INSTITUTIONAL ECONOMICS

school of economics that flourished in the United States during the 1920s and '30s; it viewed the evolution of economic institutions as part of the broader process of cultural development. The American economist Thorstein Veblen laid the foundation for institutionalism with his criticism of traditional static economic theory. He tried to replace the concept of people as the makers of economic decisions with a more realistic image of people as influenced by continually changing customs and institutions. Veblen saw the American economic system as one in which the primary motivation was pecuniary rather than technological: business enterprise was carried on for the amassing of money rather than the production of goods. Another economist usually placed in the institutional school was John R. Commons, best-known as an American labour economist. He emphasized the collective action of various groups in the economy and viewed their operation within a system of continually evolving institutions and laws. Others often classed as institutionalists include Rexford Tugwell, John M. Clark, and Wesley C. Mitchell in the United States and Beatrice and Sidney Webb and Richard H. Tawney in Great Britain. Although institutionalism never became a major school of economic thought, its influence has continued, particularly in the works of economists seeking to explain economic problems at least partially in terms of broader social and cultural phenomena. This approach is useful in analyzing the problems of developing countries, where the modernization of social institutions is often a requirement for industrial progress.