The Scope, Method, and Significance of Original Institutional Economics

Article excerpt

The difference is a difference of spiritual attitude. . . . it is a difference in the basis of valuation of the facts for the scientific purpose, or in the interest from which the facts are appreciated.

- Thorstein Veblen, 1898

Veblen was trying to suggest . . . a different conception of the economy itself. . . . [He] conceived the economy as the system of related activities by which the people of any community get their living. This system embraces a body of knowledge and of skills and a stock of physical equipment; it also embraces a complex network of personal relations reinforced by custom, ritual, sentiment, and dogma.

- C. E. Ayres, 1964

The purpose of this paper is to try to pull together some of the important themes that I have learned from you in the past three decades. I shall attempt to characterize institutional economics, or, more specifically, so-called OIE - Original (or Old) Institutional Economics - as opposed to NIE - New (or Not-so-original) Institutional Economics. For diplomatic reasons, it may be best to use the acronyms. I take OIE to be a stew made from recipes formulated by Veblen and Commons, seasoned by a cup of broth concocted by Marx and Polanyi.

The quotations above, one from Veblen, the other from Ayres commenting on the Veblenian legacy, well express the theme of this paper. As the quotation from Ayres suggests, OIE differs from more conventional economics in its conception of the economy itself. The difference is not simply over the appropriate way to analyze the subject matter; the subject matter itself is defined differently. Conventional economics defines the economy as choices made in the face of scarcity. OIE defines the economy as an instituted process for provisioning society.

This means that the OIE dissent is not primarily the notion that close attention to facts or an inductive orientation is important. Conventional economists also think facts are important. Nor does the contentious bone center primarily on the accuracy of this or that fact. Rather, as the quotation from Veblen suggests, the issue is the interpretation of facts and the assignment of significance to them. Which facts are important? What do they mean? On these questions turns much of the discord between OIE and more conventional economics.

This means also that I think original institutional and more conventional economists often misconstrue or misstate their essential differences. Conventional economists often dismiss OIE as offering no theory. This is simply wrong: OIE does embody a theory of the economy. The truth is that the OIE theory is not principally concerned with the phenomena with which conventional economics is preoccupied. Notably, OIE does not consider price theory to be central to understanding the economic process. Likewise, the frequent OIE charge that conventional economics is irrelevant and lacks correspondence with the facts is imprecise and inaccurate in important ways. Conventional economists clearly do offer policy advice and even institutional specification. The truth is that conventional economics does not relate to the facts or to the intellectual puzzles or social problems with which OIE is preoccupied.

So, in Thomas Kuhn's apt turn of phase, there is a large measure of paradigm incommensurability. All too often original institutional and more conventional economists talk past one another because their basic orientations are so different as to lead them to employ different terminologies or, worse, to employ the same terms with different meanings. If ever we are to get beyond this acrimonious condition, we shall have to be more sensitive to the nuances of expression. And I think we must also accept that the political economic lived-world is complex enough to require a multi-paradigm tool kit. There are problems that yield to the characteristic models of microeconomics, to macroeconomics, and to OIE or, more generally, social or political economics. …