Abstract
Since different kinds of economics thoughts have been explored, few have been as peculiar as Old Institutional Economics (OIE) and New Institutional Economics (NIE). It is curious that almost every stream criticizing mainstream economics has a left wing. OIE, not a big fan of this, criticizes neoclassical economics/mainstream economics, given it arose in the US. OIE had no sense to left wing, on the contrary, it created an effect criticizing neoclassical economics in its core. Unlike OIE, NIE has many common points with neoclassical economics. NIE has several new aspects different from neoclassical economics, as it has chosen a completely different path than OIE. In this chapter, authors scrutinize circumstances that led to OIE, and what separated OIE and NIE. A brief, successively historical aspect is also provided.
TopBackground
Since neoclassical economics became an imperial feature, OIE has started by criticizing it. Because, neoclassical economics – frequently called as mainstream economics – is a phenomenon to explain all economics events. Mainstream economics moreover claims that it can explain all other events, all not necessarily in economics. Economic thought sometimes takes a fresh breath, in which case, some new thoughts emerge when it cultivates the pressure of a dominant ideology. So is Old Institutional Economics (OIE). The main ideology of OIE is naturally institution then. So, what is institution?
Institutions are the kinds of structures that matter most in the social realm, they make up the stuff of social life. The increasing acknowledgement of the role of institutions in social life involves there cognition that much of human interaction and activity is structured in terms of overt or implicit rules. Without doing much violence to the relevant literature, we may define institutions as systems of established and prevalent social rules that structure social interactions. Language, money, law, systems of weights and measures, table manners, and firms (and other organizations) are thus all institutions. (Hodgson, 2000, p. 2).
Institutions are embedded in human life. Since the beginning of known history of the human settlements, all cultures have created many institutions. All of them are related with both social and economic life. No matter how social life seems to be separated from economics, in fact, it is very much embedded in economics. As Hodgson clearly states that language, money, law, etc. are related with the market. If one needs and wishes, all institutions can be addressed by economics. So, either OIE or NIE is focused on how these institutions affect our lives. Of course, their approach to scrutinize the institutions are different from each other.
TopA Historical Path Of Both Institutionalist Schools
The titles like ‘the role of institutions in economics process’ are just the tools to make an easy expression. This reminds that more econometrics studies are seen in economics. They presume there is no institution in economics, and then they consider institution as if there would be ‘pure economics’, namely economics without institution (Özveren, 2007, p. 17). The key point of OIE is to see that the origins of institutionalism and economics are same. This allows OIE to be different than the market.
Key Terms in this Chapter
Property Rights: The owner of a property can be done by this. Economically, what kind of economics model, technology of production can be done.
Transaction Costs: Although, there is only cost in neoclassical economics. However, NIE sees this cost as a matter of fact that organizing our economics actions.
Veblen, Commons, Mitchell: The first important philosophers of OIE.
North, Coase, Williamson: The first important philosophers of NIE.
New Institutional Economics (NIE): An economics approach analyzing how human’s conscious preferences emerged.
Old Institutional Economics (OIE): An economics approach criticizing capitalism in terms of economics and sociology in the early beginning of the 20 th Century.
Bounded Rationality: Unlike neoclassical mind, NIE believes that people act restricted knowledge in their economics action.