Abstract
No charge is leveled more consistently at institutionalism (when it is referred to at all) than that it has nothing positive to offer—it is “mere dissent.”
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Notes
Cf. Evolutionary Economics: Volume I Foundations of Institutional Thought, Journal of Economic Issues 21 (September 1987) and Evolutionary Economics Volume II, Institutional Theory and Policy, Journal of Economic Issues 21 (December 1978). Both were re-published in 1988 by M.E. Sharpe, Inc., Armonk, New York.
This is the view of Joseph Dorfman as expressed in his introduction to Walton H. Hamilton, Industrial Policy and Institutionalism, Selected Essays (Clifton, NJ: Augustus M. Kelley, 1974), p. 25. For another and interesting (and more recent) account of the origins of institutionalism cf. Anne Mayhew, “The Beginnings of Institutionalism,” Journal of Economic Issues 21 (September 1987): 971–998.
Quoted in ibid., p. 27.
Ibid., p. 28, footnote 29.
John R. Commons, Institutional Economics: Its Place In Political Economy, Two volumes published in one. (Madison: University of Wisconsin Press, 1934 and 1959).
Wesley Clair Mitchell, Types of Economic Theory: From Mercantilism to Institutionalism, Transcriptions of Mitchell’s Lectures issued in mimeograph form in 1949. (New York: Augustus M. Kelley, 1967).
Cf, for example, P.A. Klein, “Economics: Allocation or Valuation?” Journal of Economic Issues 8 (December 1974): 785–811; Marc R. Tool, The Discretionary Economy (Santa Monica, CA: Goodyear, 1979); Wendell Gordon, Institutional Economics, The Changing System (Austin and London: The University of Texas Press, 1980); Allan Gruchy, The Reconstruction of Economics (New York: Greenwood Press, 1987); Jerry Petr, “Fundamentals of an Institutional Perspective,” Journal of Economic Issues 18 (March 1984): 1–17; Gunnar Myrdal, “Institutional Economics,” Journal of Economic Issues 12 (December 1978) 771–784; Marc R. Tool, ed., Two volume study published as the September and December 1988 issues of the Journal of Economic Issues, republished by M.E. Sharpe; and Wendell Gordon and John Adams, Economics as a Social Science: An Evolutionary Approach (Riverdale, MD: Riverdale Press, 1989).
Thorstein Veblen, The Place of Science in Modern Civilization (New York: Russell and Russell, 1961), pp. 73–74.
All these themes are developed extensively. Cf, for example, not only Veblen’s most famous book, The Theory of The Leisure Class, in which he introduces many of his basic ideas (republished New York: New American Library, 1953) but also The Theory of Business Enterprise (New York: Scribner, 1904; Clifton, NJ: Augustus M. Kelley, 1975); The Instinct of Workmanship and the State of the Industrial Arts (New York: Macmillan, 1914); The Vested Interests and the Common Man, The Modern Point of View and the New Order, 1919 (republished New York: Augustus M. Kelley, 1964); and Absentree Ownership and Business Enterprise in Recent Times: The Case of America (New York: Viking, 1923, republished 1945). In addition to these books, these ideas are discussed in several published collections of Veblen’s essays, for example, The Place of Science in Modern Civilization, op. cit.
The view that Mitchell took toward business cycles developed over many years. This particular (and well-known) phrase is from the definition of cycles that occurs in Authur F. Burns and Wesley Clair Mitchell, Measuring Business Cycles (New York: National Bureau of Economic Reasearch, 1946), p. 2. For a discussion of the relationship between Mitchell’s institutionalism and his work on business cycles cf. Philip A. Klein, “The Neglected Insti-tutionalism of Wesley Clair Mitchell: The Theoretical Basis for Business Cycle Indicators,” Journal of Economic Issues 17 (December 1983): 867–898.
Cf., Victor Zarnowitz in an article on Mitchell in International Encyclopedia of Social Sciences, 1968, p. 373.
Joseph Dorfman in an article on Commons in International Encyclopedia of Sciences, 1968, p. 23.
Cf., among many other writings principally Clarence E. Ayres, The Theory of Economic Progress (Chapel Hill: The University of North Carolina Press, 1944); The Industrial Economy (New York: Houghton Mifflin Company, 1952); Toward A Reasonable Society (Austin: University of Texas Press, 1961). For Dewey’s instrumental theory of value, cf. John Dewey, Theory of Valuation (Chicago: University of Chicago Press, 1939).
John S. Gambs, Beyond Supply and Demand (Westport, CT: Greenwood Press, 1976 [1946]).
Allan G. Gruchy, Modern Economic Thought, The American Contribution (New York: Prentice-Hall, 1947). Cf. also Philip A. Klein, “A Reconsideration of Holistic Economics,” in John Adams, ed., Essays in Honor of Allan Gruchy (Boston: Martinus Nijhoff, Publisher, 1980), pp. 45–58.
Allan G. Gruchy, Contemporary Economic Thought: The Contribution of Neo-Institutional Economics (Clifton, NJ: Augustus M. Kelley, 1972).
Allan G. Gruchy, The Reconstruction of Economics: An Analsis of the Fundamentals of Institutional Economics (New York: Greenwood Press, 1987).
Cf., for example, Gunnar Myrdal, Against the Wind; Critical Essays on Economics (London: Macmillan, 1974). Much earlier in his career Myrdal, the economist trained in the Swedish school, had demonstrated his breadth as a social science in his classic, An American Dilemma, published in 1944. Widely regarded at the time as “a book on sociology written by a trained economist,” it might have been described by an institutionalist as a book about economic problems (among others) which paid attention to class and race as well as income and wealth distribution. Consider in contast a treatise that contemplated the welfare and status of the black in the United States in the 1940s but hewed to the constraint of Pareto optimality.
John Kenneth Galbraith has published widely. Among his works: The Affluent Society (First edition, 1958; second edition, Boston: Houghton Mifflin Company, 1969); The New Industrial State (Boston: Houghton Mifflin Company, 1967); Economics and the Public Purpose (Boston: Houghton Mifflin Company 1973); The Anatomy of Power (Boston: Houghton Mifflin Company, 1983).
Robert Heilbroner, too, has written extensively. Among his books are The Worldly Philosophers (New York: Simon and Schuster, 1953); An Inquiry Into the Human Prospect (New York: W.W. Norton, 1974); Business Civilization In Decline (New York: W.W. Norton, 1976); Beyond Boom and Crash (New York: W.W. Norton, 1976); The Nature and Logic of Capitalism (New York: W.W. Norton, 1985); Behind the Veil of Economics (New York: W.W. Norton, 1988).
Robert Lekachman in “Comment on P.A. Klein’s ‘Demand Theory and the Economist’s Propensity to Assume’,” Journal of Economic Issues 7 (June 1973): 243.
Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: Macmillan and Company, Ltd., 1946), p. 16.
Ibid., p. viii.
This example is from P.A. Klein, “Institutionalist Reflections on the Role of The Public Sector,” Journal of Economic Issues 18 (March 1984): 58.
Quoted in Donald A. Strickland, Scientists in Politics: The Atomic Scientists Movement, 1945–46 (Layfayette, IN: Purdue University Studies, 1968), p. 38. Cf., also P.A. Klein, “Of Paradigms and Politics,” Journal of Economic Issues (June 1988: pp. 435–441).
Cf., for example, James M. Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor: The University of Michigan Press, 1962); James M. Buchanan, Public Finance in the Democratic Process (Chapel Hill: University of North Carolina Press, 1967); and James M. Buchanan and R.D. Tollison, Theory of Public Choice (Ann Arbor: University of Michigan Press, 1972).
Some years a suggestion, known as the “Hicks-Kaldor Compensation Principle,” was introduced into economic discourse. If the persons who gain gain sufficiently so that they could recompense those who lose to their satisfaction and still have some gain, the change is a Pareto optimum, even if, of course, the suggested transaction remains unearned out. It is a cosmetic mathematical improvement designed to make Pareto optimality appear more measurable, even though, of course, it is not. (For a recent discussion of this point cf. Edythe S. Miller, “Economic Folklore and Social Realities,” Journal of Economic Issues 23 (June 1989): 339–356.
Kenneth Arrow, Social Choice and Individual Values, 2nd ed. (New York: John Wiley and Sons, 1963), p. 106. I discussed this point at some length in P.A. Klein, “Economics: Allocation or Valuation?” Journal of Economic Issues 7 (December 1974): 797.
As I noted in the earlier study, however, “Arrow goes on to note that this standard view has been attacked for its lack of realism by Veblen, Frank Knight, J.M. Clark, and others” Ibid., footnote 25, p. 807). Arrow made the comment originally in 1963; I commented on his comment in 1974, and to my knowledge no mainstream economist has been perturbed about this matter in the intervening years. The institutionalist objections discussed in the text are, in our view, still valid.
Clarence E. Ayres, The Theory of Economic Progress (Chapel, Hill: The University of North Carolina Press, 1944), pp. 84–85. (Lionel Robbins once said that he could not make any sense out of this statement. Mainstream economists have been confused about this for many years. As a graduate student I was forced to read John R. Hicks’s book, Value and Capital. My immediate reaction was that this book was not about value and capital at all, but about price and capital. What mainstream economics often calls value theory is only price theory.)
Thorstein Veblen, The Place of Science in Modern Civilization (New York: Russell and Russell, 1919, 1961), p. 70. It is quoted by Clarence Ayres on the Frontpiece, ibid.
Cf. “Institutionalist Reflections on the Role of the Public Sector,” op. cit., pp. 58–60. Reprinted in M.R. Tool and W.J. Samuels, ed., The Methodology of Economic Thought, 2nd ed. (New Brunswick: Transactions Publishers, 1989), pp. 541–564.
It is necessary to clarify the terminology. It has become common for institutionalists to follow Allan Gruchy in referring to the economy as both an allocating and a provisioning entity. (Gruchy has written, “A short definition of economics from the institutionalist point of view is that it is the science of social provisioning.” [Cf. Allan G. Gruchy, The Reconstruction of Economics, op. cit, p. 21.) This terminology is designed to convey the fundamental institutionalist insistence on the view that in any realistic market-oriented economy some resources are allocated via market forces and some through decisions made in the public sector. For a good many years I have included both decision-making routes by referring to “the total allocational thrust of the economy” rather than merely to the part of allocation mainstream economics is mostly concerned about (and which they call simply “allocation” for which read “market allocation”). In the institutionalist perspective, as I see it, total allocation has never been carried out solely by the market since the initial public expenditure was made based on social welfare criteria rather than individual firm profit criteria. In conforming to recent usage by referring to both “allocation and provisioning” I mean to encompass precisely what earlier I have included in the notion “total allocation.” On occasion, the term “total allocational thrust of society” appears in the text and means “allocation and provisioning” in Gruchy’s usage.
I discussed this point at some length in ibid., p. 60.
This section is based on an earlier article of mine. Cf., footnote 34.
Ibid., pp. 63–65.
This section is based heavily on P.A. Klein, “Power and Economic Performance: The Institutionalist View,” Journal of Economic Issues 21 (September 1987): 1341–1377.
Robert H. Bork, The Antitrust Paradox (New York: Basic Books, Inc., Publishers, 1978), p. 418. Cf, also my discussion of this in “Changing Perspectives on the Factors of Production,” Journal of Economic Issues 22 (September 1988): 795–809.
Robert A. Brady, Business As A System of Power (New York: Columbia University Press, 1943).
Marc Tool and Warren Samuels, eds., The Economy As System of Power, and State, Society and Corporate Power (New Brunswick: transaction Books, 1989). These are second revised editions of 1979 publications.
For a consideration of the TNEC hearings in this context, cf. Marc Tool, The Discretionary Economy.
Robert E. Lucas, Jr., “Understanding Business Cycles,” in Studies in Business Cycle Theory (Cambridge, MA: The MIT Press, 1981).
The notion is now a key part of the mainstream methodological armor against encroachments by the actual world into the attractive world of economic theory so rudely (if as it turns out only temporarily—for half a century) jolted by Keynes. It was initially introduced in a pair of widely noted articles, one Milton Friedman’s Presidential Address to the American Economic Association (cf. Milton Friedman, “The Role of Monetary Policy,” American Economic Review 58 (March 1986): 1–17) and the other by Edmund Phelps (cf. Edmund S. Phelps, “Money Wage Dynamics and Labor Market Equilibrium,” Journal of Political Economy 76 (July/August 1968): 687–711). In connection with the Freidman-Phelps hypothesis it is worth noting that Lucas has asserted that Friedman was still trying in his own-that is, “monetarist”—way to study cycles “along the line initiated by Mitchell,” while Phelps’ work represented “an attempt to complete the unity promised by the neoclassical synthesis.” Despite their different perspectives, Lucas argues that they proved that any inflation rate was consistent with any unemployment rate (the italics are his) and that subsequent developments have proved “subversive of the main positive and policy presumptions underlying the neoclassical synthesis” (Robert Lucas, ibid., pp. 282–283). Translation: attempting interventionist policy to reduce unemployment below its “natural rate” is futile. I discussed this hypothesis at some length earlier. (Cf. “What’s Natural About Unemployment?” Paper presented at an American Economic Association-Association for Social Economics meeting, Chicago, December 1987. Published in Philip A. Klein, ed., Analyzing Modern Business. Cycles, Essays Honoring Geoffrey H. Moore (Armonk, NY: M.E. Sharpe, 1990).
P.A. Klein, “Reinventing the Square Wheel: A Behavioral Assessment of Inflation,” in Benjamin Gilad and Stanley Kaish, eds., Handbook of Behavioral Economics, Volume B (Greenwich, CT: JAI Press, 1986).
Marc Tool, Essays in Social Value Theory (Armonk, NY: M.E. Sharpe, 1986), p. 10.
Jerry Petr, “Fundamentals of an Institutionalist Perspective,” Journal of Economic Issues 18 (March 1984): 1–17.
Edythe S. Miller, “Economics for What? Economic Folklore and Social Realities,” Journal of Economic Issues 23 (June 1989): 339–356.
P.A. Klein, “Economics: Allocation or Valuation?” Journal of Economic Issues 1 (December 1974): 785–811; and “Institutionalist Reflections on the Role of the Public Sector,” Journal of Economic Issues 18 (March 1984): 43–68.
Walter C. Neale, “Institutions,” Journal of Economic Issues 21 (September 1987): 1177–1206.
Paul D. Bush, “Theory of Institutional Change,” Journal of Economic Issues 21 (September 1987): 1075–1116. The term “cultural lag” was popularized in the 1920s by William F. Ogburn, Social Change (New York: The Viking Press, 1950 [1922]), (Cf., also Bush, p. 1113, footnote 46) “Past-binding” is Ayres’s term. Cf. Toward A Reasonable Society, op. cit., pp. 30, 137, and 233. Cf. also Bush, p. 1113, footnote 45.
Milton D. Lower, “The Concept of Technology Within the Institutionalist Perspective,” Journal of Economic Issues 21 (September 1987): 1147–1176.
Anne Mayhew, “The Beginnings of Institutionalism,” Journal of Economic Issues 21 (September 1987): 971–998.
Philip Mirowski, “The Philosphical Basis of Institutional Economics,” Journal of Economic Issues 21 (September 1987): 1001–1038.
Yngve Ramstad, “The Scientific Methodology of John R. Commons,” Journal of Economic Issues 20 (December 1986): 1067–1105.
Edythe Miller, Presidential Address, “Economic Folklore and Social Realities,” Journal of Economic Issues 23 (June 1989): 339–356; Harry Trebing, “Public Utility Regulation: A Case Study in the Debate Over Effectiveness of Economic Regulation,” Journal of Economic Issues 15 (March 1984): 223–250. Cf., also Harry Trebing, “Apologetics of Deregulation in Energy and Telecommunications: An Institutionalist Assessment,” Journal of Economic Issues 20 (September 1986): 613–632.
Trebing, op. cit., 1984, p. 246.
Ibid., p. 247.
John R. Munkirs, The Transformation of American Capitalism: From Competitive Market Structures to Centralized Private Sector Planning (Armonk, NY: M.E. Sharpe, 1985).
John R. Munkirs and James Sturgeon, “Oligopolistic Cooperation: Conceptual and Empirical Evidence of Market Structure Evolution,” Journal of Economic Issues 19 (December 1985): 899–921.
William M. Dugger, An Alternative to Economic Retrenchment (Princeton: Petrocelli, 1984).
William M. Dugger, “Corporate Power and Economic Performance,” in Wallace Peterson, ed. Market Power and the Economy (Boston: Kluwer Academic Publishers, 1988), pp. 83–108.
F. Gregory Hayden, “A Geobased Agricultural Policy,” Journal of Economic Issues 18 (March 1984): 181–221.
Wendell Gordon, “The Implementation of Economic Development,” Journal of Economic Issues 18 (March 1984): 295–313.
James Street and Dilmus James, “Institutionalism, Structuralism, and Dependency in Latin America,” Journal of Economic Issues 16 (September 1982): 673–690.
Wallace G. Peterson, Our Overloaded Economy (Armonk, NY: M.E. Sharpe, 1982).
P.A. Klein, “What’s Natural About Unemployment?,” in Klein, Essays in Honor of Geoffrey H. Moore.
Wallace Peterson, “Concluding Observations,” in Wallace Peterson, ed., Market Power and the Economy (Boston: Kluwer Academic Publishers, 1988).
David Hamilton, “The Myth is not the Reality: Income Maintenance and Welfare,” Journal of Economic Issues 17 (March 1984): 143–158.
James A. Swaney, “The Future Be Damned: Economists’ Optimism and Nuclear Proliferation,” Journal of Economic Issues 18 (June 1984): 527–536.
The term has been widely employed since its use by Thomas S. Kuhn in The Structure of Scientific Revolutions, 2nd ed. (Chicago: University of Chicago Press, 1962 and 1970). Kuhn described a paradigm as “… a set of recurrent and quasi-standard illustrations of various theories in their conceptual, observational, and instrumental application” (p. 43). He further described a paradigm as “accepted principles and rules…” or “shared beliefs” (p. 43). Finally he termed a paradigm “… the search for a body of rules competent to constitute a given normal research tradition” and added that this search is “a source of continual and deep frustration” (p. 44). In the case of economics the mainstream does not appear frustrated at all with their paradigm. Their inflexibility is, however, a source of frustration to institution-alists.
P.A. Klein, “Confronting Power in Economics: A Pragmatic Evaluation,” Journal of Economic Issues 14 (December 1980): 882–883.
Ibid., p. 890.
Anthony Downs, An Economic Theory of Democracy (New York: The Free Press, 1973).
Cf. P.A. Klein, “What’s Natural About Unemployment?” op. cit.
P.A. Klein, “Economics: Allocation or Valuation?” Journal of Economic Issues 1 (December 1974): 785–786.
For example, Ken Dennis has written on the alleged precision and rigor of economic theory in mathematical terms as is currently so widely practiced by mainstream economists. He has commented, “I have argued in this paper not that mathematical economics is impossible, but that its present claims to logical rigor are dubious, and that the construction of rigorous theories of human behavior is more difficult than has hitherto been acknowledged.” cf. Ken Dennis, “Scientific Theory and the Problem of Translation,” Journal of Economic Issues 16(3):691–712; and 16(4):1039–1062 Quotation is from the latter issue, p. 1060.
Notes
Philip A. Klein, “Institutionalism As a School-A Reconsideration,” Journal of Economic Issues 24 (June 1990): 381–388.
John R. Commons, Institutional Economics (Madison: The University of Wisconsin Press, 1961 [1934]); p. 73.
An early statement of this perspective is found in Milton Friedman, “The Methodology of Positive Economics,” in Essays in Positive Economics (Chicago: the University of Chicago Press, 1953). Friedman states “… under a wide range of circumstances individual firms behave as if they were seeking rationally to maximize their expected returns … and had full knowledge of the data needed to succeed in this. … Now, of course, businessmen do not actually and literally solve the system of simultaneous equations in terms of which the … economist finds it convenient to express this hypotheses.… [But] unless the behavior of businessmen in some way or other approximated behavior consistent with the maximization of returns, it seems unlikely that they would remain in business for long.…” (pp. 21–22, emphasis in original).
This includes a body of work often designated as the work of the Chicago School of economics. I have elsewhere suggested that a foundation stone of this structure of thought was a 1960 article of Ronald Coase. See Ronald E. Coase, “The Problem of Social Cost,” in The Firm, The Market and The Law (Chicago: The University of Chicago Press, 1988 [1960]). For additional citations of work in this tradition see my “Economic Efficiency, The Economics Discipline and the ‘Affected-With-A-Public-Interest’ Concept,” Journal of Economic Issues 24 (September 1990): 719–732.
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Klein, P.A. (1993). The Institutionalist Challenge: Beyond Dissent. In: Tool, M.R. (eds) Institutional Economics: Theory, Method, Policy. Recent Economic Thought, vol 31. Springer, Dordrecht. https://doi.org/10.1007/978-0-585-29604-3_2
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