The approach of institutional economics

Journal of Economic Literature
Vol. XXXVI (March 1998), pp. 166–192
Hodgson: Institutional Economics

The Approach of Institutional
Economics
GEOFFREY M. HODGSON
The Judge Institute of Management Studies, University of Cambridge
The author is particularly grateful to Peter Corning, Masashi Morioka, Richard Nelson, John
Nightingale, Douglass North, Paul Twomey, and three anonymous referees for discussions, critical comments, or other assistance. The Japan Society for the Promotion of Science, and the European Commission, Phare-ACE program are thanked for their financial assistance with this research.

By means of the old, we come to know the new.
I. Introduction

T

Confucius

spread unfamiliarity with the “old”
American institutionalism, despite its favored geographic location and accessible language. The second reason is that since its decline in America after 1930 the “old” institutionalism has been repeatedly written off, and is dismissed for failing to provide a systematic and viable approach to economic theory. It is also widely—and wrongly—believed that institutionalism was essentially anti-theoretical and descriptive.
However, characterizations of the
“old” institutionalism as purely descriptive or anti-theoretical do not bear up to close scrutiny. Particularly in the writings of Veblen and Commons, there is a strong emphasis on the importance and priority of the tasks of theoretical explanation and theoretical development. Whatever their limitations, the early institutionalists addressed crucial theoretical issues.
For example, Veblen (1899, 1919) was the first social scientist to attempt to develop a theory of economic and institutional evolution along essentially

ODAY, THE TERM “new institutional

economics” is in widespread use and is associated with a vast literature.
Clearly, the temporal adjective in the adopted title of this broad set of postwar theories and approaches has been intended to demarcate