Institutions in Economics: The Old and the New Institutionalism (Historical Perspectives on Modern Economics)

This book examines and compares the two major traditions of thought that have attempted to incorporate institutions within economics. These are the "Old" (or American) Institutionalist tradition of Veblen, Mitchell, Commons and Ayres, and the "New" Institutionalism that has developed more recently from neoclassical and Austrian sources. The discussion is organized around a set of key problems involving the use of formal or nonformal analytical methods, individualist or holistic approaches, the respective roles of rational choice and rule following behavior, the relative importance of spontaneous evolution and deliberative design of institutions, and questions relating to the normative appraisal of institutions. Contents 9 Preface and acknowledgements 11 Definitions and issues 15 1.1 The old and the new institutionalism 15 1.2 Dichotomies and problems 18 Formalism and anti-formalism 21 2.1 Formalism and anti-formalism in the OIE 23 2.1.1 From Veblen to Clark 23 2.1.2 Pattern models and participant-observation 30 2.2 Formalism and anti-formalism in the NIE 34 2.3 Conclusion 38 Individualism and holism 41 3.1 Individuals and institutions 41 3.1.1 Methodological holism 42 3.1.2 Methodological individualism 45 3.1.3 Individualism versus holism ? 50 3.2 Individualism and holism in the OIE 52 3.3 Individualism and holism in the NIE 57 3.4 Conclusion 64 Rationality and rule following 65 4.1 Habits, norms, and rule following 66 4.2 Rationality and rule following in the OIE 69 4.2.1 Habits and routines 70 4.2.2 Social rules and norms 76 4.3 Rationality and rule following in the NIE 81 4.3.1 Habits and routines 82 4.3.2 Social rules and norms 86 4.4 Conclusion 91 Evolution and design 95 5.1 Invisible-hand explanations 97 5.1.1 Processes of evolution and design 97 5.1.2 Distinguishing evolution and design 101 5.1.3 Social consequences 104 5.1.4 Explanatory challenges 105 5.2 Evolution and design in the OIE 107 5.2.1 Veblen on custom and law 108 5.2.2 Commons on custom and law 115 5.2.3 Organizations and organizational change 120 5.3 Evolution and design in the NIE 124 5.3.1 Social conventions and the invisible hand 124 5.3.2 Legislatures and courts 131 5.3.3 Organizations and organizational change 137 5.4 Conclusion 140 Efficiency and reform 143 6.1 Approaches to appraisal 143 6.2 Efficiency and reform in the OIE 146 6.2.1 Veblen, scientific values, and instincts 147 6.2.2 Ayres and instrumentalism 151 6.2.3 Commons and reasonable value 158 6.2.4 Markets and governments 160 6.3 Efficiency and reform in the NIE 165 6.3.1 Pareto efficiency and social welfare functions 166 6.3.2 Liberal values and contractarianism 169 6.3.3 Comparative institutional approaches 173 6.3.4 Markets and governments 176 6.4 Conclusion 184 Conflicts and complementarities 187 7.1 Conflicts 187 7.2 Complementarities 190 7.3 Conclusion 195 Notes 196 Chapter 1: Definitions and issues 196 Chapter 2: Formalism and anti-formalism 197 Chapter 3: Individualism and holism 198 Chapter 4: Rationality and rule following 200 Chapter 5: Evolution and design 201 Chapter 6: Efficiency and reform 205 Bibliography 208 Index 228 This Book Examines And Compares The Two Major Traditions Of Institutionalist Thinking In Economics: The Old Institutionalism Of Veblen, Mitchell, Commons, And Ayres And The New Institutionalism Developed More Recently From Neo-classical And Austrian Sources And Including The Writings Of Coase, Willamson, North, Schotter, And Many Others. The Discussion Is Organized Around A Set Of Key Methodological, Theoretical, And Normative Problems That Necessarily Confront Any Attempt To Incorporate Institutions (defined To Include Organizations, Laws, And Social Norms) Into Economics. These Are Identified In Terms Of The Issues Surrounding The Use Of Formal Or Non-formal Analytical Methods, Individualist Or Holistic Approaches, The Respective Roles Of Rational Choice And Rule-following Behavior, The Relative Importance Of The Spontaneous Evolution And Deliberative Design Of Institutions, And Questions Concerning The Normative Appraisal Of Institutions. The Old And The New Institutionalism Have Often Been Paired On Opposite Sides On Each Of These Issues, And The Issues Themselves Presented In A Series Of Sharp Dichotomies. Professor Rutherford Argues, However, That Matters Are Both More Complex And More Challenging. Each Tradition Contains A Variety Of Positions, And There Are Significant Points Of Contact Between The More Moderate Representatives Of Each Group. Although Each Tradition Embodies Fascinating Insights Into The Study Of Economic Institutions - Their Functioning, Evolution, And Impact On Human Welfare - Neither Has As Yet Provided Fully Satisfactory Answers To The Problems Identified.--book Jacket. Definitions And Issues -- Formalism And Anti-formalism -- Individualism And Holism -- Rationality And Rule Following -- Evolution And Design -- Efficiency And Reform -- Conflicts And Complementarities. Malcolm Rutherford. Includes Bibliographical References And Index. This book examines and compares the two major traditions of institutionalist thinking in economics: the 'old' institutionalism of Veblen, Mitchell, Commons, and Ayres, and the 'new' institutionalism developed more recently from neoclassical and Austrian sources and including the writings of Coase, Williamson, North, Schotter, and many others. The discussion is organized around a set of key methodological, theoretical, and normative problems that necessarily confront any attempt to incorporate institutions (defined to include organizations, laws, and social norms) into economics. These are identified in terms of the issues surrounding the use of formal or non-formal analytical methods, individualist or holistic approaches, the respective roles of rational choice and rule-following behavior, the relative importance of the spontaneous evolution and deliberative design of institutions, and questions concerning the normative appraisal of institutions. The old and the new institutionalism have often been paired on opposite sides of these issues, and the issues themselves presented in a series of sharp dichotomies. Professor Rutherford argues, however, that matters are both more complex and more challenging. Although each tradition embodies fascinating insights into the study of economic institutions - their functioning, evolution, and impact on human welfare - neither has as yet provided fully satisfactory answers to the problems identified Throughout the history of economic thought, attempts have been made to incorporate issues relating to institutions and institutional change within the discipline.