Sunday, March 27, 2011

Institutional Economics

My decision to attend UMKC for graduate school has brought with it a recent change in my research interests. I will always consider myself an Austrian economist, but mine will be a Post-Austrian economics. I am going to learn everything I can in the heterodox tradition and attempt, gradually, to synthesize this literature with my interpretation of Austrian economics. A big part of the program at UMKC is Institutional Economics, and I have been reading lately a lot of survey articles on the subject. In particular, I have been reading a lot of stuff written by Warren Samuels, Geoffrey Hodgson, William Dugger, and Marc Tool.

Institutional Economics is a very rich field of thought without much scope for concrete application (or so it seems at this stage of my reading). The basic idea is that economic structures (institutions) are fluid and evolutionary entities that mold and shape human behavior, and are themselves determined and influenced by the interactions of individual agents. Therefore, it is wrong to take the individual as given, rationally purusing certain aims, purposes, and ends.

Into this mix a lot is added. We have Veblen and his emphasis on the effects of pecuniary culture. A very powerful implication of his analysis is the denial of downward sloping demand curves (Take that Pete Boettke!). Basically, people attempt to outperform one another in the demonstration of wealth. I find this whole discussion remarkably accurate. Veblen was a serious social theorist, and his work should be re-visited by Austrian scholars.

Veblen also took pains to distance himself from both neoclassical economics and Marxism/German Historicism. Veblen represents everything that I would want to be as a scholar. He carefully and brilliantly attacks everything without endorsing anything!

Clarency Ayres is another interesting figure. I just finished reading a paper of his entitled "The Role of Technology in Economic Theory." Ayres attempts to explain human behavior --- and cultural evolution --- in terms of its "tools and gimmicks." This reminds me of Lachmann's work on capital theory. Consider this passage:

"All culture derives from past experience. But because technology is objectified in physical tools and apparatus, it is always capable of progressive development. Every tool contains ... the possibility of being applied in new situations to different materials and in different ways from its historic use. This process is the universal pattern of invention and discovery."

Recently, however, new institutional scholars (Tool, Dugger, Swaney, etc.) have abandoned Ayres' analysis and its emphasis on the progressive nature of technology by affirming the importance of resistance to technological development and the inherent power structure exercised through it. Dugger's work is really good on this.

The work of John Commons and Wesley Mitchell is also of tremendous importance in Institutional Economics.

Does anyone else have any experience with Institutional Economics? If so, how would you define/describe it, and who has most influenced you and why?

Let me paraphrase Keynes: "I am studying Institutional Economics with the belief that I am not wasting my time."

I sure hope I am not. Institutional Economics has a lot of interesting things to say, but it just doesn't have that special kind of rigor that is found in traditional economic theory. It ain't like reading Harold Demsetz! I feel like I am being shown the world when I read Institutionalist writers (especially the old ones). It is so rich and abundant with implications, yet it remains so ambiguous and vague.

I am sure my attitude will change in the coming months, and I look forward to re-reading this post at that time to see exactly in what way my attitude has changed. But for the meantime, I will be reading up on Institutional Economics. I want to enter UMKC as a scholar on Institutional Economics. (This is no easy task, considering the literature and subject matter.)

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