Institutional economics, institutionalism or institutionalist school, is a current of economic thought, which enjoyed great importance after the First World War, in the United States of America.
Institutional economics bases its research on various disciplines, including economics, psychology, sociology, and anthropology. The objective of study of the institutionalists is based on the extraction of conclusions about how social institutions influence, and consolidate, the behavior of economic agents. For the institutionalist school, market relations are a result of the interaction of institutions.
Both the name and its principles date back to 1919; when Walton H. Hamilton published an article on these relationships in the American Economic Review.
Despite the aforementioned, the thought of the institutionalist school dates back to the 18th century, with the theories of David Hume.
Origin of institutional economics
The constitutional economy, was born in 1919; with the publication of an article published by Walton H. Hamilton, in the American Economic Review. Both the name and its principles appear in said article. However, this school bases many of its principles on other authors that take us beyond that year.
In this sense, we are referring to authors such as the philosopher David Hume, who, already in the 18th century, developed and incorporated terms such as "business ethics", making reference to that ethics, such as the rules that the entrepreneur must comply with. and that arise from the conflict of interest between these businessmen, the political class, as well as public opinion.
However, in line with the aforementioned, it is not until after the First World War that this school begins to gain relevance in the world of economics. Well, it was after the war when, in the United States, the first institutional economists began to highlight the importance of studying the behavior of human beings and economic agents, in relation to social institutions and their influence on them.
With the passage of time, in 1975, what is known as the new institutional economics (NEI) was born. This school, developed previously, recovers institutionalist theories, popularizing them in the academic field after that year. A school that, incidentally, centers its debate with the neoclassical school on the skepticism that institutionalists show towards homo economicus.
Principles of institutional economics
The principles of institutional economics were defined by Philip Klein, one of its authors.
These principles that we mention are the following:
- Institutionalism makes a sharp distinction between universal determinants of what is economically possible and culturally limited determinants of what we ultimately decide to do.
- The emphasis of the economy should be placed on the economy itself, as a sociopolitical and culturally conditioned entity from which the economic choices of society emerge.
- Institutionalists offer a very different meaning of the word value from traditional economists, who often simply equate value with price.
- Focusing on the economy rather than the market also implies offering a radically different meaning to the concept of "productivity" and the related concept of "efficiency."
Apart from those exposed, there are authors who have been expanding these principles with the passage of time and the development of economic thought.
Field of study of institutional economics
We must understand institutionalism as a school of thought that focuses its study on how the norms of institutions condition human behavior. For institutionalists, institutions limit the rationality of the human being, producing in them actions that are driven by those same social institutions.
In this sense, institutionalism bases its studies on the role of institutions, habits, rules and their evolution. Well, even if it is omitted, institutionalism does not try to build a general theory that covers everything, but different theories focused on the fields of study that they cover.
However, there are other complex phenomena that are approached with a limited number of common concepts and specific theoretical tools. This produces multiple levels and types of analysis, which are linked and allow intersection between the particular and the general.
For this, institutionalism is based on anthropological, sociological and psychological research on the behavior of individuals. They seek to find their own habits and how these habits are consolidated by specific social institutions.
Most prominent institutional authors
Among the most prominent institutional authors, the following should be noted:
- Thorstein Veblen.
- John R. Commons.
- Simon Kuznets.
- Arthur Robert Burns.
- John Kenneth Galbraith.
- Adolf Berle.
- Clarence Ayres.
New Institutional Economics (NEI)
The new institutional economics (NEI) is a school of economic thought that emerged in 1975 in the United States. However, this school is, as it happens with other schools, the rescue of some theories that, already in 1930, began to gain relevance through institutionalism. It receives its name from the fact that it centers its principles on constitutional economics.
This school begins to gain relevance after 1975, when it manages to popularize its theories in the academic world.
His theories are shown against the postulates of the neoclassical school, due to the institutionalists' rejection of homo oeconomicus; for which he proposes models that, under his consideration, are more realistic and complex.