Economics, Institutional

BIBLIOGRAPHY

Institutional economists are the leading American heterodox school of economics. They differ from the orthodox neoclassical mainstream in their emphasis on the man-made institutions that help form and operate through the markets created by the institutions. They study individual institutions, culture, actual economies and their institutional foundations, and the mutual impacts of private and public sectors, the domain sometimes called the legal-economic nexus. Neoclassicists tend to emphasize an abstract, idealized economic system and the play of market forces. Institutionalists treat government as important and ubiquitous, like it or not—as part of, rather than exogenous to, the economic system.

Institutionalists seek to develop a body of empirical and theoretical knowledge of the organization, control, operation, and evolution of the economic system, particularly the institutions that produce, together with individual choices, the allocation of resources and the distribution of income. Institutionalists have produced a critique of capitalism and of neoclassicism as its expression and rationalization. Relatively few institutionalists oppose capitalism, but most distinguish between capitalism and a market economy. Many are sympathetic to the evolution of the economic system along lines giving increased effect to the interests of workers. Some call for conscious, activist government planning of varying types, but most seek a truly more competitive economy, a government not dominated by business interests, and laws not catering to the interests of business and upper-income classes.

The principal early institutionalists included the American economists Thorstein Veblen (1857-1929), John R. Commons (1862-1945), Walton Hamilton (1881-1958), Wesley Clair Mitchell (1874–1948),

John Maurice Clark (1884–1963), Robert Lee Hale (1884–1969), and Richard Ely (1854–1943). Veblen’s satiric critique of business and consumerism under capitalism—not least his emphasis on status emulation and conspicuous consumption—influenced both the other institutionalists and most economists. All members of the school stressed the allocative and distributional importance of actual institutions. Some, like Mitchell, pioneered the empirical and theoretical study of business cycles in an economy dominated by high finance and a pecuniary culture. Most if not all institutionalists pursued the analysis of the economy as both a cultural system and a system of power. Some followed Commons’s complex analysis of the legal foundations of capitalism and studied empirically and theoretically the legal-economic nexus.

Differences of emphasis and interpretation have rendered institutionalism as heterogeneous as any other school of economics. Some institutionalists have been conservative, most quite liberal. In addition to planning versus competition, other conflicts have developed between the followers of Clarence Edwin Ayres (1891–1972) and of John R. Commons over the theory of value appropriate for institutional economics, and the relative importance of deliberative and nondeliberative decision making. All agree, however, that the principal determinant of resource allocation is institutions and not the pure abstract market. Other topics commonly agreed upon as important are evolution, behavior, power, stratification, agency, the creation and structuring of markets, the legal-economic nexus, the role of culture and belief systems, and the corporate system.

The Canadian-born American economist John Kenneth Galbraith (1908–2006) has been for some time the most prominent institutionalist. Institutionalism as a whole has a complex existence: Institutionalists contribute to most fields in economics but tend to be marginalized by the mainstream. Most institutionalists accept, however reluctantly, their heterodox status, and they work hard to improve their position in the world. Several journals are institutionalist in orientation. Institutionalism has developed strongly in Europe.

SEE ALSO Galbraith, John Kenneth; Veblen, Thorstein

BIBLIOGRAPHY

Hodgson, Geoffrey M., Warren J. Samuels, and Mark R. Tool, eds. 1994. Elgar Companion to Institutional and Evolutionary Economics. 2 vols. Aldershot, U.K.: Edward Elgar.

Rutherford, Malcolm, and Warren J. Samuels, eds. 1997–1998. Classics in Institutional Economics. 10 vols. London: Pickering and Chatto.

Warren J. Samuels