Edited by L. Randall Wray
Chapter 5: Understanding the Link Among Uncertainty, Instability and Institutions, and the Need for Stabilization Policies: Towards a Synthesis between Post Keynesian and Institutional Economics
Slim Thabet1 Introduction ‘Institutions do matter’, ‘the determinants of institutions are susceptible to analysis by the tools of economic theory’:2 such phrases frequently recur in economic literature over the last few decades and many international meetings in our discipline have a session on this topic. Recent crises in banking sectors and in financial markets have led economists to pay more attention to the role played by the institutions in the stabilization of the economic system. As one can see, the consideration of institutions is at the heart of many works. Even mainstream economics seems to rediscover notions and concepts such as institutions, conventions, beliefs, rules, coordination and cooperation as well as trust. The birth, in the 1970s, of a New Institutional School that was awarded two Nobel Prizes (in 1992 for Ronald Coase and in 1994 for Douglass North) is a good illustration. Two strands of institutional political economy can be distinguished. The first ‘style of thought’ is the Historical Institutionalism, also called Original Institutionalism, founded on the work of Thorstein Veblen, John Rodger Commons and Wesley Mitchell in the early years of the 20th century. Since the 1970s, work in this tradition has undergone a revival after a relative decline. In parallel with the ‘return of [Original] Institutional Economics’ (Hodgson, 1994), the last 20 years have seen the emergence of a New Institutional Economics, which is an amalgamation of Coase’s transactions cost theory, new theories of the firm, Public Choice, Austrian and other variants of mainstream thought that...
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