Institutional Economic Theory Economics 451 University of Missouri-Kansas City

1. Institutional Economic Theory Economics 451 University of Missouri-Kansas City

2. Syllabus • Institutional Economic Theory • Instructors: James I. Sturgeon • Office: Manheim Hall 202B • Email: Sturgeonj@umkc.edu • Linwood Tauheed • Office: Manheim Hall 202A • Email: Tauheedl@umkc.edu • Graduate Assistant SudeepRegmi • Email: regmisd@gmail.com Economics 451

3. Introduction Nature, Scope and Purpose of Economics Definitions of Economics Standard – The study of the allocation of scarce resources among alternative uses Institutional --The study of how we make a living

4. The Nature and Scope of Institutional Economics • The scope of Institutional Economics consists of two broad ranges of analysis. • One is a conceptualization of economic activity lodged in an evolutionary continuum of cumulative means and ends. • The other is a comprehensive critical analysis of the widely accepted standard • conceptualization of economic activity, the name of which is usually neo-classical. • A significant part of the nature of Institutional economics is found in its scope and will emerge as we address this. • Scope and Definition: Institutional economics is the interdisciplinary study of the forces • affecting the process of economic activity, change and adaptation. • We will discuss each of the operative terms in this statement during the course of the class. • The terms in question are: • Interdisciplinary • Forces • Process • Change • Adaptation

5. Terminology – Names of schools Standard theory -- orthodox Classical • Neo-classical • Keynesian • Marxian – orthodox/heterodox • Post-Keynesian – Heterodox/orthodox • Institutional – heterodox • Smith 18th , Marx 19th, Veblen 19th – 20th, Keynes 20th • If there is a unifying theme it is that each view – Smith, Marx, Veblen & Keynes – and economic thought generally addresses change and the tension and conflict involved. We shall refer to this as “the enduring tension” and we will revisit this concept often. 

6. These are ways of thinking about economic activity –frames of reference, -- paradigms? • Change is perhaps the most important fact of life and in economic activity • To see differences in framework and perspective look at pre-Copernican, Pre-Newtonian, Newtonian, pre-Darwinian, Darwin - • General Outline of Philosophy, 13th – 18th centuries – Table 1

7. Table 1 • General Outline of the Western Philosophy of Knowledge and • Social Theory in the 13th and 18th Centuries • Philosophy of Knowledge • ____________________________________________________________________________ • Century Dominant Prevailing Dominant • method of Inquiry Beliefs Institution • ____________________________________________________________________________ • 13th innate thought God, sin Religious Doctrine • logic-Aristotelian Salvation/Heaven (Christian Story) • 18th rational proof nature, reason "scientific spirit" • Newtonian era experimentalism natural law, natural rights • 20th Experimentalism Nation, God, Me "Pragmatic" view • Darwin nature

8. ________________________________________________________________________________________________________________________________________________________ • Social Theory • Century Dominant Prevailing Dominant • method of Inquiry Beliefs Institution • ____________________________________________________________________________ • 13th-18thinnate thought/logic theocracyChurch • Aristotelian divine right monarchy • of kings • 18thrational proof democracy Parliament • divine right of capital Business • religious freedom Church • 20thempirical data divine right of capital Business • Scientific method democracy Parliament • Cultural analysis education School • __________________________________________________________________________________________

9. Teleology – primacy of – working toward an end. • Types of Teleological “Systems” • a. TelenomicProcesses - Development (individual development – ontogeny --life cycle). Gided by a program existence of some end point which is foreseen in regulating development. If Breed like specie, get like offspring. • b. TelematicProcesses -- Especially related to physical objects – a definite end is reached as a result of physical laws. But no goal seeking is involved. A river is inexorably flowing toward a river. • c. Adapted Systems -- adaptive & evolutionary – not end-directed, e.g., Heart, kidneys -- evolved -- A major achievement of Darwin is to have shown that these evolved by natural selection • d. Cosmic teleology -- all things are guided toward a specific end—no, or almost no, scientist accepts this view

10. dule • Introduction, Scope and Approach • Introduction – What is Institutional Economics – Evolutionary Economics: Process and Change in Economic Activity • Framework and Approach • Historical Perspective – Alternative Approaches • Carl Becker The Heavenly City of the 18th Century Philosophers The Climate of Opinion • Paradigms -- Thomas Kuhn The Structure of Scientific Revolutions • Nature of Paradigms • Scientific evolution v scientific revolution – but more complicated than this • Do practitioners usually ask questions they are confident the paradigm will answer? • Analyzed in terms of ability to explain facts • Criticisms of Paradigms • way of thinking – frame of reference • E.g., from physical science, Newton v Einstein, or in geology, plate tectonics • E.g., from biological science, evolution – spontaneous generation • setting for inquiry • guide to problem definition • guide to research