Transcript Institutionalists ECON 205W Summer 2006 Prof. Cunningham What is Institutionalism?    Institution: an organized pattern of group behavior; well-established and accepted as a basic part of the.

Institutionalists
ECON 205W
Summer 2006
Prof. Cunningham
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What is Institutionalism?
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Institution: an organized pattern of group
behavior; well-established and accepted as a
basic part of the culture.
Also referred to as Evolutionary Economics.
Seeks to:
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Understand society’s normative priorities, and the
direct implementation of the collective values of a
particular culture.
Describe the organization and control of the
economic system and its historical evolution.
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What is Institutionalism? (2)
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Methodology
Concepts and Agenda
Themes
Conclusions
Lasting Contributions
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Focus on social institutions in mainstreams economics
Policy implications
Vocabulary of discussion
Association for Evolutionary Economics, Journal of
Economic Issues
Keynesian, Post Keynesian and other groups have taken
over much of Institutionalism’s ground
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Thorstein Veblen (1857-1929)
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Background
“Probably the most significant, original, and
profound social theorist in American history.”
Multidisciplinary
Human behavior is based on discernible
patterns called “instincts.”
Thought human history is the evolution of
social institutions.
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Growth and development are the cumulative result
of a process of habituation.
It is culture and social institutions that differentiate
humans from other animals.
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Veblen (2)
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Traits or instincts that arise underly all of
human behavior and are inter-related in a
fundamental way.
They form a fundamental antagonistic
dichotomy in nearly all societies.
Two clusters of traits in perpetual conflict:
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Cluster I: Related to Workmanship
Cluster II: Related to Exploitation (Predatory Instinct)
The conflict between these two and the social
institutions created to deal with this conflict,
was the central point of Veblen’s social theory.
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Veblen (3)
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Critique of Neoclassical Economics.
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Simple product of Benthamite Utilitarianism
Attacked consumer sovereignty,saying society
might be better off if gov’t directed production.
Neoclassical economics is static.
Simplistic view of human nature and social
institutions
Equates hedonism with human nature
Offers his own perspective on the purposes of
neoclassical theory.
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Veblen (4)
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Insists that production is always social and
cultural
Production requires human beings to share
knowledge and skills
Categorizing inputs and land, labor, and capital
is peculiar to capitalism.
The categories of wages, rents, and interest
are flawed and problematic.
Neoclassical theory is designed to obscure the
fundamental antagonism between capitalists
and workers.
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Veblen (5)
Rejects (private) property rights.
 Production is inherently social.
 Private property originated in brute
coercive force and is perpetuated by
force and by institutional and
ideological legitimization.
 Capitalism leads to the subjugation
of women.
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Veblen (6)
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Basic Conflicts
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Business vs. Industry
Salesmanship vs. Workmanship
Exploitation vs. Workmanship
Ideals of workmanship vs. the leisure class
Workmanship is an instinct. People have a
proclivity for achievement, not effort.
Concerns of the managerial class, the
pursuit of profit.
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Veblen (7)
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Government
Ultimate power is in the hands of
owners of capital because they control
the government.
 Did not deny the democratic nature of
U.S. government.
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Social Mores
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Cultural and social domination of the
leisure class
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Veblen (8)
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Theory of the Leisure Class.
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Most is devoted to a detailed description of
how the leisure class displays its predatory
prowess.
“Conspicuous consumption”
• “Veblen good”
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“Conspicuous use of leisure”
The wealthy maintain their position by
predation or parasitism.
Power is everything.
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Wesley Claire Mitchell
(1874-1948)
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Veblen’s most brilliant student. Summa
cum laude, Chicago, 1899.
Empirical bent. Studied business cycles.
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Business cycles are a product of a monetary
economy
Widely diffused through the economy
Related to profit projections
Not external, but endogenous and inherent.
Founded NBER in 1920 and ran it for 25
years.
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Mitchell (2)
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Social planning is appropriate, but
raises two difficulties:
Agreeing on what it is we want to
accomplish
 Interdependence of social processes.
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• Piecemeal planning is problematic.
• Need comprehensive plans, considering
direct and indirect effects of social actions.
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Social planning is inevitable.
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John Kenneth Galbraith
(1908-2006)
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Canadian born.
Advisor to U.S. government, held high
positions.
Board of editors of Fortune.
Ambassador to India in Kennedy
administration.
Professor of economics at Harvard.
Author of numerous popular books.
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Galbraith (2)
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Critic of the neoclassical “conventional
wisdom.”
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Does not fault originators of the theory, but
rather those who follow it blindly.
The theory probably persists because it is
easy to understand, has clear structure, can
be taught, and can be expanded. It is
difficult to attack.
Helped introduce Keynesian economics
to the U.S.
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Galbraith (3)
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Dependence Effect
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As society becomes increasingly affluent,
…wants come to depend on output.
Theory of imperfect competition?
Innovation driven by firms, not by consumer
sovereignty. Consumer choice does not drive
the economy.
Underallocation of goods to the public sector,
which he calls “social imbalance.” (Not
enough social goods to support the private
goods.)
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Galbraith (4)
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Theory of the firm
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Neoclassical theory is only true for small,
competitive, owner-managed firms that follow
market trends—the market sector.
The planning sector—2000 or so largest firms
wherein ownership and control are divorced—have
different motives.
• Protective purpose—survival (profit)
• Requires direct or indirect price fixing. Oligopolists price
low to expand market share, not high as neoclassicals
argue.
• Affirmative purpose—growth.
• Large firms grow as a technological imperative, the result
of economies of scale, R&D, etc.
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Galbraith (5)
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Favors government policies
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Argues that economic forces do not work out
for the best except for the powerful.
Public policy has been unable to bridle the
growth of large business.
Believes in price and wage controls, control of
executive salaries, redistribution.
Wants a planning agency to join with
corporations and unions to plan economic
activity. Very socialist.
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