Although we tend to focus on the formal rules that structure our lives, North agues that they make up a very small portion compared to informal norms, conventions, and moral constraints. Culture, as conceptualized by North, “provides a language-based conceptual framework for encoding and interpreting the information that the senses are presenting to the brain… In the short run, culture defines the way individuals process and utilize information and hence may affect the way informal constraints get specified. Conventions are culture specific, as indeed are norms. However, norms pose some still unexplained problems. What is it that makes norms evolve or disappear – for example, dueling as a solution to gentlemanly differences? (North 1990: 37, 42-43).” In other words, economists still know very little about cultural evolution or change.
McCabe argues that while economists have done a great deal of work on institutions, culture and ideas as important factors in economic decision making by people is largely neglected. This would suggest these two elements are wide-open areas of investigation.
More, these two areas are not unrelated. The ideas held by people are influenced by their culture or subculture. (Of course, ideas may lead some people into particular subcultures.)
McCabe quotes Vernon Smith on the importance of culture and ideas:
Smith (2003), following Hayek, makes a distinction between constructivist and ecological rationality. Acording to Smith (2003: 468) “constructivism uses reason to deliberately create rules of action, and create human socioeconomic institutions that yield outcomes deemed preferable, given particular circumstances, to those produced by alternative arrangements.” Ecological rationality, on the other hand, “uses reason – rational reconstruction – to examine the behavior of individuals based on their experience and folk knowledge, who are ‘naïve’ in their ability to apply constructivist tools to the decisions they make; to understand the emergent order in human cultures; to discover the possible intelligence embodied in the rules, norms, and institutions of our cultural and biological heritage that are created from human interactions but not by deliberate human design. People follow rules without being able to articulate them, but they can be discovered (Smith 2003: 470).”
These are all important aspects to take into consideration.
Another person he discusses who takes culture seriously, though, is
Chamlee-Wright (2010) [who] utilizes a framework she calls cultural economy. Cultural economy weaves Austrian economics and new institutional economics together with cultural sociology and network analysis. She finds that New Orleans residents are able to rely on community narratives as a tool for action in the wake of Hurricane Katrina when government rules were uncertain or shifting. For Chamlee-Wright, it is very much a story of spontaneous order.
Those familiar with her work know that culture is central to it. She is one of the few who takes such things seriously. However, she is far from the only one. In fact, the most recent work of Deirdre McCloskey is precisely centered on the cultural elements that made capitalism possible.
So there is some work being done. But it is all very recent work, meaning there is a lot of room for a great deal more work to be done. More, a great deal of work needs to be done on the impact of ideas on economic activity. How does folk economics vs. an economic education impact economic actions? What about other ideas, such as belief in God, or gods, or lack of belief? What about ideas from literature? Philosophers? Defunct economists? How do ideas affect how people engage in their subjective rankings?