Academic journal article
By Rutherford, Malcolm
Journal of Economic Issues , Vol. 34, No. 2
Recently, I completed a paper on institutional economics in the 1920s [Rutherford, forthcoming]. That paper is more than 60 pages in length and could easily have been longer. Indeed, most of the comments I received suggested expanding one or more parts of it. To deal with institutionalism over the entire interwar period in any real depth would take up a good part of a book, but this is a conference paper, and the constraints of the form mean that I will have to confine myself to a small number of central points. Some of the material in this presentation is taken from my paper on institutionalism in the 1920s, but I will attempt to expand that discussion along the time dimension while severely compressing the amount of detail provided.
My focus will be on what I consider to have been the defining characteristics of interwar institutionalism. Although I do want to say a few things about later developments that run through the 1940s and beyond, I think it is especially important to get as good an understanding as we can of what institutionalism was during the interwar period because that was when institutionalism developed as a movement and became a force to be reckoned with in American economics. Examining the nature of interwar institutionalism will help us to understand not only why it appealed and grew as a movement, but also what happened later to diminish its popularity. In this way also, institutionalism, as it exists today, can be put in historical context and understood as the outcome of a particular set of circumstances: circumstances that involved not only institutionalism itself, but also American economics and American social science more generally.
The Formation of Institutionalism as a Movement
The conventional view of institutional economics is that it was "founded" by Thorstein Veblen, John R. Commons, and Wesley Mitchell, although with Veblen as perhaps the leading figure. This view of a founding triumvirate, however, did not just instantly spring up with the movement itself, but was a later interpretation of institutional history, a construction, and one I suspect was largely the work of Joseph Dorfman.
The use of the term "institutional economics" seems to have developed between 1916 and 1918. In 1916, Walton Hamilton mentioned that Robert Hoxie had called himself an institutional economist, so the term was in verbal use by then [Hamilton 1916], but it appears to have been restricted to only one or two people. Its first prominent use in the literature of economics occurred in 1918 with Hamilton's AEA conference paper titled "The Institutional Approach to Economic Theory," published in the AEA proceedings in 1919 [Hamilton 1919b]. Hamilton's argument was for an economics focussed on institutions, based on a modern social-psychological foundation, and relevant to problems of policy, or "social control." This conference session also included a paper from J. M. Clark, who argued along related lines [Clark 1919], and was chaired by Walter Stewart, who used the opportunity to urge "the union of the statistical method and the institutional approach" [Stewart 1919]. The idea of there being something that could be called institutional economics took hold; the terms "institutional approach" and "institutional economics were in common use by 1927, and the terms "institutionalism" and "institutionalist" were appearing in print by 1931.
In the period from 1918 through the 1920s, there were a very significant number of articles, addresses, conference sessions, books, and textbooks that promoted this institutional approach within the profession at large and a considerable network of personal contacts between the people most involved. As I have discussed in detail elsewhere [Rutherford, forthcoming], the leaders of this movement were Hamilton, Clark, and Mitchell. A nice example of this can be found in a 1923 letter to Mitchell from Rexford Tugwell, in which Tugwell talks of Mitchell's "institutional economics" and continues: "I believe this is also the general orientation of J. …