Institutional Change and American Economic Growth: A First Step Towards a Theory of Institutional Innovation

Abstract

This paper attempts to provide an explanation of the formation and mutation of economic institutions. It is specifically concerned with that process as it has developed over the past one hundred and seventy-five years of American history, but with appropriate changes the model might be used to predict institutional change in the future and to explain institutional change in other nations and in other eras. Like more traditional theory, the model has been formulated in a manner that makes it in principle operational, although we admit that it predicts relatively little. Profit maximization is the motivating force, and in this sense too the model fits into the stream of neo-classical economics, although like the macro models of Keynes its subject has not traditionally been considered a part of that discipline. Finally, we admit that the theory is at some points woefully weak and the explanations at times incredibly simplistic. The work, however, does, we feel, represent a first step towards a useful theory of institutional change.