Schools of Thought in Economics
Edited by Gilbert Faccarello and Heinz D. Kurz
Chapter 21: Institutionalism
The term “institutionalism” denotes a movement that was a major part of American economics during the interwar period, and is a tradition of economics that still exists today. As the name suggests, it is an approach to economics that stresses the central role of institutions in shaping economic behavior, and is usually identified with the work of Thorstein Veblen, Wesley Mitchell, Walton Hamilton, John M. Clark, John R. Commons, and Clarence Ayres, although many other individuals were, and are, involved. The explicit identification of something called the “institutional approach” to economics, or “institutional economics,” goes back to 1918 and to Walton Hamilton’s American Economic Association (AEA) conference paper, “The institutional approach to economic theory” (Hamilton 1919). Hamilton’s paper was deliberately a manifesto for an institutional economics. For Hamilton, this institutional approach was to be relevant to the problem of “social control” or the solution of social problems; related to institutions as the agencies through which the “changeable elements of life could be directed”; concerned with “process” in the form of an awareness of the constantly changing nature of institutions; and based on an acceptable theory of human behavior, one in harmony with the conclusions of “modern” psychology (Hamilton 1919: 312–14). Walter Stewart (Hamilton’s friend and colleague) chaired the session, and argued that economics needed to be “organized around the central problem of control”, should utilize the “most competent thought in the related sciences of psychology and sociology”, and combine “the statistical method and the institutional approach” (Stewart 1919: 319), a reference to his own and Wesley Mitchell’s quantitative work. J.M. Clark and William Ogburn also participated in the session. The organization of the session also involved Harold Moulton who discussed the idea with Veblen and Mitchell (Rutherford 2000a).
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