The Decline of the “Original Institutional Economics” in the Post-World War II Period and the Perspectives of Today

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Abstract

As is known, original, or “old”, institutional economics (OIE) ─ we also indicate it as “institutionalism” ─ played a relevant role in its first stage, and it can safely be said that it came to be, although perhaps by a slight margin, the “mainstream economics” of the time. That period ran approximately from the first important Thorstein Veblen’s contributions in 1898 — the article “Why Is Economics Not an Evolutionary Science?” — to the implementation of the New Deal in the early 1930s, where many institutionalists played a significant role.

However, notwithstanding its promising scientific and institutional affirmation, institutional economics underwent a period of marked decline, that spanned from, approximately, the mid-1930s to the late 1980s, when a new season for institutional economics was set in motion.

In order to cast some light, without any pretense of completeness, on this complex issue, we have organized the work as follows: in the first paragraph we consider the main interpretations of this phenomenon. Then, in the subsequent paragraphs we analyse a number of “endogenous” aspects which might have played a significant role in such decline: (i) the relations of institutional economics with Keynes’s macroeconomic theory; (ii) the links between theoretical and empirical analysis and the supposed lack of a clear theory; (iii) the interdisciplinary orientation.

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