Postwar Heterodox Economics_Institutional Economics

Postwar Heterodox Economics_Institutional Economics - 28C....

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28C. Postwar Heterodox Economics: Institutional Economics Geoffrey M. Hodgson Subject Economics » History of Thought DOI: 10.1111/b.9780631225737.2003.00031.x 28C.1 Introduction The term “institutional economics” refers to the movement inspired initially by the work of Thorstein Veblen (1857–1929) and including leading American economists in the first half of the twentieth century such as John Rogers Commons (1862–1945), Wesley Mitchell (1874– 1948), and John Maurice Clark (1884–1963). This movement reached the zenith of its influence in American academia in the 1920s and 1930s. However, the original tradition of institutional economics survives and shows the signs of a revival today. Its renewal has in part been stimulated by the rise after 1975 of the so-called “new institutional economics” of Oliver Williamson, Richard Posner, Mancur Olson, and others. But the theoretical approach of the “new” institutional economics is closer to postwar mainstream economics and in some respects different from the school of thought examined here. Section 28C.2 briefly outlines the common, underlying approach of the original tradition of institutional economics. Sections 28C.3 and 28C.4 discuss postwar institutionalism in America and Europe respectively. A number of tendencies and groupings are identified. The final section addresses the evolving agenda of modern institutional economics. 28C.2 What is the Enduring Essence of Institutional Economics? At least one common theme pervades institutionalism, from the writings of Veblen in the 1890s to those of the present day. This is the notion that it is legitimate and important to take individual purposes and preferences as partly molded by circumstances ( Hodgson, 2000 ). In addition, institutionalism has always emphasized the importance of institutions in economic life. The focus is both on how institutions affect individuals and how institutions themselves change and evolve. Furthermore, American institutionalists in the interwar period were typically oriented toward reformist, redistributive, and interventionist economic measures ( Rutherford, 1999 ). However, policy differences within American institutionalism have been enormous, and no single policy orientation can readily serve as a fundamental definition of institutionalism itself.
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The acceptance of an idea of the institutionalized individual does not immediately rule out the possibility that institutionalism and some aspects of neoclassical economics may be complementary. Although Veblen was an exception, other institutionalists searched for some complementarity between neoclassical and institutional economics. This group included Commons, Mitchell, Clark, Paul Douglas, and Arthur F. Burns. Obversely, like the institutionalists, neoclassical economist Alfred Marshall brought changing preferences into his analysis. There is no clear or sharp boundary between institutionalism and Marshallian neoclassical economics, although subsequent versions of neoclassical economics have
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Postwar Heterodox Economics_Institutional Economics - 28C....

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