In economics, the institutional economics school goes beyond the usual economic focus on markets, to look more closely at human-made institutions. Institutional economics was once the dominant school of economics in the United States, including such famous but diverse economists as Thorstein Veblen, Wesley Mitchell , and John R. Commons. Some see Karl Marx as arguing that capitalism is an institution (rather than being natural in origins). Many institutionalist economists disagree with Marx on this, instead seeing capitalism as a natural organization.

There are at least two versions of institutional economics that currently are represented in U.S. academia:

• The "new" institutional economics[1] derives human-made institutions from individual tastes (or preferences) and technical or natural factors, such as transaction costs. New institutionalism is a version of neoclassical economics. Some of the authors associated with this this school include Ronald Coase, Oliver Williamson, and Douglass North.

• "Traditional" institutionalism[2] sees the factors that the new institutionalists stress as important, but reject the reduction of institutions to simply tastes, technology, and nature (see naturalistic fallacy). Tastes, along with expectations of the future, habits, and motivations, not only determine the nature of institutions but are limited and shaped by them. If people live and work in institutions on a regular basis, it shapes their world-views. Fundamentally, this older institutionalism emphasizes the legal foundations of an economy (see John R. Commons) and the evolutionary, habituated, and volitional processes by which institutions are erected and then changed (see John Dewey, Thorstein Veblen, Daniel Bromley , and John Dewey). The vacillations of institutions are necessarily a result of the very incentives created by such institutions, and are thus endogenous. Emphatically, traditional institutionalism is in many ways a response to the economic orthodoxy of present; the reintroduction of older institutionalism can be considered a reemphasis of political economy as well, where economics cannot be separated from the political and social system within which it is embedded. Some of the authors associated with this school include Robert Frank, Warren J. Samuels, Mark R. Tool, Geoffrey Hodgson, Daniel Bromley, and Anne Mayhew

Some Sources

• Commons, John. "Institutional Economics," American Economic Review Vol. 21 (1931): pp. 648-657.

• Hodgson, Geoffrey M., "The Approach of Institutional Economics," Journal of Economic Literature v36, n1 (March 1998): 166-92.

• Oliver E. Williamson, "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, vol. 38 (September, 2000), pp. 595-613.