On Custom in the Economy

The aim of this book is to re-establish custom in economics. Current economic theorizing largely neglects the forces of custom that underpin market exchange. Economic sociologists have stressed this repeatedly by referring to the 'embeddedness' of all kinds of economic processes. However, while it is true that market transactions hinge critically on elements of custom, economic processes shape shape custom in turn. This other causal direction needs more attention than it has hitherto received. The way modern institutional economics has developed points to the same deficiency. Institutional economics initially tried to analyse economic institutions as arising from market processes and competition while avoiding reference to all elements of custom, but it became increasingly clear that the answers so obtained were critically dependent on tacit assumptions about the customary infrastructure. One aim of the book is to provide the necessary link between customary elements and market processes. A current strand of thought, notably originating with game theory, has tried to understand the emergence of customs by interpreting them as routines that have been adopted because they were competitively successful. This approach takes customs essentially as conventions that solve coordination problems. It is driven by the economic paradigm that interprets behaviour as fully reducible to the interplay of (given) preferences and constraints while neglecting the direct motivational impact of custom. A second aim of the book is thus to systematically harmonize the motivational significance of custom with institutional theorizing in a systematic way. The re-establishment of custom in economics will provide foundations for institutional thinking and will help in reducing the arbitrariness of current thought.