Institutional Economics Revisited.

Extract

---

Institutional Economics Revisited.

My generation of undergraduate and graduate economics students were blissfully unaware of anything like Institutional Economics. We were schooled in gratuitous statements such as:

The theory of growth is not a theory of economic history . . . Where the theory is to be taken descriptively, it takes the institutional setting for granted and highly idealises it [Hahn 1971, vii; emphasis added].

If, in our education, Wesley Mitchell was mentioned, it was as a curious predecessor of monetary misperception theories of the business cycle(1) or as the father of the empirics of the NBER credo - "let the data speak for themselves"; if Myrdal was mentioned, it was during doctrine-historical exegeses on "Stockholm School" vs. Keynes; the very occasional references to Veblen may have been as a footnote to a lecture on consumer theory and the empirical (in)validity of any supposition on conspicuous consumption.

The token concessions to radical demands were to books such as Paul Sweezy's Theory of Capitalist Development where we were, as a bonus, introduced to Shigeto Tsuru's incisive understanding of accounting aggregates. For the rest, we were brought up on the standard fare of Samuelson's classic Foundations and Patinkin's Money, Interest and Prices (MIP) and the methodologies codified in them: comparative statics, the "correspondence principle," etc. Some of us, however, ventured beyond the confines of such schemata - even as far as management schools and economic history departments. There we heard grumbles by Douglass North; iconoclastic brilliance by Herbert Simon; even within the citadel, we heard game-theoretic noises about institutionalism from Shubik and others. I have in mind, above all, Alchian and his non-Walrasian followers at UCLA where Marshack, too, was trying to introduce the new information paradigms to infuse institutional meat into the emaciated bodies of economic theories. Clower and Leijonhufvud were busy revamping macroeconomics toward similar evolutionary, institutional ends.

Then the new classicals took over! They introduced ad hoc shockeries to drive real business cycles, monetary misperceptions of signal processors, reincarnated Solow residuals, unit roots, cointegration, chaos, and OLGs. Frisch and Slutsky occupied the high road; the Foundations and MIP were the tools of the journeymen now. Macroeconomics became consciously, even conspicuously - to be Veblenian about it - mathematical, and the only institution considered was the perfectly competitive market, even though there was n...

See the full content of this document

---