Why is institutional economics not institutional?
This article returns to Hamilton’s methodological reflections. He notes that the mainstream of economics misperceives institutional economics for two reasons: the misperception that the term “institution” is synonymous with social structure and the fact that institutional economics in the 1930s became associated with description and atheoretical empiricism. Hamilton acknowledges that the choice by Walton Hamilton in 1919 of the admittedly vague term “institutional” certainly contributed to the problem. Hamilton goes on to note that Veblen’s first two books contain the word “theory.” He points out that institutional economics has a well-developed theory of value and a theory of economic progress. He argues that the instrumental value theory of institutionalism, where items are valuable because of the consequences their use has on the provisioning process, will not explain price. But he notes that the explanation of price in neoclassical theory is not so much an explanation as it is an imputation of price along with the assertion that it is equal to value. He also contrasts instrumental valuation with the labor theory of value of the classical and Marxist economists. Value theory in institutional economics is a tentative assessment of usefulness for the proposed task at hand. It will not tell you why a cup of coffee cost ten cents when this article was written; nor will it prove that capitalism exploits labor because labor is not compensated with the full product of its efforts. But it does connect valuation to the development of technology and knowledge. Since this is the core of the institutional economists’ theory of progress, the two elements of institutional economic theory fit together. It is here that the concept of institution becomes relevant because these habits of thought and action are what inhibit the efficacious adoption and use of technology, knowledge, and tools in solving the ongoing problems of provisioning when such use would disrupt the existing system of power and status relations of society.