Institutional economics, by any reckoning, has had its centenary. Alas, institutional economics is not what it once was. It has gone from being a more or less recognized part of the discipline and practice of economics to a marginalized heterodox status, and from being part of the mindset and work of many, if not most, economists to being the specialized school for some economists and latent in the work of some specialists in specialized fields. But for those content to actually do institutional economics, rather than use it as a vehicle for career enhancement, i.e., as a means of status emulation, it is alive and reasonably well, if not prosperous. Yet it has serious problems.
Part of institutionalism's predicament derives from its treatment by non-institutionalist economists, treatment including being curtly dismissed, being misrepresented, being ignored, and being read out of the discipline. But some, if not much, of institutionalism's predicament derives from within, and it is this aspect of the situation that I address in this article.
I approach the task from a position based on at least three foundations: as a committed and practicing institutionalist, as a historian of economic thought, and as an eclectic (and relativist) economist.
Part 1 of this article summarizes my critique of neoclassical economics and my approach to the history of economic thought. I would urge application of both to the problem of the present predicament of institutional economics. Part 2, therefore, considers the internal sources of the predicament on such basis. Part 3 notes a hopeful sign. Part 4 recapitulates and extends my argument.
I should like to say that it is not my usual style to speak, as I will tend to do below, in an ex cathedra manner. When I was editor of the Journal of Economic Issues, I deliberately avoided anything like that. I wanted the journal to be open to all shades of opinion and feared saying anything that might imply that only contributions of a particular type would be welcome. (This attitude was not appreciated by all AFEE members, some of whom wanted the journal to advance only their conception of the field.) What I have to say remains driven by a desire for pluralism and openness but does address, in what may be an ex cathedra mode, what is wrong with institutionalism. This is a very presumptuous and tendentious subject, but it is one on which I was asked by Yngve Ramstad to speak; it is one on which I am quite prepared to speak, and, it is one on which some clear and relatively uninhibited speaking is called for.
Neoclassical Economics and the History of Economic Thought
I should think, given the vast array of my writings on these subjects, that I need only outline my position on these two topics. But these ideas are of critical importance to my assessment of the present predicament of institutional economics due to internal sources, and, accordingly, should be at least noted.
Critique of Neoclassical Economics
1. My two most general criticisms of neoclassical economics are, first, the failure of neoclassical economists to have a sense of the substantive and epistemological limitations of their work; and, second, the exclusivism and exclusionism which they practice, in part by equating economics with neoclassicism, and in part by failing to recognize and give credit to alternative ways of doing economics.
2. Neoclassicism has adopted a definition of its central problem as the analysis of the operation of the market and of the price mechanism therein, to the exclusion of other ideas of what the central problem of economics should be.
3. In pursuing that definition of its central problem, neoclassicists have adopted, as their conception of economic theory and its mode of doing economics, first, a paradigm of a given, abstract, pure, a-institutional conceptual model of the economy, and, second, a research protocol requiring the production of unique determinate optimal equilibrium solutions. …