Chicago and Institutional
Economics
Malcolm Rutherford
University of Victoria
Institutional Economics
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Anti-neoclassical
Empirical view of science: investigation
Based on ‘modern psychology’
Emphasis on importance of economic and legal
institutions in determining economic outcomes
Significance of ongoing institutional change
Critical approach to existing ‘business’ institutions
Economic reform and ‘social control’
Pragmatic and instrumental philosophy (Dewey)
Veblen, Mitchell, Hamilton, J. M. Clark, Commons
Chicago and Institutionalism to 1920
• Thorstein Veblen, 1892-1906
– Directly influenced students such as Robert Hoxie,
Wesley Mitchell, H. J. Davenport
• Robert Hoxie, 1906-1916
– Called himself an institutional economist
• Walton Hamilton, 1914-1915
– Wrote the first institutionalist manifesto (1918 AEA
session that also involved J. M. Clark)
• Harold Moulton, 1914-1922
• J. M. Clark, 1915-1926
Chicago and Institutionalism to 1920
• In addition:
– Chester Wright, 1907-1944
– James Field, 1908-1927
– L. C. Marshall, 1908-1928: Readings in Industrial
Society 1918
– Harry Millis, 1916-1938
– Clarence Ayes (philosophy), 1917-1920
– Frank Knight, 1917-1919 (instructor)
– Graduate students such as Max Handman (sociology),
Ayres (philosophy), Sumner Slichter, Harold Innis,
Morris Copeland, Carter Goodrich
– Discussion group on Veblen included Knight
Chicago and Institutionalism1920s &
1930s
• Chicago hired Viner in 1916
• But still an institutionalist complement through the late
1920s (J. M. Clark, Field, Marshall, Millis)
• Paul Douglas hired in 1920
• Institutionalist graduates in the 20s and early 30s
included Kyrk, Copeland, Goodrich, Lyon, Wright, Reid,
Allen (Ruth Allen the last in 1933)
• Late 1920s: Clark and Marshall left, Field retired. New
Hires: Schultz, Lloyd Mints, Frank Knight, Henry Simons
• Criticism of institutionalism from Schultz, Viner, and
Knight
Knight and Institutionalism
• Knight at Cornell—Allyn Young and Davenport.
• Chicago and Iowa—institutionalism and German
Historical School. Max Weber
• Chicago: Economics from an Institutional Standpoint
• Course discussed Veblen, Commons, Mitchell,
Hamilton, Sombart, Weber, and general theoretical and
methodological problems of institutions and
institutional change
• Interest in changing values over time and the
development of a system of economic liberty out of
systems based on status and authority
Economics 305: Economics from an Institutional
Standpoint
(Winter 1937)
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The Institutionalist Movement
AEA Round tables on Institutional Economics (AER 1931 and 1932)
Veblen
Criticism of Veblen (Homan, Teggart, Harris)
Commons
Tugwell’s Trend of Economics (chapters by Mitchell, Clark, Tugwell, Copeland)
Hamilton
Criticism of institutionalism (Homan, Flugge)
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The Historical Schools of Economic Thought
Older Historical Economics (Roscher, Hildebrand, Knies)
Later Historical School (Schmoller, Bucher)
Historical Economics in England (Leslie, Ashley)
Neo-Historical School in Germany (Sombart, Weber, T. Parsons and others)
Tawney
Economics 305 (Cont)
III.
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IV.
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General Problems; Institutions, Their Origin and Development
The Meaning of Institutions (Hamilton, Cooley, sociology and anthropology)
Process and Causality in Institutional Change (social progress, Darwinism,
evolution)
The Institutional View of Economic Life.
The task of institutionalism that of accounting historically for the factors treated
as data in rationalistic, price theory economics.
The Economic Attitude: individualism and utilitarianism (Sombart on the spirit of
capitalism, Weber on protestant ethic, history of ethics)
Wants (Sombart on demand)
Technology (history of technology, Mumford)
Resources
Organization (Bucher, industrial evolution)
Economic Institutions as Embodied in Law
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General notions of law (Jurisprudence)
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History of law
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Institution of property
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Business Corporations
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Property, Contract, Corporation, Sale or Market
Knight on Institutions
• Importance of legal and ideological developments
(values)
• Development of a creative “enterprise economy”
• Concern with more recent decline of liberal values
• Role of institutionalists in inspiring Knight’s interest
• Students took over his defense of the competitive
model and of his liberal values, but not his interest in
institutionalism or his broader concern with
institutional change
• Interesting commonalities with Hayek
• Deirdre McCloskey and “bourgeois values”