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101
American economists were strongly influenced by the theories of Western Europe:
first of all, the historical school of Germany (taking into account specific historical
conditions and factors of the social environment), as well as the English tradition of
reformist socio-economic thought (the teachings of J. St. Mill).
Institutionalists criticize representatives of traditional economic science for the
fact that the categories they consider (price, demand, profit, etc.) are too abstract,
schematic, and simplify real relationships. Institutionalists believe that a person is
driven not only by monetary interests, but by many different motives and factors.
Institutionalism includes two aspects:
1) these are customs, traditions, norms of behavior accepted in society;
2) this is the consolidation of norms and customs in the form of laws,
organizations, establishments, i.e. "institutions".
Institutions are the forms and boundaries of human activity. They represent
political organizations, forms of entrepreneurship, systems of credit institutions, tax
and financial legislation, social security systems and other organizations, regulations,
restrictions associated with economic practices.
Thus, institutionalists believed that the behavior of an "economic person" is
formed under the influence and within the framework of social groups and
collectives.
The meaning of the institutional approach is not to limit ourselves to the
analysis of economic categories and processes in their pure form, but to include the
"rules of the game" in the analysis and take into account non-economic factors.
Institutionalists sought to expand the scope of economic analysis, involving
approaches and methods of related sciences: sociology, social psychology, and other
socio-political disciplines. This approach helps to develop practical recommendations
and substantiate economic policy instruments.
12.2. Classical institutionalism
Classical (traditional) institutionalism — the period of the initial spread of
institutionalism — 1920–1930s.
In classical institutionalism, three main directions can be distinguished:
1) socio-psychological — its representatives considered the dependence of
economic processes on psychology, biology, anthropology (T. Veblen);
2) socio-legal — the dependence of economic processes on psychology and
law (J. Commons);
3) empirical, or conjunctural-statistical — the dependence of economic
processes on anthropology and mathematics (W. Mitchell).
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Social psychological institutionalism of T. Veblen
Thornstein Veblen (1857–1929) — American economist, founder of
institutionalism.
Veblen was the son of Norwegian emigrants. His parents lived very modestly.
Veblen himself often did not have enough money for clothes during his student years.
Already in adulthood, being a famous scientist, he worked in a room where the
bookshelves were built from simple boxes, and in addition to the table, and there
were no chairs or furniture.
Veblen was engaged in translations, was fond of botany, and edited economic
journals. Students spoke of him as an unusually erudite lecturer who knew
26 languages.
Main works: "The Theory of the Leisure Class" (1899), "The Theory of
Business Enterprise" (1904), "Instinct of Workmanship and the Level of
Development of Production Technology" (1914), "The Vested Interests and the
Common Man" (1916), etc.
Veblen pointed out that a historical approach is required in economic science.
It is necessary to study economic and social institutions, their origin and changes
throughout their existence and to the present day. In the past, Veblen sought to find
the origins of the main social institutions and contradictions in the society of the
present time.
Veblen considered the laws of biology and human psychology to be the basis
of all economic processes.
According to Veblen, the main thing that drives human behavior is instincts:
parental, the "instinct of mastery" (the desire for effective and efficient actions), the
instinct of idle curiosity, the tendency to acquire, a set of selfish inclinations
and habits.
Instincts shape certain types of behavior and habits. Later, these types of
behavior become customs and then transform into institutions. In other words,
institutions are historically determined forms of social behavior.
Veblen argued that in the process of development, contradictions arise between
institutions and the external environment. After all, according to his theory,
institutions arose as a result of processes that took place in the past. Therefore, they
cannot fully meet the requirements of the present time. Such a discrepancy, a
contradiction between existing institutions and the real external environment entails a
change in institutions. In Veblen's understanding, social forms (institutions) change in
the same way as natural selection occurs in nature.
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Being a supporter of Charles Darwin's theory, Veblen directly transfers the law
of natural selection to socio-economic development. In other words, it reduces the
socio-economic process to biological laws.
Veblen argues for this approach by the fact that human life in society, like the
life of other species, consists of the struggle for existence and the process of selection
and adaptation. At the same time, there is a process of natural selection of social
institutions. Veblen presents evolution in the socio-economic sphere as a constant
process of adapting a person and his thinking to a changing external environment. As
a result, there is a constant natural selection of the social institutions that are most
appropriate to the new way of thinking.
In "The Theory of the Leisure Class" and other works, Veblen divides the
history of human culture into four periods, or stages:
1) peace-loving prehistoric;
2) predatory;
3) quasi-peaceful stage (stage of competition in the monetary sphere);
4) peaceful economic stage.
Veblen combined the second and third stages in the era of barbarism.
Veblen contrasts two types of social structure and two historically opposite
types of economic behavior: productive (characteristic of the lower classes) and
acquisitive, idle (characteristic of the upper classes).
The book "The Theory of the Leisure Class" was published at the end of the
19th century, when in the USA, a financial oligarchy was formed, which was
characterized by waste of money on unheard-of luxury. Wastefulness has become the
generally accepted norm of behavior for representatives of this class.
According to Veblen, the institution of the leisure class is one of the most
important institutions of modern society. Veblen explores the formation of the leisure
class, its evolution, gives its characteristics and describes the consequences of the
existence of this institution for the way of life of the entire society.
Veblen classified the leisure class as people engaged in non-productive
activities, to which he included government, warfare, religion, sports and
entertainment.
According to Veblen, the leisure class plays a leading role in modern society.
Its way of life becomes the standard and norm for the entire society. Other sections of
society, prompted by "envious comparison", strive for the same ideal.
Veblen argued that consumer behavior, contrary to the ideas of neoclassical
theory, is not determined by individual assessments of goods according to the degree
of their usefulness. If the upper strata of society, the "leisure class", seek to
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emphasize their privilege through the "demonstrative waste", then the lower classes
seek to copy the behavior of the "leisure class".
In Veblen's concept, the utility of a product consists of functional utility
(satisfying necessary needs) and additional utility (the ability to bring honor and
recognition to the buyer of the product). For the buyer, according to Veblen, these
types of utility are inseparable when evaluating a product.
In modern economics, this type of consumption is called the Veblen effect. The
price of a product in this case consists of two components: its real value and its
prestige value. The more expensive and prestigious a product is, the higher the
demand for it among the upper stratum of society, with which other strata strive
to keep up.
Veblen associates the emergence of the leisure class with the emergence of
private property. Private property, as one of the economic institutions, according to
Veblen, appears as a result of the tendency to rivalry, competition inherent in man.
Veblen believes that the leisure class, with its acquisitive behavior, hinders the
development of production. Veblen writes that the leisure class is also conservative,
preventing changes in production and social life.
As an alternative, Veblen puts forward the idea of creating a technocratic
society, where control over production would belong entirely to technical specialists.
He believed that it was the technical intelligentsia that would act in the interests
of society.
Veblen proposes to subordinate the entire economic life to a specially created
council of technical specialists. According to Veblen, under the leadership of
technocracy, production, freed from the power of business, will work to meet the
needs of all members of society. The council of technical specialists will effectively
use natural resources and improve production.
Veblen believed that economic phenomena should be interpreted from a
sociological and historical perspective. Unlike representatives of marginalism, who
study the behavior of the individual, he examined the behavior of the group (trade
unions, associations of entrepreneurs, political parties, etc.) and institutions. Veblen
believed that institutions are the basis for the development of society. He noted that
the model of the "economic man", whose behavior is dictated by the desire to
maximize utility, is outdated. Today, human behavior is determined by both
economic and non-economic factors, in particular moral, ethical, cultural factors that
determine the psychology, behavior and motives of people’s activities in society.
Veblen introduced the concept of prestigious consumption, called the "Veblen
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effect". According to this effect, there are special prices for goods that symbolize
their prestige, and not a true manifestation of the law of demand. In other words,
prestigious consumer goods are valued by the extent to which their possession
distinguishes a person from others.
Socio-legal institutionalism of J. Commons
John Rogers Commons (1862–1945) — American economist, sociologist,
founder of the socio-legal direction of institutionalism.
Born into the family of a small entrepreneur, he studied at college and
university, where he realized that his vision of the world often differs from the vision
of others, he learned to listen to his opinion and analyze it, and also showed a great
desire for independence. Commons categorically refused to imitate anyone
intellectually and learned to independently discover and state facts and find their
connections with great enthusiasm.
Subsequently he worked as a teacher of political economy at various
universities.
Works: "Legal foundations of capitalism", "Institutional Economics: Its Place
in Political Economy", "The Economics of Collective Action".
J. Commons believed that the basis of economic development are legal
relations and legal norms.
The object of his research is collective institutions — families, trade unions,
joint-stock companies, political parties, the state.
He explained all the shortcomings of capitalism by the imperfection of juridical
and legal norms.
Commons developed a theory of social conflict, according to which society
consists of various groups that enter into equal transactions with each other, on the
basis of existing legal norms. During the implementation of transactions, conflict
situations arise, which are the source of the movement of society. Through legal
regulation of the rules of the transaction, all conflicts can be eliminated.
Commons believed in the need for government reform in the field of legislation
and the creation of government, the members of which are the leaders of various
collective institutions. Such a government could be controlled by public opinion and
would demonopolize the economy.
Commons advanced the concept of value, according to which the value of
marketable products is the result of the legal agreement of "collective institutions".
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The legal aspects of Commons "collective action", as well as Veblen’s antimonopoly reform ideas, found real practical application in the 1930s. during the New
Deal period of US President Franklin Roosevelt.
Conjunctural-statistical institutionalism of W. Mitchell
Wesley Claire Mitchell (1874–1948) — American economist, statistician,
founder of the economic-statistical direction of institutionalism.
Mitchell was born into the family of a former military doctor who became a
farmer and constantly got involved in commercial ventures. Studied at the University
of Chicago. He taught at Columbia University. President of the Econometric Society
(1942–1943).
Mitchell headed the National Bureau of Economic Research for a quarter of a
century (from 1920 to 1945), where he very persistently and scrupulously collected
factual material, initial statistical data. Under Mitchell's leadership, "the Harvard
Barometer" was created, which forecast economic development.
Works: "Business Cycles and Unemployment", "The Backward Art of
Spending Money", etc.
In his works, Mitchell tried to use statistical analysis to prove the provisions of
institutionalism.
In the history of economic science, he is known as a specialist in the study of
cyclical phenomena. According to Mitchell, cyclical development is not an accidental
phenomenon, but a permanent feature of capitalism. The economic cycle is the result
of the action of many interrelated parameters (investments, money, securities rates,
savings, etc.).
Largely thanks to Mitchell, the study of cycles was put on an empirical basis.
Mitchell believed it was necessary to improve the government statistical service,
emphasizing the importance of promptly obtaining the necessary statistical
information.
He attached particular importance to the statistical analysis of the "price —
cost — profit" relationship, emphasizing the key role of factors that control
profitability expectations. The statistical indicators proposed by Mitchell later began
to be used in the development of macroeconomic cycle models.
As practical measures of countercyclical policy, Mitchell proposed state
organization of construction work in a recession and unemployment insurance.
He advocated the need for state influence on the economy and shared the
central idea of institutionalism about the need for social control over it.
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Mitchell spoke of the need for systematic long-term planning of public works
and the organization of a government forecasting service. He considered it necessary
to create a special state body for indicative planning — a national planning bureau.
12.3. "Second Wave" institutionalism
(theories of institutional evolution)
The second wave of institutionalism — institutionalism of the post-war
period — 1950–1960s.
Representatives of institutionalism of this period are primarily interested in
ways of transforming society under the influence of technological changes. They
believed in the limitless possibilities of scientific and technological revolution and the
prospects that it opens up. Second-wave institutionalism relies on the development of
evolutionary processes in the economy. The market is not a universal means of
economic regulation. We need flexible and effective government policy.
J. Galbraith's theory of technostructure
John Kenneth Galbraith (1908–2006) — American economist, representative
of institutionalism — an industrialist-technocratic movement.
Born into a farmer's family. He was engaged in agriculture. He attended
college and university, where he studied agricultural economics, taught at Harvard.
Headed the Bureau of Price Control. He was the US Ambassador to India. He was an
adviser to Presidents John Kennedy and Bill Clinton.
Works: "The Affluent Society" (1958), "The New Industrial State" (1967),
"Economic Theories and Goals of Society" (1973), etc.
J. K. Galbraith believed that the behavior of the modern market economy is
increasingly determined by large corporations. The masters of the market are
becoming technocrats — highly qualified managers and technologists of large firms
who have the necessary information and knowledge. As corporations grow in size
and technocrats become more powerful, their goals come into conflict with public
goals. Therefore, state control is necessary.
According to Galbraith, contemporary capitalism began to transform into an
industrial society. At the upper level of this society there are large corporations that
create a planned order, at the lower level there are many small firms that form the
market environment itself. At the same time, the planning subsystem exploits the
market system, thereby generating inequality in profit.
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In "The Affluent Society", Galbraith documents the tendency of free market
capitalism to create private splendor and public poverty. Advertising artificially
creates unnecessary needs. "The Affluent Society" suffers from this excessive
abundance. The quantity of goods increases, and the quality of life deteriorates.
Galbraith is the author of the theory of balancing forces. The meaning of this
theory is to extinguish social cataclysms. The power of monopolies must be
countered by state planning. Control over the state needs to be transferred from the
technostructure to scientists and professors. It is also necessary to increase the role of
the "third force": trade unions and other organizations.
He preached the idea of convergence, i.e. some kind of rapprochement between
capitalist and socialist societies.
The theory of the "economy of domination" by F. Perroux
Francois Perroux (1903–1987) — French economist, leader of the institutionalsociological school in France.
He received philological and economic education. Since 1928 — professor of
political economy in higher educational institutions of Lyon and Paris. Perroux
founded a number of economic research institutes and served as their director.
Works: "Economy of the 20th Century" (1969), "Power and Economics"
(1973), "A New Concept of Development" (1983), etc.
Perroux is the author of a theory called the "economics of domination". The
essence of this theory: relations between participants in economic activity are built
not on the rights of equal partners, but on the basis of relations of dominance and
submission. The effect of dominance exists at the level of individual enterprises,
industries, economic zones, and interstate relations. For example, investment
companies occupy a dominant position in relation to those who make savings.
Monopolies and oligopolies play a decisive role in the economy. Relations between
states are also based on the principles of dominance and domination.
The dominance of some enterprises and the subordinate position of others
distorts normal relationships and deforms the economic space.
"Growth poles" are created around the dominant industries, which play the role
of unique "motors". "Motor industries" stimulate the expansion of related industries,
generating increased productivity and innovation. Progressing industries create
incentives and conditions for the progress of other industries.
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An economy in the process of development consists of two sectors: modern
(ensures the introduction of new products) and traditional (inhibits growth). As a
result, imbalance and disorder increases.
To overcome these imbalances, as well as to ensure sustainable GDP growth
and correspondence of economic growth rates to production capabilities, it is
necessary to rationalize the management organization and apply indicative planning.
Interaction of economics and sociology in the works of G. Myrdal
Gunnar Myrdal (1898–1987) was a Swedish economist and founder of the
Stockholm School of macroeconomics. Winner of the Nobel Prize in Economics in
1974 "for his fundamental work on the theory of money and his in-depth analysis of
the interdependence of economic, social and institutional phenomena".
Born into the family of a railway worker, he received a legal education. He
defended his doctoral dissertation in economics and then taught economics. He was a
Member of Parliament, Minister of Trade, and Executive Secretary of the UN
Economic Commission for Europe. Founded a research center specializing in
economic analysis and development of the regulatory framework.
Works: "Monetary Equilibrium" (1939), "An International Economy: Problems
and Prospects" (1956), "Asian Drama: An Inquiry into the Poverty of Nations"
(1972), etc.
Myrdal developed a theory of overcoming the backwardness of the Third
World countries.
The problems and difficulties in these countries are associated not with
economic processes or a lack of capital, but with social contradictions, the
backwardness of all spheres of public life. People cannot find a use for their labor,
and there are not enough workers for industrial development. With an outdated
structure and a low level of training and education, agriculture is unable to "give" free
labor to industry and the city.
The instruments of the market economy do not work according to the usual
patterns. The transformation should not be based on market automation, but on the
implementation of effective public policy based on comprehensive consideration of
local conditions and characteristics. Not only sources of investment are important, but
also the appropriate level of consumption and stimulation of domestic demand.
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12.4. Neo-institutionalism
Neo-institutionalism is a modern school of economic thought that emerged in
the last decades of the 20th century.
Old institutionalists introduced elements of other sciences into economics: law,
sociology, psychology, etc. Neo-institutionalists, on the contrary, introduce economic
research methods into other sciences: political science, law, ecology, etc.
This approach, i.e. the use of an economic approach to the analysis of various
spheres of social relations (education, health care, family, parliamentary elections,
crime, etc.) is called "economic imperialism".
Representatives of neo-institutionalism use the approaches of the neoclassical
school to analyze the institutional aspects of a market economy. The latter refers not
only to the "rules of the game", but primarily to the management mechanism (legal,
political, organizational, informational) of typical operations (transactions,
agreements, contracts, norms of activity) of economic organizations.
Unlike neoclassicists, neo-institutionalists reject the postulates of complete
rationality and honesty in the behavior of economic agents, and instead introduce the
principles of limited rationality and opportunistic behavior. Bounded rationality
means that a person is limited in his intelligence, does not have complete information
and must choose the most optimal solution. Opportunistic behavior means "the
pursuit of personal interest through deceit", failure to fulfill one's obligations.
Therefore, social institutions (legal norms, customs, etc.) must minimize the harmful
consequences of such behavior.
Neo-institutionalism consists of many separate doctrines. Let's discuss some of
them.
Transaction cost theories and property rights of R. Coase
Ronald Coase (1910–2013) — Anglo-American economist, founder of neo-
institutionalism, winner of the 1991 Nobel Prize in Economics "for discovering and
clarifying the exact meaning of transaction costs and property rights in the
institutional structure and functioning of the economy".
R. Coase's parents worked at the post office and were fond of sports and
literature. From them he inherited a love of literature and read a lot. He studied at the
London School of Economics. In 1931–1932 Coase worked in the United States,
studying the vertical and horizontal integration of industry in the country. He worked
as a teacher in the USA and London. Worked in government services — at the
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