Innovation, Economics and Evolution: Theoretical Perspectives on Changing Technology inEconomic Systems by Peter HallReview by: Geoffrey M. HodgsonJournal of Economic Issues, Vol. 30, No. 4 (Dec., 1996), pp. 1198-1199Published by: Association for Evolutionary EconomicsStable URL: http://www.jstor.org/stable/4227135 .

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1198 Book Reviews

INNOVATION, ECONOMICS AND EVOLUTION: THEORETICAL PERSPEC- TIVES ON CHANGING TECHNOLOGY IN ECONOMIC SYSTEMS. By Peter Hall. Hemel Hempstead: Harvester Wheatsheaf, 1994. Pp. xi, 418. $41.95 (paper).

Hall's book is an attempt to bring together much modern economic analysis on the nature of technological change and economic evolution. I opened it in the expec- tation that it could be an ideal textbook for a masters course I teach on the evolution of institutions and technology. Reading the first chapter, I was impressed. It in- cludes quite a good overview of some fundamental issues, including the differences between mechanical and evolutionary metaphors and their implications for econom- ics. Philip Mirowski's [1989] classic account of the relationship between economics and physics receives an appropriate mention, along with theories of path dependence and punctuated equilibria.

So far so good. But when I reached the middle of the second chapter, my enthu- siasm had waned. The chapter is not without its value; it includes a useful review of much of the innovation literature. Overall, however, its discussion of "perspectives on innovation" is limited, with little examination of the meaning and bases of nov- elty and creativity. Ulrich Witt's [1991] contemporary stress on novelty within an evolutionary perspective does not receive a mention. Absent too are earlier key dis- cussions of creativity and innovation from Arthur Koestler to Thorstein Veblen and Charles Sanders Peirce.

Present in the second chapter and the remainder of the volume are equations and diagrams that would not look out of place in a neoclassical microeconomics text- book. Isoquant diagrams, Cobb-Douglas functions, aggregated capital and labor, price elasticities, and even utility functions-they are all there. The author seems to have forgotten much of his own first chapter, when it is warned that much or all of this apparatus is mechanistic and static in nature and derives not from evolutionary biology but from physics.

Furthermore, it is not realized that genuine innovation cannot be predetermined by a mathematical function, even one of a stochastic type. All such functions limit the parameter space in which novelty can emerge. True novelty arises from the combination of the dissimilar-as Peirce and Koestler realized-and cannot in princi- ple be expressed as a mathematical formalization.

The book is of interest because it seems to encapsulate a stage of development of a particular variant of "evolutionary economics." This variant-unlike the work of Nelson and Winter and of the "old" institutionalists-has not heeded warnings about the limitations of mathematical formalization in economics. It shares with Joseph Schumpeter an adulation for formal technique. In the institutional context of the eco- nomics departments of the 1990s, this approach is much more acceptable because it sanctifies formal, rather than discursive or historically grounded, approaches. Hall thus seems to play to two overlapping audiences: a broad group of "evolutionary

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Book Reviews 1199

economists" concerned with innovation and change and the mainstream audience who have eschewed prose for symbol. As Ronald Coase remarked: "In my youth it was said that what was too silly to be said may be sung. In modern economics it may be put into mathematics" [1988, 185].

At the intersection of these two audiences lies a group of economists who may even become the new orthodoxy in the early part of the next century. In some ways, this will be an advantage for institutionalism, as there will be discussions of evolutionary ideas and explorations of non-equilibrium ways of theorizing. But the deductive and formalistic bias will still stultify any reflective evaluation of key as- sump- tions and greatly limit the policy usefulness of the analysis [Lawson 1995].

A similar process occurred with the Keynesian revolution of the 1930s. The at- tempt of Keynes to develop an organic and system-wide view of the economy was quickly constrained by attempts by John Hicks, Jan Tinbergen, and others, to bring Keynes's insights into the scope of a formal model. As a result, much of the Keynesian message was lost. Joan Robinson described the postwar textbook synthe- sis of neoclassical microeconomics with Keynesian macroeconomics as "bastard Keynesianism. " The adjective was appropriate, denoting an unauthorized hybrid.

Hall's book has many virtues, and it remains useful as a teaching text. Never- theless, I would describe it as "bastard evolutionary economics" on similar grounds. We may expect more volumes of this kind in the near future, as a variant of "evolu- tionary economics" establishes mainstream credentials, and on the basis of a very limited knowledge of its own mixed parentage.

GEOFFREY M. HODGSON

University of Cambridge

References

Coase, Ronald H. The Finm, the Market, and the Law. Chicago: University of Chicago Press, 1988. Lawson, Antony. 'A Realist Perspective on Contemporary 'Economic Theory'." Journal of Economic

Issues 29, no. 1 (March 1995): 1-32. Mirowski, Philip. More Heat 7han Light: Economics as Social Physics, Physics as Nature's Economics.

Cambridge: Cambridge University Press, 1989. W/itt, Ulrich. "Reflections on the Present State of Evolutionary Economic Theory." In Rethinking

Economics: Markets, Technology and Economic Evolution, edited by Geoffrey M. Hodgson and Ernesto Screpanti. Aldershot: Edward Elgar, 1991.

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