Modern Institutionalists, Quasi – Institutionalists and Neo Institutionalists

Institutionalists from the turn of the century to the 1930s played a more significant role in economics than do contemporary institutionalists, because the former were involved in implementing significant policy changes in the U.S. economy. Except for Marxists, the institutionalists have the longest history as a nonmainstream heterodox American school of economic thinking. In Chapter 12 we introduced the three central figures among the institutionalists of the early twentieth century: Thorstein Veblen, Wesley C. Mitchell, and John R. Commons. They spawned a school of thought, persisting until the present day, that has influenced a wide variety of heterodox economists. Consequently, the label "institutionalist" often extends far beyond describing the followers of these three. For this reason, we have divided our description of institutionalists into three sections: (1) traditional institutionalist economists in the tradition of Veblen, Mitchell, and Commons; (2) what we call the quasi-institutionalists— writers whose ideas resemble those of the institutionalists but who are too iconoclastic to fit the traditional institutionalist mold; and (3) neoinstitutional-ists—economists who write in a neoclassical choice-theoretic tradition but who believe that institutions must be far better integrated into current practice than is currently done, both in theory and in practical applications of theory.

Traditional Institutionalist Followers of Veblen, Mitchell, and Commons

American institutionalism reached its peak in the late 1920s and early 1930s, but by the late 1930s it had already begun to wane. In his Theory of Economic Progress (1944), Clarence Ayres described the victory of the neoclassical over the institutionalist approach as complete. Since that time institutionalists have been outside the discipline: they are merely given credit for having called attention to important matters that economists should not overlook but that lie outside the scope of economic analysis.

It is important to recognize that being outside the scope of modern economic analysis does not necessarily make the institutionalists wrong. As we discussed in the introductory chapter, mainstream is not to be equated with right. Institu­tionalists forcefully argue that interactions between economic, cultural, and sociological issues are too great to warrant the isolated focus on economic forces that constitutes the thrust of much modern economic thought. In assessing mainstream economics, they would agree with Kenneth Boulding, who called neoclassical economics the celestial mechanics of a nonexistent world, and they would argue that much of the work in modern economics is elaborate game-play­ing.

The University of Wisconsin, once the haven of thoroughgoing institutional­ism, now offers an otherwise mainstream curriculum whose prime vestige of institutionalism is its strong focus on empirical research and on the complexity approach to problems. Most modern institutionalists continue to draw chiefly on Veblen, Mitchell, and Commons and express their ideas in the journal of Economic Issues. Although they persist in opposing mainstream economics, for the most part they have been little heeded by the mainstream. Of the leaders of institutionalist thought in post-World War II America (e.g., Allan Gruchy, Wallace Peterson, and Clarence Ayres), none has achieved the preeminence of these earlier figures, no doubt partially because their views are chiefly elabora­tions of those of the earlier institutionalists. We will briefly examine the views of Clarence E. Ayres (1891-1972) as an example of post-Veblen-Commons-Mitchell institutionalists.

Ayres has been the most visible of the institutionalists in post-World War II America. He spent most of his academic life at the University of Texas at Austin, which became the main source of institutionally trained economists after the University of Wisconsin moved into the mainstream. In his most important book, The Theory of Economic Progress (1944), Ayres accepted and elaborated the basic dichotomy between technological employments and ceremonial activities that permeates much of Veblen's work. Providing examples from cultural anthropol­ogy to illustrate that much of business activity was comparable to the totem and taboo behavior of technologically ignorant societies, he was able to distinguish between those matter-of-fact technological activities that furthered what he termed the "life process" and those that hindered achievement of "full produc­tion." Ayres also strongly stressed the Veblenian view that economics, with its fixation on equilibrium, was a nonevolutionary science and that the static neoclassical framework needed to be replaced by an evolutionary dynamic one. Borrowing from various fields in the social sciences, he valiantly struggled to incorporate the concept of "instrumental value," expounded by the American philosopher John Dewey, into economics. Marc Tool (1921- ), a modern institutionalist, has continued to follow this avenue of Ayresian theory.

Heterodox schools, as we have noted, are often at odds with one another. For example, Ayres criticized the Austrian theory of capital as put forth by Bohm-Bawerk. On the other hand, Keynesian ideas were accepted by Ayres largely because an element of underconsumption notions runs throughout his own macroeconomic theory. A number of other institutionalists continue in the lineage of Veblen-Ayres.