The theory of evolution and the evolution of theory: Veblen's methodology in contemporary perspective

This paper traces recent developments in economic theory from the perspective of Veblen's methodological distinction between teleological and evolutionary modes of scientific thought. It is argued that the imposition of rational behaviour at the individual level prevents neoclassical theory from exhibiting genuine evolutionary processes, since decision rules are prevented from emerging out of a process of adaptation to a changing environment. The standard rationality postulate can nevertheless give rise to quasi-evolutionary sequences at the aggregate level. This possibility is blocked in macroeconomic literature by the use of the representative agent construct and the imposition of the hypothesis of self-fulfilling expectations.