Exploring the Legal Nature and Coherence of Firms

Over the course of history, human nature hasn’t changed a great deal, but culture and institutions are another story. And a key way of explaining those l shifts in history is through the lens of evolutionary economics.

Geoffrey Hodgson is a professor at Loughborough University and has written numerous books including Darwin's Conjecture: The Search for General Principles of Social and Economic Evolution and How Economics Forgot History: The Problem of Historical Specificity in Social Science. His work examines the crucial role economics plays in explaining the history of everything.

Geoffrey and Greg discuss the evolution of legal and financial institutions, why traditional economic theories, like general equilibrium models, don't quite pan out when explaining complex social systems, and how the key to finding a general theory for the social sciences may be Darwinism.

*unSILOed Podcast is produced by University FM.*

Episode Quotes:

On the theory of firm

33:04: Our argument is really, firms are historically specific. Human cooperation in production is back to the primates. We've banded together and hunted things together, but they aren't necessarily firms in the sense that business school students understand firms or want to apply that knowledge to understanding how firms operate. So we do have teams, groups, and hunting bands in different species, but the firm is something more. It's something long-lasting as mechanisms, which means it can outlive the lives of everyone within it—all employees, all owners, all shareholders—it can all be outlived by the firm. We have several firms which have literally existed for hundreds of years, and that's really important.

Focusing on the systems behind the memes

25:19: Rather than arguing about the definition of the meme, I think look more concretely at the psychological, organizational, legal, and other cultural rule systems that are involved.

Collateralization is also a very old concept, but it's underdeveloped

46:44: Mortgage is an old word. I mean, with the pawnbroker shop, they had pawnbroker shops in ancient Rome, so if you had a gold ring or something, you put it in, and that's a form of collateralization. You deposit the ring, a good bit of gold, you get the money out, and then you either repay it and get the gold back or you use the money. You don't. So collateralization is also a very old concept, but it's underdeveloped.

Is the issue with business people using evolutionary metaphors a lack of precision? 

20:13: Precision isn't everything. It's important. I would emphasize conceptual precision because often when people say we need more precision, they go off and try and build a mathematical model, but then they assume out of some of the problems and difficulties that were there at the beginning that the discussion about what should be done in terms of research is ruled out.

Show Links:

Recommended Resources:

• General equilibrium theory
• Game theory
• John Dewey
• Thorstein Veblen
• The Selfish Gene by Richard Dawkins 
• Adam Smith
• Ronald Coase
• Oliver Wiliamson
• Alchian and Demsetz
• Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History by Douglass C. North, John Joseph Wallis, and Barry R. Weingast
• First Bank of the United States 
• Joel Mokyr
• Deirdre McCloskey

Guest Profile:

• Faculty Profile at Loughborough University
• Professional Website

His Work:

• Darwin's Conjecture: The Search for General Principles of Social and Economic Evolution
• From Pleasure Machines to Moral Communities: An Evolutionary Economics without Homo economicus
• How Economics Forgot History: The Problem of Historical Specificity in Social Science 
• Conceptualizing Capitalism: Institutions, Evolution, Future
• The Wealth of a Nation: Institutional Foundations of English Capitalism
• “Social Darwinism Revisited: How four critics altered the meaning of a near-obsolete term, greatly increased its usage, and thereby changed social science” | Journal of Evolutionary Economics