naturalism into the evolutionary approach to institutions One of the major challenges in generalizing the theory of evolution is to include human cul- ture and institutions into the picture. In economics, this research agenda has been launched by Thorstein Veblen (1899) for the first time and was lost out of sight even in the so-called ‘Old Institutionalism’, after the cultural turn triggered by the strong impact of American pragma- tism. The co-evolution of human biology and culture received considerable attention in an- thropology and biology after sociobiology had attacked the foundations of the social sciences and humanities as independent research traditions. Meanwhile, different approaches to gene- culture evolution are at hand which avoid fully-fledged reductionism but also extend the evo- lutionary concepts into the realm of culture (e.g. Richerson and Boyd 2005; Jablonka and Lamb 2006). In economics, unified approaches are only back on the research agenda with the recent claims of a Universal Darwinism (Hodgson and Knudsen 2010). One fundamental conceptual problem in all these extensions is the question of ontology, in the specific sense of social ontology. The major ontological difference between old and new institutionalism in economics lies in the much richer social ontology of the former, especially in accepting institutions as ‘real’, i.e. as ‘facts’, whereas new institutionalisms mostly follow the standard assumption of methodological individualism in economics, which would only treat ‘individuals’ as ‘real’ units of larger social systems. For evolutionary approaches and Darwinism in particular, this applies as well, in the context of the tensions between claims of genetic reductionism and the possible role of alternative approaches which would highlight the role of higher-level units in evolution. I reduce these complexities to one question: Can we construct an extension of evolutionary theory that treats institutions as units of evolution? This question would lead to a number of other questions, which I just notice, but cannot pur- sue in this paper (for more, see Herrmann-Pillath 2010/11), such as: Could we possibly imag- ine an evolutionary theory in which human individuals emerge as a phenomenon at the inter- face of two different ontological levels of evolution, i.e. genetic and institutional? Can we analyze evolution in the context of human beings in terms of complex interactions of different ontological domains of evolution, i.e. biological, cultural, and even individual? In this paper, I present an argument in favour of treating institutions as ‘real’ and as units of evolution on an ontological level which is independent from the genetic level. As such, the Frankfurt School of Finance & Management 4 Working Paper No. 182 Naturalizing Institutions: Evolutionary Principles and Application on the Case of Money paper picks up a distinction which is currently seen as obsolete by the vast majority of re- searchers, namely the distinction between genes and memes, which was posited in one early universalization of Darwinism by Dawkins (1989). One reason is that defining the concept of the ‘meme’ faces the same difficulties as recent generalizations of another Dawkins concept, that underlies the notion of meme, i.e. the ‘replicator’ (Knudsen 2002; Hull and Wilkins 2005). This is the question of the physical realization of the replicator beyond chemical mechanisms such as genetics. I argue that this empirical question is in fact an ontological one, which implies that we can develop a number of principled ideas about the structure of reality that would also enable us to formulate hypotheses about the physical nature of replicators in the domain of institutions. I will put together different theoretical resources from different disciplines to offer my solu- tion to this quandary. There is one pivotal point that I make in following John Searle’s (1995, 2005, 2010) approach to social ontology. This is that institutions are a special kind of facts, namely observer-relative facts. Being facts, however, they are conceived in naturalistic terms, i.e. as having autonomous causal powers beyond the beliefs and attitudes of individuals who act in a certain institutional setting (Bhaskar 1989). The question is how we can empirically specify this status of institutions as facts. In answering this question, I go far beyond Searle’s approach. I wish to present a conceptual framework for the Darwinian analysis of institutions and present an application on one of the most important institutions of the economy, money. This framework builds on two ideas borrowed from the literature. The first starts out from Aunger’s (2002) theory of (neuro)memes. Aunger, too, posits that one of the intricate questions of the generalization of Darwinism is the distinction between replicators and interactors. Although it is possible to make sense of this distinction in purely information-theoretic terms (as in Hodgson and Knudsen 2010), this approach is methodol- ogically problematic because it implicitly gives up the naturalistic ontology underlying Dar- winism. In fact, the purely information-theoretic approach is a disguised Cartesian substance dualism of mind vs. matter which builds the universalization of the theory on the distinction between a material domain, where biology reigns, and an abstract
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