Cambridge Journal of Economics 1995, 19, 569-590

CRITICAL SURVEY

The present state of institutional

economics
Warren J. Samuels*
After articulating the institutionalist paradigm and its principal facets, the article
examines the present status, converging interests and possible future of institutional
economics. Emphasis is on related schools of thought and, especially, European
(and other) developments along evolutionary and holistic lines of analysis, and on
a new generation of US and, especially, European authors. Among more specific
themes are the importance of power, technology, social change, social control,
organisations and institutions in governing economic performance. The work of
European authors is expected to become increasingly important owing to their
concern with subject-matter and policy issues, rather than sectarian questions.
1995 Academic Press limited

Introduction
In the United States institutional economics1 has been and remains the leading
heterodox alternative to dominant neoclassicism in economics other than Marxism.2
Manuscript received 8 May 1992; final version received 18 October 1993.
*Michigan State University. I am indebted to readers of earlier drafts of this article, many of whose ideas
and words have been incorporated in this revision. Thanks go to Jeff Biddle, Doug Brown, William Dugger,
Wendell Gordon, Geoff Hodgson, Ann Jennings, Philip Klein, Anne Mayhew, Edythe Miller, Wallace
Peterson, Allan Schmid, Ron Stanfield, Rich Tilman, Marc Tool, Harry Trebing, William Waller, and
Charles Whalen, as well as to two anonymous referees.
1
The term 'institutional economics' is used without prejudice to 'evolutionary economies'.
2
Some insritutionalists consider their approach to be mutually exclusive with neoclassicism, whereas
others, including this writer, consider institunonalism and neoclassicism to be supplementary. Some
institutionalises consider their approach to be mutually exclusive with Marxism, whereas others, including
this writer, consider institutionalism and Marxism as having significant areas of overlap. There has been
considerable diversity within institutional economics. Such heterogeneity is not pathological. It is a sign of
richness and ferment.
footnote 2 continued overleaf

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1995 Academic Press Limited

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Tkis is the fifth of a series of Critical Survey articles. The aim of the series is to report on recent developments,
to provide an assessment of alternative and to suggest lines offuture inquiry. It is intended that the articles
will be accessible not only to other academic researchers but also to students and others more practically
involved in the economy. Future Survey articles will include Philip Arestis on 'Post-Keynesian economics'
and Geoffrey Ingham on 'Economics and Sociology'.

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W. J. Samuels

Pronouncements of the demise of institutionalism have been premature. Indeed, during

the last twenty-five years there has been a considerable renaissance of institutionalism, as
well as of other heterodox approaches to economics. Institutionalism today is rich,
complex and diverse. Although certain strains of it have been myopic, backward looking
and in conflict, institutionalism is, quite possibly, on the threshold of a great transformation, one which will build on the foundations laid by Thorstein Veblen,1 John R.
Commons and others, but which will strike out on its own, giving effect to the
programmatic methodological promise of institutionalism in the past.
The objective of this article is to identify the present state of institutional economics, with particular attention to its prospects.2 The approach is eclectic, rather than
narrowly sectarian, and broad, avoiding hard boundaries, seeking to find knowledge,
insight and understanding, wherever one can. The article is intended to be neither a
survey of recent institutionalist writings nor an exposition of institutionalist ideas
(although elements of both are present for illustrative purposes) nor a defence of
institutionalism.3
I shall argue in this article that a great revitalisation of institutionalism seems likely to
take place. It will emanate from several sources. One is the group of institutionalist
thinkers in Europe who have origins that go beyond Veblen and Commonsand in
many cases do not include themand have not been a part of US institutionalism. A
second is the new generation of instirutionalists in the United States. Both groups are
proving uninterested in either simply rehearsing old doctrines or continuing sectarian
controversies. A third source consists of heterodox groups with congruent interests and
approaches, namely, the Post Keynesian and Social Economists. A fourth source
comprises individuals more or less within the orthodox mainstream who, sometimes
using institutionalist work but often not, have worked on topics and/or in ways congruent
with those of the institutionalists. Sometimes their work enhances the efforts of
institutionalists; at other times, largely because of the tenacious hold of the determinate
optimum equilibrium mode of analysis, the two are dissonant.
footnote 2 continued from previous page

I should defend my assertion that institutional and neoclassical economics are supplementary, notwithstanding their different methodological and philosophical foundations and practices. It is a position to which
several readers of earlier drafts of this article have taken offence. Neoclassical economics deals with questions
with which institutional economics does not, or deals with the tame or comparable questions in a different
mannerfrom all of which one can learn. I believe that insights and knowledge from one school can, with
adequate formulae of translation, be carried over to other schools of thought. The willingly eclectic person
can embrace, or at least maintain in reserve, mutually incompatible or inconsistent positions. One does not
have summarily to reject that with which one tends to disagree; one can learn from others. I acknowledge
that there are those who dejire determinancy and closure and others who can be content with openendedness and ambiguity.
1
The reference list contains a combination of leading and representative works by individual institutionalist authors named in the text, representative with regard to both their individual work and the work of
institutionaliits generally. In general, references are not given to works which, while arguably institutionalist
in character, represent areas of substantive work as economistsfor example, John R. Commons on labour
economics and Wesley C. Mitchell on business cycles. An effort has been made to present referencei on a
diversity of topics, while still providing citations to leading and representative works.
2
The views presented here are personal and do not necessarily reflect those of any subgroup of
institutionalists. The author has little confidence in his ability to predict the future, so that the promise said
here to exist may prove to be nothing more than wishful thinking. This is because of the author's belief in
radical indeterminacy in the sense of George Shackle, that we cannot confidently predict the future because
the future will not exist until it has been made through human action, in part that we CTeate the future
through our efforts to apprehend it.
3
For surveys of institutionalism by the present author, see Samuels, 1984, 1987, 1991; also 1988, 1990.
See also Tool, 1988; Tool and Samuels, 1989A, 1989B, 1989C; and Hodgson, Samuels and Tool, 1993.
There is no substitute for perusing the volumes of the Journal of Economic Issues

The present state of institutional economics

571

Given the likely further development of institutionalism by US and European

institutionalists and by incrementally renegade neoclassicists, what form will the
development take? Will it crystallise around the Lakatosian core of historic US
institutionalism? Or will it crystallise around a set of evolutionary and other topics
more or less common to older traditional US institutionalists, 'new' neoclassical
institutionalists, younger US institutionalists, and European institutionalists? Will the
future of institutionalism comprise a revision of the 'old' US institutionalism of Veblen
and Commons which more or less closely fits that body of thought yet adds to it? Or
will it comprise an amalgam of many different contributions to common topics, one of
which is the entirety of traditional institutionalism? Such detail I do not attempt to
predict.

The institutionalist paradigm

There is a relatively common set of beliefs that unite the work of institutionalists at both
the theoretical and applied levels, however much those beliefs may be distinguished from
the various, and varying, specific applications to which they may be put.
Insofar as they are interested in the allocation of resources, which is, of course, the
central problem of neoclassical economics and important for economists of all schools,
institutionalists pursue a wider range of explanatory variables and come up with a
broader and arguably deeper answer, though admittedly not as neatly simplified an
answer. The crux of the institutionalist position, its 'object of dissent', is 'the conception
of the market as the guiding mechanism of the economy, or, more broadly, the
conception of the economy as organised and guided by the market. It simply is not true
that scarce resources arc allocated among alternative uses by the market. The real
determination of whatever allocation occurs in any society is the organisational structure
of that societyin short, its institutions. At most, the market only gives effect to
prevailing institutions. By focusing attention on the market mechanism, economists have
ignored the real allocational mechanism' (Ayres, 1957, p. 26). Although institutionalists
disagree as to how much and what precisely is important in the neoclassicists' analysis of
the operation of pure market mechanisms in allocating resources, they all agree that
markets are organised by and give effect to the institutions which form them.
But institutionalists are principally interested in a different central problem, that of the
organisation and control of the economy as a system encompassing more than the
market. The institutionalists are concerned, therefore, with the distribution of power in
society; with markets as institutional complexes operating within and in interaction with
other institutional complexes; with the causes and consequences of individual and
collective psychology; with the formation of knowledge, or what is taken as knowledge,
in a world of radical indeterminancy about the future; and, inter alia, with die
determination of the four problems of resource allocation, level of aggregate income,
distribution of income, and organisation and control as matters of cumulative causation
in which the working out of each of the four problems has impact upon the others
and in respect to which general culture is also both a dependent and independent
variable.
Institutionalism has been attractive to those who have been uncomfortable with
various aspects of neoclassicism, however much they may consider the two schools to be
supplementary and neoclassicism to make positive contributions to how market economies work. The institutionalist critique of neoclassicism is wide ranging: neoclassicism

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W. J. Samuels

is faulted for its methodological individualism, that is, for its practice of treating
individuals as independent and self-subsistent, possessing given preferences, whereas
institutionalise find that individuals and culture are mutually interdependent and that
the analysis of markets ipso facto constitutes methodological collectivism. Institutionalists
further argue that the concept of a 'market' is a metaphor for the institutions which form,
structure and operate through it, as above. Institutionalists criticise the central neoclassical quest for determinate optimum equilibrium solutions, arguing in part that this
forecloses the operation of real-world processes of working things out and tends to
substitute economists' own conception of institutional organisation and individual
preferences for those of economic actors.
Institutionalists also point to the static nature of neoclassical problems and models,
whereas they affirm the dynamic and evolutionary nature of the economy. Neoclassicism
is faulted for its conceptualisation and use of the idea of a pure market. The argument is
complex. It is in part that neoclassicists tend to fail to make the jump in applying their
theories from the logical categories of pure markets to the specific institutions that create
and define markets in the real world; that is, that the categories of neoclassical analysis
are largely formally logical and therefore substantively empty, and cannot properly be
applied to the real world without additional assumptions, assumptions which willy nilly
determine how markets form, operate, and generate results. The argument is in part also
that there is a tendency in neoclassical analysis, particularly in its more conservative
formulations and applications, for any change in institutions, especially legal change of
law, to appear to be undesirable government interference (or give effect to some
postulated condition of optimality)unless selectively specified, a priori, as congruent
with some notion of capitalism.
In all these and other respects institutionalists find that the neoclassical demand/supply
type of story, while useful to a point, both omits important concerns and variables and,
in pursuit of determinate optimum equilibrium solutions, channels analysis along
presumptive, prefigured lines, in both respects losing contact with important, if not
decisive, aspects of the real world and the other stories which can be told about that
world and how it operates.
Finally, therefore, institutionalists object to the tendency of neoclassical analysis to
reach Panglossian conclusions of 'whatever is, is optimal', thereby abetting a perceived
ideological agenda supportive of ostensibly market solutions, thus lending selective
credence to the nuances and policies of laissez-faire. This obfuscates what institutionalists
consider to be necessary analyses of power structure and the uses to which government
is put in the formation and performance of markets, thereby depriving economic theory
of both the importance and the non-ideological analysis of government.
Affirmatively, institutional analysis encompasses both markets and institutions, and
much more. Institutionalists have pursued analyses of the social forces which condition
and channel the formation of markets and the exercise of individual choice and
behaviour; the institutions which constitute and operate through markets; the economy
understood as a system encompassing more than the market and undergoing systemic
evolution, in part due to institutional and technological change; and, inter alia, the factors
and forces actually operative in the economy.
Instituoonalism has had three dimensions. First, institutionalists have critiqued both
the organisation and performance of existing market economies and the economics of the
pure market considered as an abstraction. Second, institutionalists have generated a
substantial body of knowledge on the variety of topics noted in these pages. Third,

The present state of institutional economics

573

institutionalists have developed a multi-disciplinary approach to problem-solving. In

regard to all three, institutionalists have stressed empiricism (rather than both a priori
propositions and mathematical puzzle-solving), pragmatism, and a willingness, indeed
desire, to be multi-disciplinary, that is, to find knowledge, especially but not solely
knowledge applicable to policy, wherever it can.
Let us consider eight principal facets of institutional economics understood as a body
of knowledgeand thereby as an approach to problem solving.
First, institutionalists emphasise social and economic evolution and so take an explicit
activist orientation toward social institutions. Institutions, they say, are important and
cannot be taken for granted, because they are manmade and changeable. Although
changes in institutions and working rules occur frequently, they normally change slowly,
through both non-deliberative (for example, habitual and customary) and deliberative
(typically legal) modes. One important point is that institutionalists reject the overwhelming neoclassical search for automatic mechanisms and lawsnot denying that
adjustment mechanisms exist and that statements of tendency can be made, but
emphasising the reality of individual and collective choice (this paragraph paraphrases
Wine, 1954, pp. 134-135).
Second, institutionalists affirm the importance of social control and the exercise of
collective action therein. Institutionalists insist that projections by neoclassicists of the
mechanical operation of pure, automatic markets create the illusion of autonomous free
markets operating independently of human action and control. On the contrary,
institutionalists emphasise that the market economy per se is itself a system of social
control, and that specific markets are what they are and perform as they do because of
the institutions operating as social control which form and operate through them. The
economy is what it is because of the existing correlative system of social control; business
would not be business without the requisite legal and non-legal social controls.
Commons defined institutions as collective action in control and enlargement, or
liberation, of individual action; both are necessary in the creation and, notably,
structuring of freedom in a free market economy. As already noted, the institutionalists
have objected strongly to the misleading impressions of the possibilityif not reality
of absolute self-subsistent individualism and non-interventionism abetted by the
mechanical mode of neoclassical theorising in the quest of static determinate optimum
equilibrium results.
Third, institutionalists emphasise technology as a major force in the transformation of
economic systems. While generally not monistically deterministic with regard to technology or the state of the industrial arts, institutionalists have found that the logic of
industrialisation has profound effects on social, economic and political organisation and
on the nature of culture, just as culture has profound effects on the adoption and
operation of technology. Technology will be further discussed below but one additional
point should be made here. It is that 'the relative scarcity or relative plentifulness of all
resources', indeed the very nature of a physical object or condition as a resource, is
determined by 'the state of the industrial arts' (Ayres, 1957, p. 26). It is human activity
mediated through technology that determines what is a resource, its relative scarcity and
its efficiency.
Fourth, as already emphasised, institutionalists insist that the ultimate determinant of
the allocation of resources is not some abstract market mechanism but the institutions,
especially the power structures, which structure markets and to which markets give
effect.

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W. J. Samuels

Fifth, the institutionalists' theory of value does not concern the relative prices of
commodities but the process through which the values ensconced in institutions, social
structures and behaviour are worked out. For Veblen the operative consideration is
whether something enhances the life process, and an evolutionary theory of value must
be, and is constructed out of, the habits and customs of social life and their transformation through deliberative and non-deliberative processes. For Commons, 'reasonable
value' relates to the reasonableness of the working rules which define the limits of
individual and collective action, respectively. In particular, this meant the Supreme
Court's decision as to what is reasonable between plaintiff and defendant, which made
the Court in his view the 'final faculty of political economy' in the USan argument
which can be generalised to encompass all branches and processes of government as well
as all forms of social control. One of the institutionalists' most fundamental complaints
about neoclassicism is that the latter either ignores or reifies the existing working rules
and the values represented in them, thereby in part begging the processes through which
those values are formed and effectuated.
Sixth, institutionalists emphasise the dual role of culture in a process of cumulative
causation or coevolution. They emphasise, first, the transcendental role of culture and
cultural processes in the formation of both social structure and individual identities,
goals, commodity preferences, and lifestyles, all of which has impact on economic life and
institutional adjustment. Both power and culture matter. They emphasise, second, that
culture itself is an artifact, a product of continuous interdependence among individuals
and sub-groups. Individuals are born into a culture and a society. They are socialised in
the ways of that society, within the range of individual discretion permitted by that
society. Their behaviour and choices then contribute to the selective reinforcement and
weakening of elements of culture. Culture changes through the behaviour of individuals
previously socialised in the culture yet the culture which an individual leaves behind is
different from that in which he or she was socialised. Both individuals and culture matter,
as does power, which governs which individuals will have greater or less impact on the
transformation of culture. The growth of mass consumption society, for example, which
parallels the growth of industrial society, has been a cultural phenomenon generated,
intentionally or otherwise, by the behaviour of certain individuals and groups in society
which had great impact on the socialisation of all other individuals; and so on.
Seventh, correlative to the feeling held by most institutionalists that neoclassicism,
insofar as it functions to take for granted, obfuscate, and reinforce the existing structure
of power and social relations, a structure marked by inequality and hierarchy, institutionalists have been pluralistic, or democratic, in their orientation. This pluralism is
manifest in the propensity of institutionalists to call attention to that obfuscation and
reinforcement and the implications for the conduct of economic theory. It arises in
explicit concern for the fate of the working class and the masses and their respective
institutions and values, especially their participation in the process through which
reasonable value is established. It is manifest in the institutionalists' focus on the
economy as a non-deterministic and non-mechanistic decision-making process, in
contrast, for example, to tendencies to treat the formation of preferences and working
rules as if governed not by power but by transcendent mechanisms. It surfaces in the
willingness of institutionalists to pay attention to the views and ambitions and values of
the working class and masses. It especially arises in the tendency of institutionalists to
maintain some distance from established powers, so as to maintain their sense of
perspective. Perlman (1952, p. 405) thus wrote that

The present state of institutional economics

S7S

Commons genuinely believed that the 'common men' . . . are as capable of making valid and
meaningful intellectual discoveries as himself and his colleagues in the social scientists' guild. In a
word, Commons practised the most difficult sort of democracyintellectual democracy.
Eighth, institutionalists have been holistic. On the one hand, they have defined the
economy broadly to include much more than the pure market mechanism. On the other
hand, they have emphasised that meaningful and non-question-begging explanation
and description of economic phenomena requires recourse to other disciplines, in a
multi-disciplinary venture as required by the objects of study.
On the basis of these eight considerations one can appreciate the institutionalist
objection to the mechanistic quest by neoclassicists for static determinate optimum
equilibrium results. For the institutionalists the economic system not only comprises
more than the market, it is an ongoing cultural process with elements which coevolve
through complex processes of cumulative causation. Pursuit of the mechanics of price
determination trivialises what the economy is all about, and excludes considerations of
social control and social change and all that they entail.

Present status, converging interests and the future of institutional economics

Institutionalism in the United States had a resurgence commencing from the mid 1960s.
The Association for Evolutionary Economics (AFEE), publisher of the Journal of
Economic Issues, together with a modest splinter organisation, the Association for
Institutional Thought (AFIT) are the principal vehicles of organised efforts in the field.
Most of the economists who belong to and participate in these associations work
self-consciously in the tradition of Veblen and Commons, as well as such others as Karl
Polanyi, Wesley C. Mitchell, John Maurice Clark, Clarence E. Ayres, J. Fagg Foster,
John Kenneth Galbraith, Kenneth E. Boulding, and Gunnar Myrdal.
One characteristic of US institutionalist writings in the first decades following World
War Two was that they often merely rehearsed or re-argued established institutionalist
positions on methodological or substantive topics.1 The work of many US institutionalists in the post World War Two period nonetheless did make serious contributions. 2
1
Institutionalism has been characterised (as are all schools of economic thought) by richness coupled with
diversity. One example is the definition of an institution. Veblen denned an institution as a habit of thought
common to the generality of men. Commons denned an institution as collective action in control and
enlargement, or liberation, of individual action. The two definitions appear at first glance to be in conflict
but they are quite congruent and represent heuristic tools for analysis. Veblen's definition stresses the
cognitive aspect of institutions, whereas Commons's stresses the interpersonal or international aspect. Both
are effectively combined in the recent work of Hodgson (for example, Hodgson, 1988).
2
The writings of individuals who have been honoured as president of AFEE are suggestive of the areas of
interest and strength: Clarence Ayres (general institutional theory), John Gambs (general institutional
theory), Allan Gruchy (comparative economic systems, history of economic thought, and general institutional theory), Joseph Dorfrnan (history of economic thought), Ben Seligman (labour economics and history
of economic thought), Daniel Fusfeld (economic history and general theory), David Hamilton (consumption economics and evolutionary theory), Harry Trebing (public utility regulation), Willard Mueller
(antitrust and industrial organisation), Seymour Melman (technology, industrial organisation and the
military sector), Wallace Peterson (macroeconomics and the welfare state), Philip Klein (business cycles and
general institutional theory), David D. Martin (antitrust and industrial organisation), Dudley DUlard
(economic history and history of economic thought), Jack Barbash (Ubour economics), Walter Neale
(linguistics, economic development and general institutional theory), James Street (economic development),
Wendell Gordon (general institutional theory and economic development), David Schwartz (public utility
regulation), Milton Lower (macroeconomics and international economics), Anne Mayhew (economic
anthropology and general institutional theory), Dilmus James (economic development), Edythe Miller
footnote 2 continued overleaf

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W. J. Samuels

More recently, US institutionalists have extended their vision. This is particularly true of
the younger US institutionalists, as well as of the European writers not trained in the
doctrines of the US institutionalist founding fathers. The greatest promise for the further
theoretical and empiricalas well as conceptual and paradigmaticdevelopment of
institutionaJism must and probably will reside with the new generations of US and
European institutionalists. This is suggested, in pan, by work reported upon in Hodgson,
Samuels and Tool (1993). These developments seriously extend and/or revise received
institutionalist doctrines on various subjects, such as psychology, evolution, power,
institutions and technology.
The future of US and Canadian institutional economics resides to a large degree in the
hands of a younger generation of economists who identify with traditional institutionalism.1 These writers exhibit considerable dynamism, ferment and originality, and are
making contributions which go far beyond either rehearsing the old doctrines or
perpetuating the old sectarian differences. The names of those among the most
promising of the younger generation are given in the note. 2 Much, though by no means
all, of their work is published in the Journal of Economic Issues. They work in public
finance, economic development, environmental economics, law and economics, behavioural science, philosophy, feminism, and so on, including general institutionalist theory
and methodology.
One of the most remarkable developments in the history of contemporary economic
thought has been the emergence of economists in Europe (and in Australia and New
Zealand) working in areas of institutional and evolutionary economics. Many of these
writers are members of the recently organised European Association for Evolutionary
Political Economy (EAEPE); some are members of the Association for Evolutionary
Economics; and some are associated with the Review of Political Economy (ROPE).
Myrdal, K. W. Kapp, Karl Marx, Karl Polanyi, John Maynard Keynes, Nicholas
Georgescu-Roegen and Joseph A. Schumpeter have been principal influences on these.
Only some of them have been strongly influenced by the traditions of Veblen and
Commons. But all have an interest in topics that are institutionalist in substance and
have no particular interest in contributing to the neoclassical paradigm. Some are
specialists in particular areas of study, such as evolutionary analysis, organisation theory,
and technology. These subjects require, as they see it, modes and methods of analysis
often quite different from, though not necessarily totally in conflict with, neoclassical
approaches to their subject. These modes and methods of analysis are more congruent
with those of the US institutionalists, although they sometimes use tools and concepts
footnote 2 continued from previous page

(public utility regulation and general institutional theory), John Munkirs (industrial organisation), Paul Dale
Bush (general institutional theory), Marc Tool (general institutional theory), James Sturgeon (general
institutional theory) and John Adams (general institutional theory). Other US and Canadian insututionalists
include: Walter Adams, Glen Atkinson, Robert Averitt, Vernon Briggs, Daniel Bromley, Thomas De
Gregori, Ken Dennis, James Dietz, William Dugger, William Glade, Warren Gramm, Gregory Hayden,
Lewis Hill, Abraham Hirsch, Don Kanel, H. H. Liebhafsky, William Melody, Kenneth Parsons, Baldwin
Ranson, Allan Schmid, James Schaffer, Robert Solo, Ron Stanfield, Paul Strassmann, Rick Tilman and
Charles Wilber, to mention only a few, and with apologies to those not named in this connection or
elsewhere in this article.
1
The distinction between generations is admittedly arbitrary.
2
Randall Barlett, James Brock, Doug Brown, Charles Clark, James Cypher, Alan Dyer, Peter Fisher,
Steven Hickerson, Jim Homer, Ann Jennings, Ann Man May, Brent McClintock, Steven Medema, Philip
Mirowskj, Kenneth Nowotny, James Peach, Carol Peterson, Janice Peterson, Jerry Petr, Ronnie Phillips,
Michael Radzicki, Yngve Ramstad, Malcolm Rutherford, Raphael Sassower, Michael Sheehan, Rodney
Stevenson, James Swaney, Rick Tilman, William Waller, Charles Whalen and Randall Wray.

The present state of institutional economics

577

originally developed by neoclassicists, such as transaction costs. Included in this group

are writers such as those listed in the note. 1
Intellectually close to institutional economics are Post Keynesian economists working
in the fields of monetary and macroeconomics. Many of them are associated with or have
published in the Journal of Post Keynesian Economics but many have published in JEI,
ROPE, and Challenge, as well as this journal; names are given in the note. 2 Apropos of
institutional economics, the Post Keynesians emphasise the role of differential institutional arrangements, especially in the operation of financial markets and considerations
of structure, the latter, for example, with regard to the different performance of oligopoly
core and competitive periphery and the particular characteristics of labour markets.
Both groups deprecate neoclassical equilibrium analysis, emphasising instead both the
facts and forces actually operative in the macroeconomy and the working of often
institutionally driven adjustment processes.
Especially close to institutional economics is social economics. Many institutionalists
who are active in AFEE and publish in JEI are also active in the Association for Social
Economics and publish in its journal, the Review of Social Economy (there are other
international associations and journals in the socioeconomics field). The two groups of
economists share historicist-evolutionary, holistic, and, inter alia, methodological concerns and opposition to the exclusivist dominant mode of conventional practice,
including its approach to self-interest in a world of societisation and human need. Social
economists emphasise the role of human values and the operation of the complex and
subtle processes through which values arise and are assessed, contrasted, evaluated,
pursued and effectuated.
It is possible to argue for the existence of a radical institutionalism, one which borrows
from Marxism and other forms of radical economics. It is also possible to argue either
that historic institutionalism is itself radical (so no independent radical institutionalism
exists) or that, in going only so far toward Marxism, it is not radical enough. Be that as
it may, a number of contemporary institutionalists consider themselves to be not
Marxists, but radical institutionalists and have written in that vein.3 Some of these and
perhaps other institutionalists might have been inclined toward Marxism but became
disaffected.
Looking at the matter from the other way around, US Marxism (and also European,
about which I cannot personally say much) has made contributions to topics of interest
to institutionalism.* Some of their work has to do with economic and social power,
business cycles, the environmental and human excesses of capitalism, the organisation of
work, democracy and capitalism, and the revolutionary notions of antiessentialism,
entry points, and overdeterminationoften in effect continuing and/or modernising
work by earlier institutionalists as well as earlier Marxists. Marxism is itself, of course,
quite diverse in its treatments of determinism, class, and other topics.
1

Ash Amin, Philip Aresus, Mike Dietrich, Kurt Dopfer, Giovanni Dosi, Sheila Dow, Wolfram Eisner,
Chris Freeman, Geoffrey Hodgson, Neil Kay, Fred Lee, Brian J. Loasby, Klaus Nielson, Kurt W.
Rothschild, Malcolm Sawyer, Ernesto Screpanti, Gerald Silverberg, Peter Skott, and Peter Soderbaum.
Andrew Dragun resides in Australia and Peter Earl, John Foster and Martin O'Connor reside in New
Zealand.
2
Included are Philip Arestis, John Cornwall, Paul Davidson, Jan Kregel, Hyman Minsky, Basil Moore,
Nina Shapiro and Nancy Wulwick.
3
These include Doug Brown, William Dugger, Ann Jennings, Ron Stanfield and William Wallerso
identified in Dugger, 1990.
4
These writers include Samuel Bowles, Herbert Gintis, David Gordon, E. K. Hunt, James O'Connor,
Stephen Resnick, Howard Sherman, Tom Weiiskopf and Richard Wolff.

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A self-styled 'new' institutional economics has developed in the US and Europe. 1 This
school works largely within neoclassicism, and shares its rationality, maximisation, and
market or market-like orientation and likewise tends to seek, though with less formalisation, the conventional determinate, optimal, equilibrium solutions to problems. The
practitioners of this school, however, each in their own way, tend to open up or expand
the reach of conventional neoclassicism, for example, in their work on the theory of the
firm. Leading figures include Oliver Williamson, Ronald Coase, and Douglass North.
They work on such topics as the organisation and operation of the corporation, the
formation of markets, the division of activity between corporations and markets, and the
formation of market systems and the institutions which form market systems, including
throughout consideration of transaction costs and, especially in the case of the more
recent work of North, the role of power and ideology in institutional and system
evolution.
A variety of writers work in such converging fields as public choice, property rights,
rent seeking, and law and economics. Much of this work is either congruent with or vital
parts of the 'new' institutional economics. The leading writers here are James M.
Buchanan, Gordon Tullock, Armen Alchian, Mancur Olsen, Harold Demsetz, Ronald
Coase, and so on. In these areas, however, there is also work by 'old' institutional
economists, for example, Allan Schmid and the present author as well as by younger
non-US instirutionalists, such as Andrew Dragun.
Those 'old' institutionalists who consider neoclassicism, and its aforementioned
offshoots, and institutionalism to be supplementary, which may well include most of the
younger generation of institutionalists, will welcome as substantive contributions much
of the work of the 'new' institutionalists, though without the neoclassical methodology
and paradigm and also without, where relevant, the conservative ideology and political
agenda which so often accompanies this work (as in the case of the Public Choice school
and, below, Austrian economics). A reformulated institutionalism along the lines of
particular topics likewise will accept the substantive contributions of all groups and
schools.
For example, apropos of the institurjonalist emphasis on cultural lag and the need to
accommodate selectively the formation of physical capital (technology) with the formation of human capital, North in particular emphasises that institutions and transaction
costs influence transformation costs, and that the cultural lag in human capital
adjustment to physical capital selection is a major problem. In addition, the importance
of information and transaction costs offers a useful mode of analysing advertising,
marketing and policy making, and is especially enriched when informational asymmetries
are introduced into analysis, as has been done by Randall Bartlett (1973) in regard to the
formation of government policy.
Another example: the Veblenian distinction between making money and making goods
is partly paralleled by the 'new' institutionalist distinction between institutions that
promote creativity and production and those that promote redistribution and rentseeking. Neither of these pairs of distinctions are entirely self-subsistent, as each requires
the exercise of judgment, even when being used for positive analysis; but they are
heuristically valuable in opening lines of research and analysis.
Inasmuch as institutionalism is one approach to heterodoxy in economics, it is
not surprising that a variety of other heterodox schools have more or less common
1
A useful comprehensive and largely non-ideological integration of the 'new' institurionalism, public
choice theory, etc. is presented in Eggertsson (1990).

The present state of institutional economics

579

ground with traditional US institutionalism, in addition to the aforementioned schools.

These other schools include the French Regulation school, varieties of Schumpeterian
economics, and other versions of evolutionary economics.
A number of US writers not otherwise organised or selfstyled, though generally
'evolutionary' in orientation, started from within neoclassicism but have made departures
which have moved them in the direction of institutionalism.1 They work at various
levels: individual persons, institutions or organisations in particular or in general, the
level of the economic system qua system; and so on. Their work retains elements of
neoclassicismas does the work of several economists who pursue some version
of sociobiology, such as Harold Demsetz and Armen Alchianbut it departs therefrom
in fundamental respects.
Austrian, or neo-Austrian, economists have reinstituted some of the interests of the
founders of the school, such as Carl Menger and Friedrich von Wieser, and have added
to their evident interests in the market and the Austrian version of price theory, analyses
of the emergence and development of institutions. The leading figure here is Friedrich A.
von Hayek. Like many writers in the 'new' institutionalism, the normative orientation
tends to be conservative (in either or both the nineteenth and twentieth century senses).
Still, writers in both groups have made important and interesting advances in our
understanding of institutional evolution, including, if inadvertently, the role of normative
premises therein; indeed, many of their positive analyses can be seen as contradicting
some of their conservative positions, or at least the relatively naive versions thereof.
Although institutionalists readily find faults with the work of the New Institutional
economists and the Austrians, these economists have produced serious work. Whatever
conceptual or ideological limits this work may involve, adjustment can be made for these
limits and their positive findings and analyses can be absorbed. What is necessary are
institutionalists who are more interested in developing certain substantive areas than in
either criticising others for doing what they think is good work, merely ceremonially
rehearsing and defending the doctrines of earlier institutionalists, or taking their own
exclusivist positions.
Finally, I note some writers who also are not directly associated with institutionalism
but whose work is clearly in the institutionalist tradition, for example, Robert Heilbroner,
William Lazonick, Harvey Leibenstein, Charles Iindblom, and Lester Thurow.
Lazonick (1991), for example, argues not only that capitalism has been transformed from
an individualist entrepreneurial to a managerialist corporate system but that the
managerialist system has been effectively transformed into a still different system, which
he designates 'planned coordination'. He supports the argument with studies of the
economic history of Britain, the US and Japan. Lazonick works largely on two levels. One
is the theory of the firm, where he has a richer analysis than that provided by Coase,
Williamson, Alchian and others. The other is at the level of the economic system as a
whole, where he considers organisation and control questions almost totally obviated by
mainstream economists. Both are combined in an understanding that firms have
developed from individual enterprises connected by markets to increasingly large firms
with increasing coordination (first US managerial capitalism and then Japanese planned
coordination) under propitious cultural and political conditions. The crux of Lazonick's
argument is neatly illustrated by his treatment of Ronald Coase's transaction-cost
analysis which gives ontological primacy to markets and seeks to explain why firms exist.
1
These writers include Richard England, Robert Frank, Brian Arthur, Richard R. Nelson, Richard
Norgaard, Thomas Schelling, Tibor Scitovsky, Richard Thaler and Sidney G. Winter.

580

W. J. Samuels

Congruent with institutionalist thinking, Lazonick argues that transaction-cost analysis is

too restrictive: 'The history of twentieth-century capitalist development shows . . . that as
a dynamic process firms create markets, not vice versa. By definition, Coase's approach
casts the firm as a passive player that arises out of "market failure" rather than
"organizational success" ' (Lazonick, 1991, p. 169).

The future: process and evolution

A principal theme of institutional economics has been that the economy is more than the
market. Institutional economists have argued both that markets must be studied not
solely as a pure mechanism but as the products of institutions which form and operate
through them, and that the entire economy must also be studied systemically to include
all the institutions which comprise the economy, not merely the system of markets
narrowly conceptualised. Correlative to such holismholism with regard to markets and
with regard to the economy in its entiretyis evolutionism. Institutionalists emphasise
that, far removed from the necessary conditions for partial or general static equilibrium
analysis, the economy is always in a process of becoming, that one cannot take its
institutions as given because they are constantly evolving, in part through interaction
with technology and law and politics. Veblenian evolutionism is Darwinian in having
neither cause of causes nor predetermined end state; it is non-teleological and
open-ended.
This means that the economy is fundamentally processual, involving a process through
which things are worked out, not a transcendental mechanism imposing its will or
enforcing some grand design or teleology on mankind. Institutionalists lament that
mainstream neoclassical economics, in order to reach determinate, optimal, equilibrium
solutions to problems, makes assumptions which foreclose the operation of process and
tend to substitute the perceptions and preferences of economic analysts for those of
real-world economic actors. It is the real-world economic actors who collectively,
through market and political processes, work out solutions to problems of resource
allocation, income determination and distribution.
Opportunities abound in researching and analysing evolutionary processes in a
positive, non-normative manner. Veblen emphasised blind, non-teleological evolution
and Commons, artificial selection, with a distinctive emphasis on deliberative decision
making; institutional economics includes both. The Austrian, actually Mengerian, theory
of spontaneous order also properly encompasses both, albeit with distinctive emphasis on
non-deliberative decision-making.
The comparative advantages of institutionalism are the breadth of factors and forces it
is willing to consider, including institutional and historical details; its evolutionary
paradigm; and its emphasis on adjustment processes in a nonjudgmental manner, in
contrast to the neoclassical fixation on determinate optimal equilibrium solutions. The
'natural selection', for example, of firms must be analysed in terms of operative factors
and forces (including power structure), and not be sterilised by either tautologies
involving optimality or pretences that there are transcendental governing mechanisms
beyond human analysis and influence. The insrirutionalists reject concepts of the natural
order of things in favour of a view of the world as created by human individual and
collective activity and consequently as subject to human control rather than under the
sway of automatic mechanismsa position which manifestly enables them to examine
the details of human action and interaction, including the social or cultural as well as the
individual aspects of phenomena.

The present state of institutional economics

581

One of the central subjects of an evolutionary and processual analysis must be

technology. Technological development and use is a product of human choice: it does
not just happen as a deus ex machina. Recent work from a Schumpeterian perspective, for
example, emphasises the importance of technological innovation, diffusion, interdependence, regimes and trajectories as well as the cumulative nature of technological change,
in part in relation to gateway technologies; the historical, cultural and processual factors
in the genesis, form and direction taken by technology; the difference between theories
which explain the origins and development of technology and those which explain its
consequences; and, inter alia, the interactions between technology and entrepreneurship
(Heertje and Perlman, 1990).
Another central subject must be the study of power, with its dual focus on the
organisation and control of the economic system and on the legal-economic nexus (or
die interrelations between nominally legal and economic processes) which arguably is die
central institutionalised process dirough which the former is effectuated. One of the
principal areas which has preoccupied institutionalists from die beginning has been
die interrelationships between the legal-govemmental-political and die economic-market
spheres. Veblen and Commons, along with Richard T. Ely, John Maurice Clark, Walton
H. Hamilton, and odiers, investigated die history and die details of the legal foundations
of capitalism in particular and the economy in general. Today diere are a number of
institutionalists working in die law-and-economics field producing analyses quite different from those generated by the conventional, mainstream writers. The idea of a
fundamental legal-economic nexus has been central to institutional economics. One of its
effective findings is that government willy nilly is involved in die economy and that such
involvement constitutes planning, whedier or not it is recognised as such. The question
is always whose interest is to count, and government is inexorably involved in its ongoing
solution. Needless to say, diere is much more work to be done.

Conclusion
Institutional economics has had much ferment and controversy. Institutionalist analysis,
which emphasises die confiictual radier than the presumptively harmonious nature of
socioeconomic processes, can be applied to instirutionalism itself, widi die conclusion
diat whedier or not one considers such ferment and conflict 'healdiy' it is an expectable
characteristic.
This article argues diat institutionalism, if it takes advantage of numerous sources of
cognate research and analysis, and if it further departs from certain sectarian aspects
of its past, may be on die direshold of a quantum change in level and sophistication of
analysis. This may be die case with all of economics; if so, a revitalised institutional
economics can be a significant part diereof.
The key question is whedier the economics of die future will build direcdy on die 'old'
US institutionalism or whedier diat institutionalism will merge into a new crystallisation
of evolutionary and institutional economics. It is the genius of institutional economics to
have emphasised die facts of die evolving social reconstruction of reality (and of die
fundamental importance of die legal-economic nexus to diat process), thereby going
against die grain of the mechanistic determinism and noninterventionism of mainstream
neoclassicism. It can be the future of institutional economics to obtain nourishment from
many sources, diereby to extend and enhance its contributions. This future can be
produced by die new generation of institutionalists in die United States and by now
apparent vast numbers of like-minded economists in Europe and elsewhere.

582

W. J. Samuels

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