Varieties of Institutionalism

21 May 2007 at 12:14 pm 3 comments

| Peter Klein |

The new institutional economists have not been kind to their “old institutional” predecessors. Coase’s dismissal of J. R. Commons, Wesley Clair Mitchell, Thorstein Veblen, Clarence Ayres, and their associates is typical: “Without a theory they had nothing to pass on except a mass of descriptive material waiting for a theory, or a fire.” Like its older counterpart, the new institutional economics is interested in the social, economic and political institutions that govern everyday life. However, the new institutional economics eschews the holism of the older school, adopting strict methodological individualism and some kind of rational choice framework. (See former guest blogger Dick Langlois’s 1989 paper, “What Was Wrong with the ‘Old’ Institutional Economics? (And What Is Still Wrong with the ‘New’?),” for a more sophisticated treatment of these differences.)

Among political scientists there is a similar distinction: “historical institutionalism” versus “rational choice institutionalism.” The differences, as discussed in Preferences and Situations, edited by Ira Katznelson and Barry Weingast (Sage, 2005), revolve mainly around the concept of preference. Rational choice institutionalists — like mainstream economists — take preferences as given, while historical institutionalists take preferences as endogenously determined by historical circumstance, rendering attempts to understand historical phenomena in methodologically individualistic terms impossible.

The historical approach has many problems, however. Mike Munger objects to its relativism: It tends “to presume that theory — any general theory — is wrongheaded: everything is different in various ways from one case to another. The central thesis of much of the work reported in Preferences and Situations seems to be that it is difficult to say anything interesting about persuasion, and the authors go on to demonstrate this claim persuasively.” (Jean Baudrillard, call your office!) More generally, is historical institutionalism, in its modern variant, much of an advance over the crude historicism smacked down in prior generations by the likes of Mises and Popper?

Entry filed under: - Klein -, New Institutional Economics.

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3 Comments Add your own

  • 1. jonfernquest  |  22 May 2007 at 3:31 am

    I thought these guys were the new institutional economics:

    I guess they are the new, new institutional economics?

    Moreover, the influence of institutional economists spread to political science a long time ago:

    And insofar, as these theories result in clear hypotheses applicable to historical data, historians too. Surely, differential access to information (information assymetry), for instance, has had historical effects.

  • 2. LF  |  22 May 2007 at 12:19 pm

    I don’t think I can say something on interest on the topic (among the cited books, I just read POpper’s and Mises’s), but I try.

    Several years ago on the Review of Austrian Economics a scholar called Gloria Palermo raised the point that methodological individualism couldn’t cope with changes in beliefs (it was may be called “Necessity and impossibility of a theory of institutions”).

    Historical institutionalists make a similar claim, I read.

    But when Mises wrote Omnipotent Government, he explained step by step how nationalism and impairments of international markets went hand-in-hand (some sort of a positive feedback). He claimed that institutions can change beliefs and viceversa, by changing incentives in peaceful/aggressive behaviors.

    Wasn’t he a methodological individualist? Surely he was, and of the most radical kind. That is why I can’t understand Palermo’s and Katznelson & Weingast’s claims. May be there is some fundamental limitation with the formal theory of choice, the one of the first chapters of Microeconomic textbooks. And I’m not at all suprised, I’ve never considered myself a function, nor I consider my fellows that way. :-D

  • 3. LF  |  22 May 2007 at 12:25 pm

    “it is difficult to say anything interesting about persuasion, and the authors go on to demonstrate this claim persuasively”

    In Mises’s words, there is no theory of persuasion (not a rich one, at least), even though it plays a great role in history.Did I get it right?

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