Malcolm Rutherford

What is wrong with the new institutional economics (and what is still wrong with the old)

It is one of the objectives of this paper to respond to the self-proclaimed superiority of the new institutionalists over the old. New institutionalists have found little of value in the old, largely dismissing its approach and its concerns in favour of a more purely individualistic approach and one emphasizing invisible-hand and evolutionary processes. Nevertheless, it is the argument of this paper that in terms of the development of an adequate treatment of institutions it is far from obvious that the NIE, if it remains so narrowly constituted, can provide more than a part. The emphasis of the OIE on particular institutional histories, collective decision-making processes, and institutional failures retains its place, even in the face of the self-assured assault of the new.

Understanding Institutional Economics: 1918–1929

All attempts to define American institutionalism, whether in terms of a set of key methodological or theoretical principles or in terms of the contributions of the three generally accepted “founding†figures of Thorstein Veblen, Wesley Mitchell, and John R. Commons, have run into a problem with the apparent disparities within the movement. In terms of the three “founders†there are obvious and quite dramatic differences between the methodologies and theoretical directions of the three men. Veblen is associated with an evolutionary approach, a key distinction between pecuniary institutions and technological or industrial requirements, and a biting critique of orthodox theory and business practices; Mitchell with quantitative methods and detailed research on business cycles, an approach he established at the National Bureau of Economic Research (NBER); Commons with documentary histories, work on labor issues and public utility regulation, and an analytical scheme emphasizing the evolution of legal institutions and processes of dispute resolution. The same problem shows up with more explicit types of definition that often seem to capture only some parts or aspects of the movement and not others, or are so broad as to lack much specific content. Institutionalism easily appears as incoherent, as little more than a set of individual research programs with nothing in common other than a questioning of more orthodox theory and method. Thus, Mark Blaug has stated that institutionalism “was never more than a tenuous inclination to dissent from orthodox economics†(Blaug 1978, p. 712), and George Stigler has claimed that institutionalism had “no positive agenda of research,†“no set of problems or new methods,†nothing but “a stance of hostility to the standard theoretical tradition†(quoted in Kitch 1983, p. 170). This view still finds wide currency— for example Oliver Williamson has recently argued that “unable or unwilling to offer a rival research agenda, the older institutional economics was given over to methodological objections to orthodoxy†(Williamson 1998b, p. 24; see also 1998a).

Institutionalism Between the Wars

Recently, I completed a paper on institutional economics in the 1920s [Rutherford, forthcoming]. That paper is more than 60 pages in length and could easily have been longer. Indeed, most of the comments I received suggested expanding one or more parts of it. To deal with institutionalism over the entire interwar period in any real depth would take up a good part of a book, but this is a conference paper, and the constraints of the form mean that I will have to confine myself to a small number of central points. Some of the material in this presentation is taken from my paper on institutionalism in the 1920s, but I will attempt to expand that discussion along the time dimension while severely compressing the amount of detail provided. My focus will be on what I consider to have been the defining characteristics of interwar institutionalism. Although I do want to say a few things about later developments that run through the 1940s and beyond, I think it is especially important to get as good an understanding as we can of what institutionalism was during the interwar period because that was when institutionalism developed as a movement and became a force to be reckoned with in American economics. Examining the nature of interwar institutionalism will help us to understand not only why it appealed and grew as a movement, but also what happened later to diminish its popularity. In this way also, institutionalism, as it exists today, can be put in historical context and understood as the outcome of a particular set of circumstances: circumstances that in-

American Institutionalism and the History of Economics

Being the President of a society such as this is a position that brings with it relatively few benefits. One very definite benefit it does confer, however, is the opportunity to address ones peers on a subject of ones choice, for an indefinite period of time, and with no fear of contradiction; no referees, no discussants, and not even any questions from the audience. I intend to make use of this unconstrained state by being somewhat more speculative in my remarks than I could otherwise be.

Institutional Economics at Columbia University

In the interwar period, institutionalism was a very major part of American economics. The main centers for institutionalism were the University of Chicago (until 1926 and the departure of J. M. Clark), the University of Wisconsin, the Robert Brookings Graduate School (which existed only briefly between 1923 and 1928), and, after the arrival of Wesley Mitchell in 1913, and J. M. Clark in 1926, Columbia University. Columbia University became the academic home of a large concentration of economists of institutionalist leaning, and other Schools and Departments in the University, particularly Business, Law, Sociology, and Philosophy, also contained many people of similar or related persuasion. Taken in aggregate, Columbia has to rank as the largest and most important center for institutional economics from the mid 1920s to the late 1940s. This paper traces the history of institutionalism at Columbia begining with Wesley Mitchells appointment in 1913. The institutionalist contingent grew rapidly to include F. C. Mills, Robert Hale, James Bonbright, Rexford Tugwell, and J. M. Clark. Mitchells National Bureau of Economic Research, founded in 1920, was also a center for Mitchells quantitative institutionalism and employed many Columbia graduates and faculty. In addition Gardiner Means was employed in the Law School working with Adolf A. Berle, and there were close links between institutionalists and the legal realist movement in law. In the early 1930s Carter Goodrich, Leo Wolman, and Joseph Dorfman were added to the economics faculty. The work produced by this institutionalist contingent and their graduate students is examined. After that, institutionalism began to decline in its professional standing. At Columbia, this was reflected in a growing concern with the Departments relative weakness in theory, and, in 1947, the hiring of Albert Hart, George Stigler, and William Vickrey. Institutionalism did not renew itself at Columbia and gradually faded from the Department with the retirement of the older generation of faculty.

Wisconsin Institutionalism: John R. Commons and His Students

This paper seeks to provide a close examination of the nature and history of the institutional economics that developed at the University of Wisconsin. There has been a significant amount of work done on the thinking of John R. Commons, but much less on the history of Wisconsin institutionalism more generally. The paper proceeds through an examination of the development of the Department of Economics at Wisconsin from the time of the hiring of Richard T. Ely in 1892; the faculty hired to the Department from the early 1900s through to Commonss retirement in 1933; the program of instruction offered, particularly in the late 1920s when the full complement of institutionalist faculty were present; and the areas of study and later careers of Commonss graduate students. It is argued that although Ely played a role in the development of Wisconsin institutionalism, it was Commons who became the center of graduate student work, and that the Department only took on its decidedly institutionalist character after the hiring of Commons and a number of his students as faculty. The program of study in the late 1920s was very heavily institutionalist in character with Commons providing a core course on value and valuation, and a notable emphasis in the fields of public utilities, labor economics, and statistics. Very little instruction was provided in neoclassical theory. Many of Commonss students went on to notable careers in the academic world or public service or both. Wisconsin students were heavily involved in labor legislation issues, and in the development and administration of social security. But a number of Commonss students went into academic careers, and many produced large numbers of PhD students themselves. The decline of Wisconsin-style institutionalism after World War II was not, as has been suggested, a result of Commonss students moving largely into non-academic careers, but of many other factors, including the rise of Keynesian economics, and the migration of what had been much of Wisconsin institutionalism into new schools of industrial relations.

“Who's Afraid of Arthur Burns?” The NBER and the Foundations

The National Bureau of Economic Research (NBER) was founded in 1920 and quickly came to be regarded as one of the leading economic research organizations in the world. The NBER still exists today and still enjoys a high reputation, but the NBER of today bears little resemblance to the organization it once was. Between 1920 and the present the NBER has undergone a number of significant changes in form, function, and direction, and this history is one that includes moments of considerable drama. There were times of great financial stress, to the point where the future existence of the organization was in doubt, times when the organization seemed to be able to maintain a highly favored financial status despite outside criticism, and times of sharp conflict between the Bureau and its financial patrons.

Morris A. Copeland: A Case Study in the History of Institutional Economics

Morris A. Copelands work and career as an institutional economist has been the subject of only one significant paper (Millar 1980) and is not well known today, even among institutionalists. The standard histories of institutional economics have tended to focus on a few leading figures, notably Thorstein Veblen, Wesley C. Mitchell, John R. Commons, and Clarence Ayres, and have largely ignored the many others (some of whom had outstanding careers) associated with the movement. This narrow focus has given a misleading impression both of the institutionalist movement itself and also of the nature of the institutionalist contribution to economics. The examination of Copelands career, treated as a case study in the history of institutional economics, can help correct this problem. Copeland is a perfect candidate for such a case study due to his central place within the interwar institutionalist movement, his teachers, the contacts he maintained, his work in both academic economics and in public service, and his professional standing within economics more generally.

On the Economic Frontier: Walton Hamilton, Institutional Economics, and Education

Correspondence may be addressed to Malcolm Rutherford, Department of Economics, University ofVictoria, P.O. Box 1700,Victoria, British ColumbiaV8W 2Y2, Canada. The research for this paper made extensive use of the Brookings Institution Archives in Washington, D.C., and the Walton Hamilton Papers at the Tarlton Law Library at the University of Texas. I also benefited from access to theArchives of theWar Labor Policies Board at the NationalArchives, College Park, Maryland; the Morris A. Copeland, Joseph Dorfman, Carter Goodrich, and Wesley Mitchell Papers at the Rare Book and Manuscript Library, Columbia University; the Clarence Ayres Papers at the Center forAmerican History at the University of Texas; the H. C.Adams and I. Leo Sharfman Papers at the Bentley Historical Library, University of Michigan; the Isador Lubin, Rexford Tugwell, and Mordecai Ezekiel Papers at the Franklin D. Roosevelt Library, Hyde Park, NewYork; the John R. Commons Papers at the State Historical Society of Wisconsin in Madison,Wisconsin; and theArchives of the Laura Spelman Rockefeller Memorial at the Rockefeller Archive Center, Sleepy Hollow, NewYork. My thanks also to Robert Coleberd for extensive comments and enthusiastic encouragement, the Amherst College Archives and Special Collections for information on course offerings, my research assistant, CristobalYoung, for biographical research, and Mark Perlman, Robert Whaples, Sherry Kasper, Roger Backhouse, and Julian Reiss for useful comments. An anonymous referee helped greatly to improve this

American institutionalism and its British connections.

Abstract This paper examines the connections between American institutionalists and a number of ‘non-Marshallian’ British economists and social scientists, several of whom were associated with the Fabian Society or the London School of Economics or both. Specifically, the links between institutionalists such as Walton Hamilton and Wesley Mitchell and British social scientists such as John A. Hobson, Henry Clay, R.A. Tawney, William Beveridge and Graham Wallas. It is argued that these connections were related to common views on the importance of institutions, compatible methodological views, common interest in questions of social value, shared policy concerns (particularly unemployment and the coal industry), shared interests in the development of new institutions for education and research in economics and shared connections with the funding activities of the Rockefeller Foundation. These connections were much more extensive than has usually been realized. Some reasons for this British group not to form into a movement similar to American institutionalism are explored.