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Geoffrey Hodgson, Conceptualizing Capitalism: Institutions, Evolution, Future

Christian Barrère
p. 167-172
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Geoffrey Hodgson, Conceptualizing Capitalism: Institutions, Evolution, Future, Chicago: University of Chicago Press, 2015, 456 pages, ISBN 9780226168005

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Crédits : Chicago University Press

1Years after years Geoffrey Hodgson carries on rehabilitating the Old Institutionalism of Commons and Veblen tradition and developing it to analyse present institutions as social constructions, far beyond reducing them to the minimisation of transaction costs. He, today, gives us an interesting book which appears as the coronation of his methodical work of defining the institutions of contemporaneous capitalism. He synthesizes his previous analyses in a coherent framework able to define the nature of capitalism. As this historical system is a dynamic one he also addresses the questions of its evolution. Then the book is divided in two parts: the first one is dedicated to the conceptualization of capitalism by defining its main institutions (individual motivation, law and the State, property and contract, markets, money and finance, firms, employment relations) and, therefore, defining capitalism as an institutional and specific system; the second one addresses the questions of ‘beyond capitalism’.

2 It is impossible to summarize the content of such a rich book and, obviously, to discuss all the propositions of Geoffrey Hodgson, when debates on the characterization of market and capitalist economies have been lasting for centuries. A lot of scholars would discuss Hodgson's interpretation of, for instance, Marx, Keynes and Hayek, but this is not the key point. The aim of the book is to give a coherent and systematic definition of capitalism. Its first merit is to challenge the recurrent idea of capitalism as a natural (the naturalist propensity to exchange or contract) or civilized system (the efficient result of institutional adaptations in a competitive context) of the liberalist approaches by observing the social and, thus, the historical character of the capitalist institutions and relations. Hodgson also distinguishes a market economy from a capitalist economy (going beyond the leftist connotation attributed to the use of the word capitalism). But the aim of the book is far beyond, as trying to build a global framework which allows considering every economic problem within the global context of the capitalist system. So, we strongly recommend reading his book and to use it for developing debates on the characterization of capitalism. In this note, we choose to focus on the core of the methodology used by Hodgson and leave behind his detailed analyses of modern institutions.

3The goal of Hodgson is “to understand capitalism” (173). Under this purpose, we can make two observations.

4Hodgson criticizes Karl Marx’ choice of defining the capitalist mode of production on the basis of the consideration of ‘social relations’ or ‘relations of production’. For him they are so vaguely defined that the characterization of capitalism is not rigorous (some key characters of this socioeconomic system are missing, in turn leading to unjustified extensions of the category of capital). Defining capitalism implies defining the precise institutional system which encapsulates the basic specificities of capitalism. Thus capitalism is not defined by a specific way of working and developing (the traditional couple valorization-accumulation of Marxists) or by a specific social relation (the separation of workers from the conditions of production) but by a bundle of institutions.

5 For Hodgson, Capitalism is

a socioeconomic system with the following six characteristics:

1. A legal system supporting widespread individual rights and liberties to own, buy, and sell private property

2. Widespread commodity exchange and markets involving money

3. Widespread private ownership of the means of production by firms producing goods or services for sale in the pursuit of profit

4. Much of the production organized separately and apart from the home and family

5. Widespread wage labor and employment contracts

6. A developed financial system with banking institutions, the widespread use of credit with property as collateral, and the selling of debt. (20)

6 According to Hodgson, this definition is compatible with the definition of Marx (except for the sixth characteristic) and with that of Schumpeter (except for the fifth). Nevertheless, for me, there is a strong difference between the Marx framework and the "legal institutionalism" of Hodgson. In the one case, capitalism is a set of social relations while in the other case, it is a set of institutions.

7In what follows, the present reviewer advocates in favor of a Marxian approach to institutions against Hodgson’s approach.

8 A first interest of the Marx's approach is to distinguish capital and the capitalist mode of production. That first allows to consider capital relations outside the capitalist mode of production. At a most general level capital is a value which can be increased by working as capital, the dynamics of which being therefore accumulation: several forms of capital can be observed (usury capital, commercial capital, etc.). What contradicts the sentence of Hodgson: “Capital involves social relations… but contrary to Marx, it does not necessarily involve the employment of workers by capitalists” (184). They can work in societies which are not ruled by the capitalist mode of production, as in the Old societies of the Antique world. This conception of capital also allows considering the modern extension of the capitalist logic to new fields. The criterion of a right definition is its heuristic value. The definition by Marx of capitalism as a dynamic system based on accumulation (and commodification), i.e. on a specific logic, allowed for example the Frankfurt School to understand the commodification of culture as the development of a new area for capitalist investment. In the same way the consideration of the capitalist logic leads us to interpret the new role of reputation and image capital of the luxury brands, the working of cultural heritages (which are not per se capital), as capital for the profit of determined firms or collective organizations.

9 The Marxist analysis of capital defines the dynamic logic of this category. The idea of capitalist mode of production is that this logic, at a given moment of history, spreads over the production area. Moreover, a defined age of capitalism (the classical stage in traditional Marxism) can be observed, when social relations can fully expand because the organization of production, corresponding to a defined degree of development of productive forces, is totally adequate to the social characteristics of the capital relation. Marx named it machinism (mechanization). He wrote that the social relation defined by the class monopoly of means of production (and mainly of equipment) is completely appropriate to the machinist form of production. Thus defining capitalism as the organization and regulation of production by the logic of the social relation ‘capital’ puts in the first place the social relation and, only in the second one, institutions which are generated by this relation, institutions the characteristics of which derive from the social specificity and the specific dynamics of capital. An institution is no more than a social relation that has been institutionalized. It’s the case for law, the State, the firm; it’s a way of organizing socialization, i.e. the relation between individual and other individual constituting a society. But the forms of institutions evolve even when social relation keeps its logic and specificity. By doing so, we can also explain institutions and their evolution instead of starting from institutions. Moreover this approach avoids defining capitalism through a list of institutions but by the specificity of a social relation which is institutionalized through different and evolving institutions.

10The critic of Hodgson’s approach to capitalism can be extended also to its representation of capital.

11G. Hodgson rejects the modern extensions of the notion of capital (human capital, intellectual capital, natural capital and so on) and uses a strict definition of capital as a value able to take a monetary form and to be exchanged on markets at a given price:

First, vital to the everyday meaning of the word capital is either money or the realizable money value of an asset. Realizable money value means that the asset can be used as collateral for securing a loan. Capital is money or money value, and it is tied up with the capitalist system of debt. Second, and consequently, it is a major error to apply the term capital in this sense to assets that are not money, do not have realizable money value, or have a realizable money value only under a non-capitalist economic system. Labor power comes in under the third option. Its full money value would be realizable under a system of slavery. (189)

12I think this point of view is a positivist one, which lacks dialectic and misses the contradictory aspects of capitalist development. A touristic monument (the British Museum) is not a capital, as a capitalist firm does not own it; it is used for non-profit activities (when a college class comes to visit it). Nevertheless it works as capital in the tourism industry, increasing the value of the supply of touristic companies. In the same way, the name of Paris is not a capital as an engine or an industrial computer but is used as ‘made in Paris’ and works as capital for the French grands couturiers. That means that some things, some material or immaterial objects, are not per se, by nature, capital but can work as capital or as non-capital, according to the social conditions of their use; and, sometimes, they simultaneously work as capital and non-capital (at the same moment Chinese tourists and young French schoolboys and girls gaze at the Mona Lisa painting in the Louvre museum). We cannot forget that, for Karl Marx, the worker is not a capital but under a specific point of view he is institutionalized within a social relation which transforms his labor power into variable capital. His operative ability becomes labor power, is socially defined and ruled as labor power. The worker is not a commodity, his labor power is; the worker is not capital but becomes capital for the employer.

13 If we define capital as a specific logic (valorization and accumulation) and not as a thing (money or monetary value of physical capital) we can extend it to a lot of things which cannot be only assimilated to capital (such as human talents, natural assets, heritages,..) but can operate as capital in some circumstances (while working simultaneously as non-capital). This opportunity is important to interpret the development of modern capitalism with its tendency to transform everything in capital, i.e. to use it as capital to increase the monetary value of sales and profits. For instance, contrary to Hodgson’s assertion that “social capital cannot be used as collateral in order to borrow money", it can be a source of profit and, even, a condition of a bank loan. That way we can hope to achieve Hodgson’s goal “to understand the nature of the beast and to establish some conceptual tools to dissect its inner structure” (1).

  • 1 See also page 7: “I argue that capitalism, property, money, markets, and corporations typically dep (...)

14Hodgson defines his approach as legal institutionalism. He emphasizes “the constitutive role of law and the state within capitalism” when both Marxism and pro-market libertarianism focus on markets (2).1 He claims three primary ontological principles: legal rules and framework matter for inter-individual relations; law involves both the state and private arrangements; law accounts for many of the rules and structures of modern capitalist societies and for the main ones, which are written in legal terms. It is true but that raises two considerations.

15 The first one is the necessity to surpass the official character of the legal system to include a lot of non-official institutions which play, in relation with law, a key role in the working and the regulation of capitalism; some are as important as the legal system and constitute with it a complex and, sometimes, contradictory sub-system. For instance two kinds of institutions could enter in the picture: in the line of Michel Foucault’s analysis, dispositifs, disciplines and infra-law; in the line of Pierre Bourdieu, social networks and social capital. But specific habits, routines, mentalities (think of Weber) also constituted the cultural basis of economic working. Then this one is not understandable without analyzing the cultural basis of capitalism. Hodgson obviously notes the role of “informal norms of culture and convention” (9) and often observed the necessity of surpassing the economism of the mainstream; nevertheless it seems to me that his definition of capitalism stays below this requirement. This also shows the limits of defining capitalism through institutions because we are lead to add continuously layers of new institutions the working of which is absolutely decisive for the global regulation of the system.

16 The second observation concerns the analysis of the legal and para-legal system. We cannot consider that this system is a functional apparatus of capitalism. As the state is also a political institution, can we separate economic and political relations, and, mainly, their different logics? It is all the more important as we give place to the cultural conditions of capitalist working. On this point the Marxian approach does not help us. On the contrary, as Gramsci showed, it reduces the state to the capitalist logic, as a functional apparatus of the capitalist exploitation. The great merit of Hodgson is to question the possibility of defining a socioeconomic system only by economic institutions or by capitalist institutions. His solution is to introduce “impurities” (see section 1.4, 39-42). I think this hypothesis does not go far enough.

17 Hodgson writes at the beginning of the book “some mix of market competition and state regulation is unavoidable in any complex modern economy” (1) and observes that capitalism does not rule all the fields of social life and that there can never be a complete set of markets (people are not produced and owned as commodities, capitalism does not include slavery, and, as some scholars took note of, we could add money and land which cannot be fully ruled by the capitalist logic). He conceives these unavoidable institutions as “impurities”: for instance,

Although capitalism promotes markets and profit-seeking activity, it cannot in principle allow the family to be run along capitalist lines and remain capitalist and the mode of rearing children is an ‘unavoidable impurity’ (39).

18For Hodgson, the impurity principle is “the proposition that every socio-economic system must rely on at least one structurally dissimilar subsystem to function” (40). And “capitalism today depends on the impurities of the household and the state” (ibid.). Consequently, a fundamental problem appears. Even if the state regulation contributes to the daily working of markets the state is not a functional apparatus of capitalism. It is partly founded on other principles than those of a capitalist system, so a lot of contradictions take place within the relations between the state and capital. Impurities cannot only refer to negative elements as it is usually done as much in the mainstream analysis as in the Marxist approach. Capitalism is a mode of socialization, i.e. a way to organize the relations between men and between men and society, according to the production, exchange and use of commodities; State is another mode of socialization, based on another logic: distinction between res publica and private matters, autonomy of individuals, and so on. This constitutes a positive logic which has an influence on the social working, and to some degree on the working of capitalism. For instance, in a majority of countries, the state prohibits trading blood and organs as standard commodities. Hence the interest of conceiving capitalism as a specific logic rather than as a set of institutions. It leads to a new question: is it possible to define capitalism out of its social encapsulation in societies based on several modes of socialization, which simultaneously converge and contradict within the socio-economic regulation. And that leads to use a dialectic point of view, bringing light to the contradictory complex of capitalist and non-capitalist logics.

19Obviously the book includes a lot of other very interesting observations and is of major interest. Moreover, such a fine book encourages the development of debates on capitalism and on the possibilities of reforming it.

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1 See also page 7: “I argue that capitalism, property, money, markets, and corporations typically depend on, and are partly constituted by, the state”.

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Christian Barrère, « Geoffrey Hodgson, Conceptualizing Capitalism: Institutions, Evolution, Future »Œconomia, 6-1 | 2016, 167-172.

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Christian Barrère, « Geoffrey Hodgson, Conceptualizing Capitalism: Institutions, Evolution, Future »Œconomia [En ligne], 6-1 | 2016, mis en ligne le 01 mars 2016, consulté le 18 janvier 2022. URL : ; DOI :

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