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Institutionalists. ECON 205W Summer 2006 Prof. Cunningham. What is Institutionalism?. Institution : an organized pattern of group behavior; well-established and accepted as a basic part of the culture. Also referred to as Evolutionary Economics . Seeks to:

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institutionalists

Institutionalists

ECON 205W

Summer 2006

Prof. Cunningham

what is institutionalism
What is Institutionalism?
  • Institution: an organized pattern of group behavior; well-established and accepted as a basic part of the culture.
  • Also referred to as Evolutionary Economics.
  • Seeks to:
    • Understand society’s normative priorities, and the direct implementation of the collective values of a particular culture.
    • Describe the organization and control of the economic system and its historical evolution.
what is institutionalism 2
What is Institutionalism? (2)
  • Methodology
  • Concepts and Agenda
  • Themes
  • Conclusions
  • Lasting Contributions
    • Focus on social institutions in mainstreams economics
    • Policy implications
    • Vocabulary of discussion
    • Association for Evolutionary Economics, Journal of Economic Issues
    • Keynesian, Post Keynesian and other groups have taken over much of Institutionalism’s ground
thorstein veblen 1857 1929
Thorstein Veblen (1857-1929)
  • Background
  • “Probably the most significant, original, and profound social theorist in American history.”
  • Multidisciplinary
  • Human behavior is based on discernible patterns called “instincts.”
  • Thought human history is the evolution of social institutions.
    • Growth and development are the cumulative result of a process of habituation.
    • It is culture and social institutions that differentiate humans from other animals.
veblen 2
Veblen (2)
  • Traits or instincts that arise underly all of human behavior and are inter-related in a fundamental way.
  • They form a fundamental antagonistic dichotomy in nearly all societies.
  • Two clusters of traits in perpetual conflict:
    • Cluster I: Related to Workmanship
    • Cluster II: Related to Exploitation (Predatory Instinct)
  • The conflict between these two and the social institutions created to deal with this conflict, was the central point of Veblen’s social theory.
veblen 3
Veblen (3)
  • Critique of Neoclassical Economics.
    • Simple product of Benthamite Utilitarianism
    • Attacked consumer sovereignty,saying society might be better off if gov’t directed production.
    • Neoclassical economics is static.
    • Simplistic view of human nature and social institutions
    • Equates hedonism with human nature
    • Offers his own perspective on the purposes of neoclassical theory.
veblen 4
Veblen (4)
  • Insists that production is always social and cultural
  • Production requires human beings to share knowledge and skills
  • Categorizing inputs and land, labor, and capital is peculiar to capitalism.
  • The categories of wages, rents, and interest are flawed and problematic.
  • Neoclassical theory is designed to obscure the fundamental antagonism between capitalists and workers.
veblen 5
Veblen (5)
  • Rejects (private) property rights.
  • Production is inherently social.
  • Private property originated in brute coercive force and is perpetuated by force and by institutional and ideological legitimization.
  • Capitalism leads to the subjugation of women.
veblen 6
Veblen (6)
  • Basic Conflicts
    • Business vs. Industry
    • Salesmanship vs. Workmanship
    • Exploitation vs. Workmanship
    • Ideals of workmanship vs. the leisure class
    • Workmanship is an instinct. People have a proclivity for achievement, not effort.
  • Concerns of the managerial class, the pursuit of profit.
veblen 7
Veblen (7)
  • Government
    • Ultimate power is in the hands of owners of capital because they control the government.
    • Did not deny the democratic nature of U.S. government.
  • Social Mores
    • Cultural and social domination of the leisure class
veblen 8
Veblen (8)
  • Theory of the Leisure Class.
    • Most is devoted to a detailed description of how the leisure class displays its predatory prowess.
    • “Conspicuous consumption”
      • “Veblen good”
    • “Conspicuous use of leisure”
    • The wealthy maintain their position by predation or parasitism.
    • Power is everything.
wesley claire mitchell 1874 1948
Wesley Claire Mitchell (1874-1948)
  • Veblen’s most brilliant student. Summa cum laude, Chicago, 1899.
  • Empirical bent. Studied business cycles.
    • Business cycles are a product of a monetary economy
    • Widely diffused through the economy
    • Related to profit projections
    • Not external, but endogenous and inherent.
  • Founded NBER in 1920 and ran it for 25 years.
mitchell 2
Mitchell (2)
  • Social planning is appropriate, but raises two difficulties:
    • Agreeing on what it is we want to accomplish
    • Interdependence of social processes.
      • Piecemeal planning is problematic.
      • Need comprehensive plans, considering direct and indirect effects of social actions.
  • Social planning is inevitable.
john kenneth galbraith 1908 2006
John Kenneth Galbraith (1908-2006)
  • Canadian born.
  • Advisor to U.S. government, held high positions.
  • Board of editors of Fortune.
  • Ambassador to India in Kennedy administration.
  • Professor of economics at Harvard.
  • Author of numerous popular books.
galbraith 2
Galbraith (2)
  • Critic of the neoclassical “conventional wisdom.”
    • Does not fault originators of the theory, but rather those who follow it blindly.
    • The theory probably persists because it is easy to understand, has clear structure, can be taught, and can be expanded. It is difficult to attack.
  • Helped introduce Keynesian economics to the U.S.
galbraith 3
Galbraith (3)
  • Dependence Effect
    • As society becomes increasingly affluent, …wants come to depend on output.
    • Theory of imperfect competition?
    • Innovation driven by firms, not by consumer sovereignty. Consumer choice does not drive the economy.
    • Underallocation of goods to the public sector, which he calls “social imbalance.” (Not enough social goods to support the private goods.)
galbraith 4
Galbraith (4)
  • Theory of the firm
    • Neoclassical theory is only true for small, competitive, owner-managed firms that follow market trends—the market sector.
    • The planning sector—2000 or so largest firms wherein ownership and control are divorced—have different motives.
      • Protective purpose—survival (profit)
        • Requires direct or indirect price fixing. Oligopolists price low to expand market share, not high as neoclassicals argue.
      • Affirmative purpose—growth.
        • Large firms grow as a technological imperative, the result of economies of scale, R&D, etc.
galbraith 5
Galbraith (5)
  • Favors government policies
    • Argues that economic forces do not work out for the best except for the powerful.
    • Public policy has been unable to bridle the growth of large business.
    • Believes in price and wage controls, control of executive salaries, redistribution.
    • Wants a planning agency to join with corporations and unions to plan economic activity. Very socialist.