A Critical View of the Institutional Solution in Economics

Abstract

Institutionalism is the solution at hand when the expected correlations fail to work. The analytical framework is henceforth enriched with institutional pillars such as stable political structures, lack of corrupt practices, well-specified property rights, low-cost enforcement of contracts, etc. This paper’s thesis is that institutionalism has its own limits circumscribed by the original view of the logic of economic inquiry based on causation. Ignoring the external circumstances of the social whole by virtue of ceteris paribus postulation creates an epistemic vacuum as regards the most part of our understanding of economic evolutions. In guise of a practical corollary, the paper ends with a casuistic illustration from Eastern European transition economies and concludes that the uncertainties of transition, neither more obscured, nor more difficult than of any other historical system, are left as much puzzling in orthodox as in institutional recipes.