"Institutions", What Is In a Word? A Critique of the New Institutional Economics

Abstract: This thesis is a critique of the New Institutional Economics (NIE) in economic history. The focus is on explanations to the origin and development of capitalist institutions within NIE. After a methodological discussion in chapter 1 the author investigates into how well NIE succeeds in explaining capitalist institutions. In chapters 2 and 3, a conceptual critique of the theoretical bases of evolution and competition, behavioural assumptions, property rights, and transaction costs in NIE is conducted. In chapters 4 and 5, some of the most influential theories of the firm within NIE are accounted for, analysed and criticised. In chapters 6 and 7, an account and criticism of the institutional economic history of Douglass North, the main example of economic history from the NIE perspective, is conducted. In the concluding chapter 8, the author points out what necessitates the institution concept in NIE, thereby finding a key to how one could avoid some of the problems associated with it. In the appendix the contribution of Karl Polanyi is analysed. The main results of the analysis are: (i) In the conceptualisation of the market, the logic of the economic system and the development of individuals, history does not matter to the validity of the model in NIE. NIE transfers the capitalist economic logic into every possible economic system. The economy remains an ahistorical, non-realist, purely theoretical construct. Hence, conceptually the capitalist economy cannot be given a history. (ii) In the explanations to economic development in NIE, production, markets, prices, etc. increasingly lose their explanatory power. Rather than seeing economic development as a causal factor to societal evolution, economic development becomes a consequence of non-economic institutions. To analytically achieve economic evolution and development in such a model it is necessary to first separate an institutional sphere from the economy, and then reunite it with the economic sphere again, thereby allowing for a historical development to the economy. Were the economy defined in a social manner – as a set of social relations and structures – at the outset, such a course would not be necessary. This suggests that the particular venture of NIE of introducing institutions to the model is a sign of the theoretical inadequacy and asocial, ahistorical conceptualisation of the economic theory at the outset, rather than anything else.