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Transcript of Chapter 12: Institutional and Historical Critics of Questions for Review, Discussion and Research 2,...
Chapter 12: Institutional and Historical Critics
of
Questions for Review, Discussion and Research
2, 6, 7, 8, 9
Introduction
Neoclassical economics was dominant in Britain and France
German historical school challenged its methodology, and “orthodox” theory – including the Austrian approach was often ignored
American institutional school prevailed as a neoclassical theory gained ascendancy in major universities
First Generation of German Historical School
Includes List – Father of modern
protectionismRoscher
Hildebrand – Stages of economic growth found in conditions of exchange: Barter, Money, Credit
Knies – Opposed all abstract theory
Classical political economy only applicable to the emerging British industrial economy and is not appropriate for all times, cultures and places
Ricardians were mistakes to emulate the methodology of the natural and physical sciences
Second Generation of German Historical School
Schmoller was a leading advocate of moving away from grand theories and stages of development toward specific issues associated with economic growth and development
Controversy with Austrian school over methodology lasted two decades
The debate lead to recognition that theory and history, deductive and inductive, abstract model building and statistical data gathering were not mutually exclusive
British Historical School
Writers did not form a cohesive group and included
Leslie – Critic of Ricardo but admired Adam Smith
Toynbee – Coined the term Industrial Revolution
Ashley – Founder of Dept of Political Economy at U of T
Cunningham Bagehot Ingram – First systematic
account of history of economic thought in Britain
Thorstein Veblen
Intellectual father of the American Institutional School
Son of immigrants who never fully integrated onto the American mainstream
Was an economic instructor at the University of Chicago and became editor of the JPE Overhead pp. 328
He coined the phrase neoclassical to emphasize the continuity of the classical and marginalists
Thorstein Veblen Cont’d
He believed the assumptions of both doctrines were unscientific
He completely rejected the theoretical structures of mainstream economics, Marxist political economy and the historical school
Sought to build a united social science from economics, anthropology, sociology, psychology, and history
Prior to Smith, supernatural forces accounted for the order of society and was replaced with the idea of natural law which presumes harmonious relationships
Thorstein Veblen Cont’d
Veblen viewed the concept of equilibrium as normative and challenged the presumption that the results are socially beneficial
Veblen claimed that mainstream economics was
1. Teleological as it assumes that the economy was gravitating toward long run equilibrium before the analysis begins
Thorstein Veblen Cont’d
2. Pre-Darwinian as it focuses on static equilibrium and not a paradigm based on a continually evolving, organic nature of society
3. Taxonomic classification of economic sectors (households, firms) is not implanted in an institutional framework undergoing constant change
Thorstein Veblen Cont’d
Mainstream economics was founded on Adam Smith’s concept of the invisible hand at the market – an assumption that is never critically examined believed that the public interest was constantly compromised and damaged by the pursuit of profit
Challenged the assumption that markets under the control of capital would produce socially desirable results
Claimed that neoclassical models of consumers were based on a hedonistic psychology with unscientific notions of human nature and behaviour
By doing so, “economic man” as a social being was abstracted out of the analysis
Veblen’s Approach
Shift emphasis from the allocation of scarce resources to the evolution of institutional structures defined as the habits of thought of a particular time, place and culture
The institutions of culture were central to Veblen’s evolutionary approach
He sought to understand the complex set of interrelationships that developed between culture and the traits of human nature
Overhead pp. 332Carefully read pp. 332 to 338 on your own
Veblen’s Contribution
1. Replace an atomistic paradigm that proceeds from a focus on its smallest units (individual households, firms) with one that amalgamates the disciplines of the social science and starts at the level of culture, society and economy
2. An evolutionary theory seeking a better understanding of the institutional structures formed by habits of the mind
3. Replace hedonistic concepts with a social psychology focused on instincts
Veblen’s Contribution Cont’d
4. Promoted a scientific method that includes the collection of factual material to test a hypothesis
5. His normative critique of pecuniary culture
6. Theoretical framework looked at the impact of ceremony and technology on institutions
7. Ceremonial institutions were perceived to be static and technological ones dynamic
Wesley Mitchell
Student of Veblen and John Dewey at the University of Chicago
Overhead pp. 340
John Commons
Influenced by labour economist Richard Ely and the German Historical School
Father of the institutional approach known as the Wisconsin School
John Hobson
Economic ideas became the intellectual foundation of the British Welfare State
Never found favour in intellectual circles until Keynes praised him