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Durham E-Theses Durham E-Theses The development of American institutional economics Rutherford, Malcolm How to cite: Rutherford, Malcolm (1979) The development of American institutional economics, Durham theses, Durham University. Available at Durham E-Theses Online: http://etheses.dur.ac.uk/7908/ Use policy The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that: • a full bibliographic reference is made to the original source • a link is made to the metadata record in Durham E-Theses • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders. Please consult the full Durham E-Theses policy for further details. Academic Support Oce, Durham University, University Oce, Old Elvet, Durham DH1 3HP e-mail: [email protected] Tel: +44 0191 334 6107 http://etheses.dur.ac.uk THE DEVELOPMENT OF AMERICAN INSTITUTIONAL ECONOMICS by MALCOLM RUTHERFORD B.A. Heriot-Watt University, 1971. M.A. Simon Fraser University, 1973. A DISSERTATION SUBMITTED IN FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY In the Department of Economics University of Durham. 1979 . c Malcolm Rutherford 1979. The copyright of this thesis rests with the author. No quotation from it should be published without his prior written consent and information derived from it should be acknowledged. ABSTRACT Institutional economics is a particularly ill-defined concept, and a great deal of disagreement surrounds its meaning. Both the nature and development of institutional economics have been t'he subject of dispute for some sixty years; even those who claim to be institutionalists do not always agree on these issues. This thesis is an examination of the development and nature of American institutionalism. It proceeds through a detailed study of the intellectual currents in nineteenth century America which gave rise to the movement, and the work of those writers generally accepted as institutionalists. Most attention is given to T. lieblen, W.H. Hamilton, W.C. Mitchell, J.R. Commons, R.G. Tugwell, and C.E. Ayres. It is argued that institutionalism grew out of the impact of evolutionism and historicism in American thought. These factors resulted in the development of the "new school" of German influenced scholars, the work of Thorstein l/eblen, and the rise of pragmatism. Institutionalism is a combination of l/eblenism, pragmatism, and the ideas of new school writers such as R.T. Ely and H.C. Adams. The examination of the work of the major institutionalists reveals that while they do share a core of very general method• ological and economic views, there are a number of points of significant variation. It is also noticeable that the economic theories that institutionalism contains are not rigorously developed and contain many weaknesses. The thesis contends that institutionalism can best be seen as a broad movement con• taining within itself a number of distinguishable "wings," "groups," or "traditions." Its failure to develop a greater degree of coherence and more satisfactory theoretical ideas is attributed to the problems inherent in the epistemological and methodological positions adopted by its members. i v • TABLE OF CONTENTS Acknowledgement v 1 . Introduction 1 2. Background to Institutionalism 10 3. The New School, R.T. Ely, H.C. Adams, and S.N. Patten 66 4. Thorstein l/eblen's Evolutionary Economics 113 5. Walton Hamilton and the Formation of the Institutionalist Concept 158 6. Wesley Mitchell: Institutionalism and Quantitative Economics 190 7. John R. Commons: Institutionalism and Collective Action 234 B. Rexford G. Tugwell: Institutionalism and Economic Planning 296 9. Clarence Ayres: Institutionalism, Technology, and Progress 349 10. The Nature and Development of Institutional Economics 391 Bibliography 420 ACKNOWLEDGEMENT I would like to acknowledge the invaluable assistance of my thesis supervisor, Professor Denis O'Brien of the University of Durham. His interest, guidance, and willingness to devote his time to my mork, made writing this thesis a much more pleasurable task than would otherwise have been the case. I must also thank Professor Allan Gruchy of the University of Maryland for arranging my stay in College Park, which gave me access to research material I could not have obtained in Britain, and for all the comments and suggestions he made on my work. Any errors still remaining are, of course, solely my own res• ponsibility . My acknowledgements would not be complete without mentioning my wife's continuous support and encouragement, and her typing of the draft and the final version of the thesis. CHAPTER 1 INTRODUCTION Institutional economics has been a source of considerable perplexity for the student of economic thought ever since the term was first introduced into the literature by Walton Hamilton 1 in 1919. The major problem has aliuays been that there is remarkably little agreement concerning exactly what institutionalism is. This lack of agreement, it should be noted, extends well into the ranks of those who call themselves institutionalists. In Walton Hamilton's original article institutional economics was defined in terms of a very broad approach to the subject of economics. Institutional economics was, for Hamilton, the attempt to develop a theory of the "economic order,which involved (1) the concept of "process" or cumulative evolutionary change, (2) the study of institutions, (3) a concern for "social control" or problem solving, and (4) the use of the findings of "modern psychology" concerning the role of habituation in human behaviour.^ Hamilton admitted that no consistent body of institutionalist doctrine existed at that time, but he held out the hope that one 1. W.H. Hamilton, "The Institutional Approach to Economic Theory," reprinted in Industrial Policy and Institutionalism (Clifton, 1974), pp.187-198. 2. Ibid., p.190. 3. Ibid., pp.190-196. 2 . would eventually be arrived at. Among those contributing to the beginnings of this institutional economics Hamilton listed Thorstein l/eblen, Wesley Mitchell, and various other dissenters 4 from economic orthodoxy. In the 1920's and 1930's institutionalism attracted many adherents, so much so that L. Robbins was moved to complain of the "wide area of power" held by institutionalists in American economics.'' However, the movement, as even institutionalists admitted, was extremely diverse, and many attempts were made to define the common elements in institutionalist thought and to discover if any progress had been made toward developing what could be called a body of institutionalist economic theory.^ Most non-institutionalist investigators found little evidence of any definable institutional theory, and many characterised the movement as consisting largely of historical, descriptive, or quantitative investigations of particular institutions, combined 7 with a dislike of abstract theorising. It must be said that institutionalists themselves did much to contribute to this negative Q appraisal, although some writers argued that the characterisation 4. Ibid . , pp.197-198. 5. L. Robbins, An Essay on the Nature and Significance of Economic Science (London, 1932), p.104. 6. See for instance the Round Table Conferences, "Institution• alism: What It Is and What It Hopes to Become," American Economic Review 21, Supp. (1931): 134-141; and "Institutional Economics," American Economic Review 22, supp. (1932): 105-116. See also L.D. Edie, "The Institutional Concept," Quarterly Journal of Economics 41 (1927): 405-440; and Paul Homan, "An Appraisal of Institutional Economics," American Economic Review 22 (1932): 10-17; 3.R. Commons, "Institutional Economics," American Economic Review 21 (1931): 648-657; and the comments by J.E. Shafer, 3.R. Commons, and N.L. Silverstein in the American Economic Review 22 (1932): 261-269. 7. P. Homan, op.cit., pp.12-17; 3.3. Spengler, in "Institution• alism: What It Is and What It Hopes to Become," op.cit., pp.135-137; L. Robbins, op.cit., p.104. 8. For example, L.D. Edie, op • cit., pp.405-440; N.L. Silverstein, 3 . aias inadequate, particularly with respect to the theoretical 9 content to be found in Ueblen's work. A.L. Harris, for instance, argued that Veblen had more in common with Marx than with other 1 0 institutionalists, and, as Ueblen is frequently regarded as the "father" of institutionalism, such ideas created problems in the understanding of the development of institutionalism and in the 1 1 location of the sources of institutionalist thought. Despite these difficulties, the view of institutionalism as essentially descriptive and lacking in theory took hold in many 1 2 textbooks. What is more, the growth of institutionalism was checked at the end of the 1930's, and the movement declined in importance. This led some commentators to conclude that 1 3 institutionalism was dying out. As is now quite clear such judgements were considerably premature. In the post-1945 period institutionalism has gradually made itself felt once more, and institutionalists are now well represented in organisations such as the Association for Evolutionary Economics and in the pages of "An Appraisal of Institutional Economics: Comment," American Economic Review 22 (1932): 268-269; W.E. Atkins et al., Economic Behavior, An Institutional Approach (Boston, 1931)} see also D. Hamilton, "Why is Institutional Economics Mot Institutional?," American Journal of Economics and Sociology 12 (1962): 312. 9. D R Scott, "Veblen Not An Institutional Economist," American Economic Review 23 (1933): 274-277;K.L. Anderson, "The Unity of l/eblen's Theoretical System," Quarterly Journal of Economics 47 (1933): 598-626. 10. A.L. Harris, "Types of Institutionalism," Journal of Political Economy 40 (1932): 721-749. 11. See for instance E. Roll, A History of Economic Thought, 4th ed. (London, 1973), p.453. Roll is forced to speculate on the existence of an "oral tradition" linking Ueblen to the later institutionalists.
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