The early institutionalism

Institutional economics refer to a theoretical alternative movement in American economic thought associated with the names as Veblen, Mitchell and Commons. Veblen used interpretative sociology in the analysis of the entrepreneurial sphere while Mitchell tried to establish, from a statistical point of view (the foundation of the National Bureau of Economic Research is due to the efforts of Mitchell), the evolutionary pattern of the capitalist economy and Commons analysed the functioning of the market economy from the standpoint of its legal and institutional foundations.

The main futures of the theoretical foundations of the early institutionalism are:

- a critique of the static analyse of the neoclassical price theory based on the figure of the representative, anonymous and impersonal economic agent maximizing his own utility. The a-social character of the representative agent is viewed as a highly abstraction of a complex reality;

- arguing the relevance of the integration of the economics with other social sciences (inter-disciplinary approach) in order to give the economic sciences their very sense;

- giving a critical role to institutions underlying the economic structures;

- a favourable attitude to State interventions. The “old” institutionalists dislike about neoclassical economics its underlying hedonistic and atomistic conception of human nature (the theory of consumer behaviour). They dissented from the central implication of neoclassical welfare economics that a perfectly competitive economy tends to optimum results. In this vein, the institutionalists can be seen as the founders of the evolutionist science, meaning an inquiry into the genesis and growth of economic institutions. The economic system should be considered not as a self-balancing mechanism, but as a cumulatively unfolding process. Economic institutions are, therefore, defined as a complex of habits of thought, of knowledge and of conventional behaviour. In the institutionalist theory, institutions are considered as settled habits of thought common to the generality of men. They help sustain habits of action and thought, not simply constraints. Economic relations and economic evolution are studied as a historical cumulative process of change. Veblen stated that this process of change is a process of adaptation of means to ends that cumulative change as process goes on, both the agent and his environment being at any point the outcome of the last process. There is a path dependency rather than a

convergence to a given optimal equilibrium, previously determined by the competitive markets’ model and imposed to individuals. In order to establish a theoretical framework, the institutionalists tried to

develop meaningful and operational principles of invariance on which analysis can be founded: Institutions, as socially constructed invariants, are both outgrowths and reinforcers of the routinized thought processes. Institutions in the market economy are both subjective (allowing agents to undertake individual actions) and objective (common rules and constraints imposing to individuals) structures in order to sustain the stability and the replication of the system. The Evolutionist and the regulationist theories and the New Institutional Economics, however heterogeneous approaches, are the renewed developments of the early institutionalists’ intuitions.