Institutional Economic Thought

Abstract

The term institutional economics covers two streams of economic thought, both of which emerged at different times in the twentieth century. The origins of each stream are outlined in this article. The essential distinction between the ‘old’ and the ‘new’ institutional economics is explained in its second section. The distinction hinges on the theoretical treatment of the individual. In the new institutional economics the preferences or purposes of the individual are taken as given, whereas in the ‘old’ institutional economics they were seen as molded and reconstituted by social circumstances. A third section focuses on some of the theoretical achievements of the ‘old’ institutional economics, particularly in the groundwork for the rise of Keynesian macroeconomics. A fourth section considers the merits and demerits of the ‘new’ institutional economics. Problems with this approach include the undersocialized human agent and the relapse into the problem of infinite explanatory regress. Possible convergences with the ‘old’ institutionalism are discussed. The concluding section looks briefly at some of the issues at the cutting edge of current research.