The American Institutionalist School

Ford Automobile Assembley Plant

The American Institutionalist School, commonly associated with Thorstein Veblen, John Commons and Wesley Mitchell, was for a brief period effectively the orthodoxy in the United States, sandwiched between the fall of the American apologists in the early 1900s and the Paretian revolution of the 1930s.

The Institutionalist school developed in the late 1880s in the United States and was heavily influenced by the German Historical School and the English Historicists.  In the beginning, they did not shy away from direct confrontation with Classical and then Neoclassical economics, although their real targets were the plethora of apologists that dominated the American scene.   Deploring the the universalist pretensions of much of economic theory, the Institutionalists stressed the importance of historical, social and institutional factors which make so-called economic "laws", contingent on these factors. Much of everything in the economic world, they argued, was not immutable but rather conditioned by the influence of an always changing history - whether acting on the individual directly, or indirectly through the institutions and society which surround him.

However, the their success was ephemeral. The methodological battle between Richard T. Ely and Simon Newcomb had robbed the Institutionalists of their early strongholds, the Johns Hopkins University and the American Economic Association (AEA). The growing sway of the Marginalist Revolution over American academia - particularly at the hands of Fisher at Yale, Taussig at Harvard and Knight at Chicago, gnawed further away at the Institutionalists' position.

By the1920s, few schools remained in Institutionalist hands - Columbia under Wesley Mitchell and Wisconsin under John Commons and other smaller departments like the New School and the University of Texas. Cornell could also be included if one considered the more theoretical "American Psychological" School of Frank A. Fetter and Herbert J. Davenport and Frank H. Knight, which combined the work of Veblen with that of Austrians, to be an offshoot of American Institutionalism.

During this time, they withdrew from confrontation with the Neoclassical mainstream by concentrating on what became one of their major legacies: the empirical measurement of business cycles and the compilation of records of economic history. Wesley C. Mitchell founded the National Bureau of Economic Research (NBER) for precisely that purpose and, under his leadership, many economists concentrated on these laborious tasks - leaving us a quantitative legacy which lasts to this day. However, even this apparently innocuous task led to another confrontation: an empirical Methodenstreit - only now with Koopmans and the Cowles Commission econometricians.

A mighty blow was delivered by the Keynesian Revolution which rendered their now- reduced role as heterodox critics of the Neoclassical orthodoxy partly superfluous. Nonetheless, for many years, the dissenting voices of John Kenneth Galbraith and Robert L. Heilbroner maintained the old school alive.

An interesting development in recent decades has been the gradual encroachment of the "imperialistic" New Institutional schools on territory that has typically been reserved for the Institutionalists. . To a considerable degree, these schools of economists turned the old Institutionalist position on its head - using Neoclassical economics to explain history, social relations and the formation of institutions rather than the other way around, as the old Institutionalists proposed, of using history and institutional concerns to explain economic behavior, structures and patterns.

Early American Institutionalists and Associates

The American Institutionalist School

Business Cycle Institutionalists

Modern Institutionalists

Resources on American Institutionalism

Home Alphabetical Index Schools of Thought  Essays and Surveys
Web Links References Contact Frames