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The American Institutionalist School

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The American Institutionalist School, commonly associated with Thorstein Veblen, John Commons and Wesley Mitchell, was for a brief period effectively the orthodoxy in the United States, sandwiched between the fall of the American apologists in the early 1900s and the Paretian revolution of the 1930s.

The Institutionalist school developed from its origins in the "New Generation" of American economists in the late 1880s, who had trained abroad in Europe, and were heavily influenced by the German Historical School and the English Historicists.  In the beginning, they did not shy away from direct confrontation with Classical and then Neoclassical economics, although their real targets were the plethora of apologists that dominated the American academic scene. 

The distributional apologetics of the Neoclassicals seemed laughable in light of the growing inequality of the Gilded Age. Fortunes were being amassed well beyond the the consumption needs of tycoons, business trusts were hardly behaving according to textbook theory, etc.  The younger generation of American historicists, and subsequently the Institutionalists, took to examining human motivation directly as it was, looking to human instincts and habits and their formation by cultural, social and legal institutions, to explain the drives of capitalism.  Deploring the the universalist pretensions of much of economic theory, the Institutionalists stressed the importance of historical, social and institutional factors which make so-called economic "laws", contingent on these factors. Much of everything in the economic world, they argued, was not immutable but rather conditioned by the influence of an always changing history - whether acting on the individual directly, or indirectly through the institutions and society which surround him.

The methodological battle between Richard T. Ely and Simon Newcomb had robbed the early Institutionalists of their early strongholds, the Johns Hopkins University and the American Economic Association (AEA). The growing sway of the Marginalist Revolution over American academia - particularly at the hands of Fisher at Yale, Taussig at Harvard and Knight at Chicago, gnawed further away at the Institutionalists' position.

Nonetheless, by the1920s, several schools were in Institutionalist hands - Columbia under Wesley Mitchell and Wisconsin under John Commons and other smaller departments like the New School and the University of Texas.

During this time, the Institutionalists withdrew from confrontation with the Neoclassical mainstream by concentrating on detailed empirical studies of businesses firms, labor, law and regulations, etc. One of their major legacies was the empirical measurement of business cycles. Wesley C. Mitchell founded the National Bureau of Economic Research (NBER) for precisely that purpose and, under his leadership, many economists concentrated on these laborious tasks - leaving us a quantitative legacy which lasts to this day. However, even this apparently innocuous task led to another confrontation: an empirical Methodenstreit - only now with Koopmans and the Cowles Commission econometricians.

A mighty blow was delivered by the Keynesian Revolution which rendered their now- reduced role as heterodox critics of the Neoclassical orthodoxy partly superfluous. Nonetheless, for many years, the dissenting voices of John Kenneth Galbraith and Robert L. Heilbroner maintained the old school alive.

An interesting development in recent decades has been the gradual encroachment of the "imperialistic" New Institutional schools on territory that has typically been reserved for the Institutionalists. . To a considerable degree, these schools of economists turned the old Institutionalist position on its head - using Neoclassical economics to explain history, social relations and the formation of institutions rather than the other way around, as the old Institutionalists proposed, of using history and institutional concerns to explain economic behavior, structures and patterns.

 

  


 
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Resources on American Institutionalism

  • Association for Evolutionary Economics (AFEE) 
  • Journal of Economic Issues - index
  • Association for Institutional Thought (AFIT)
  • Journal of Evolutionary Economics [spr]
  • Economics and Institutions website by Ferdinando Toloso at Valencia
  • Institutional economics page at Michigan State
  • Kit Taylor's Human Society and the Global Economy - an Institutionalist textbook.
  • "Institutional Law And Economics" by Medema, Mercuro and Samuels, from Encyclopedia of Law and Economics.[pdf]
  • "The Economic Man", by E. L. Godkin, 1893, North American Review [moa]
  • "The Historical Approach to Economics", by Isaac A. Loos, 1918, AER
  • "The Psychological Basis for the Economic Interpretation of History" by William F. Ogburn, 1919, AER
  • "The Psychological Basis for the Economic Interpretation of History: Comment" by Frank A. Fetter, 1919, AER
  • "The Institutional Approach to Economic Theory" by Walton H. Hamilton, 1919, AER
  • "Economic Theory--Discussion", 1919, AER
  • "A Revaluation of Traditional Economic Theory", Carl E. Parry, 1921, AER
  • "Soundings in Non-Euclidian Economics", by John Maurice Clark, 1921, AER 
  • "Traditional Economic Theory - Discussion", 1921, AER
  • "What is the essence of Institutional economics?" by Geoffrey Hodgson, 2000, JEI [pdf]
  • Institutionalist economics entry at Britannica
  • Veblen institute (French) website

 

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