Industrial Relations 201 Institutional Economics

Institutional Economics
(Bruce Kaufman)
Report by Alfredo V. Primicias III
In partial fulfillment of IR 201| Thurs. 6pm -9pm | Dr. Rene Ofreneo

ARE YOU HAPPY?
With the kind of job you do,
are you HAPPY?

Institutional Economics | Bruce Kaufman
Alfredo V. Primicias III | IR 201 | Dr. Rene E. Ofreneo | Thurs. 6pm- 9pm
3
Goals
At the end of this report, participants must have:
1. Enumerated at least 2 economic thinkers and their
contribution to Institutional Economics
2. Recited at least 1 definition of what Institutional Economics is
3. Described the argument between Classical/ Neo-Classical
Economics and Institutional Economics
4. Provided at least one contribution of Veblen and Commons
5. Summarized the importance of Institutional Economics with
Industrial Relations

4
Origin
•Started in America turn of the 20th century
•Roots from the German historical school of economics
•Influenced by the teachings of Karl Marx
•Thorstein Veblen, John Commons and Wesley Mitchell are the
founders
(July 30, 1857- August 3, 1929)
American Economist and Sociologist
*opposed Karl Marx
*combined Darwinian evolutionary perspective with his new institutionalist approach to economic analysis
Professor of Economics and Senior Associate of the WT BeeBe Institute of Personnel & Employment Relations at Georgia
State University
(October 13, 1862- May 11, 1945)
American Institutional Economist and Labor Historian at the University of Wisconsin
(Aug 5, 1874- October 29, 1948)
American Economist
Bruce Kaufman
John Commons
Wesley Mitchell

Rebellion
in
1870s
5
Economics in
the 19th Cent.
German historical
school of
economics
Classical and Neo
Classical economists:
A Smith, D Ricardo
and J Mill
System of Free Exchange provides:
1. max. liberty for employers and
employees
2. reconciles conflicting interests
into a harmony of interests
3. organizes production in the most
efficient manner
4. results in a just distribution of
income to labor and capital
*Kaufman, Bruce. 1993. Industrial Relations: 30- 32. Cornel Univ. Press
1. Economists e.g. Richard Ely, John Bates Clark, et al criticized the classical and neo-classical
theories
2. “represented a sterile exercise in deductive logic based on ‘natural laws’”
3. “Economics must be an inductive science where assumptions and axioms are adduced from
careful historical study of economic behavior.”
4. Focuses on understanding the role of the evolutionary process and the role of institutions in
shaping economic behavior– positive effects of state regulation and management of markets
5. Original focus came from Veblen’s instinct-oriented dichotomy between technology on the one
side and the ‘ceremonial’ sphere of society on the other.
6. Emphasizes a broader study of institutions and views markets as a result of the complex
interaction of these various institutions (e.g. individuals, firms, states, social norms).
http://en.wikipedia.org/wiki/Institutional_economics
Definition

6
*Kaufman, Bruce. 1993. Industrial Relations: 30. Cornel Univ. Press
Presumed that product and labor markets were highly competitiveXXX XXX
Based on empirical and historical research:
MARKETS are imperfect and business firms monopolize power that
exploits consumers and workers
Unequal plane of competition
Inimical to liberty
Tyranny on workers due to lack of employment opportunities
Coercion on workers to accept low wages and poor working conditions
Business monopoly pushed low wages and high product prices

Alfredo V. Primicias III | IR 201 | Dr. Rene E. Ofreneo | Thurs. 6pm- 9pm | source:
7
Veblen's criticism of Neoclassical theory
1. He charged that Classical and neoclassical economics was pre-Darwinian in that
it was moving toward some determined end (long run equilibrium) rather than
constantly evolving in response to environmental forces (Darwin lived 1809-
1882).
2. Did not like static analysis, too many factors are held constant.
3. Did not believe that self interest would promote the public good.
4. He criticized the idea that “making profits is the same as making goods;” this
may have been true in Smith’s time, but not in a more advanced industrial
society where production is separated from ownership.
5. Populism holds that the common person is oppressed by the “elite" in
society, which exists only to serve its own interests, and therefore, the
instruments of the State need to be grasped from this self-serving elite and
instead used for the benefit and advancement of the people as a whole. A
populist reaches out to ordinary people, talking about their economic and social
concerns, and appeals to their common sense.

8
Commons and the Welfare State
1.Regulation of public utilities
2.Industrial Safety Laws
3.Child Labor Laws
4.Minimum wage laws for women
5.Unemployment compensation laws

9
1. Focus on collective rather than individual action.
2. Preference for an “evolutionary” rather than a mechanistic approach to
economics.
3. Emphasis on empirical observation over deductive reasoning.
4. Generally, institutionalists do not believe in the harmony of a market
system.
5. Neoclassical economics studied allocation of scarce resources among
alternative uses.
6. Institutionalists studied how the institutional structure evolved and how
institutions reflected the prevailing social/political/economic structure.

1
0
Goals
At the end of this report, participants must have:
1. Enumerated at least 2 economic thinkers and their
contribution to Institutional Economics
2. Recited at least 1 definition of what Institutional Economics is
3. Described the argument between Classical/ Neo-Classical
Economics and Institutional Economics
4. Provided at least one contribution of Veblen and Commons
5. Summarized the importance of Institutional Economics with
Industrial Relations

Institutional Economics | Bruce Kaufman | REFERENCES
Alfredo V. Primicias III
0917-8047385
1
1
http://www.google.com.ph/books?hl=en&lr=&id=KxUdgbiDNosC&oi=fnd&pg=PR9&dq=institutional+economics+bruce+kaufman&ots=LhJM5BqFQC&sig=_MXs
0Kahd-BOHtsv9lAcyIkgYy8&redir_esc=y#v=onepage&q=institutional%20economics%20bruce%20kaufman&f=false
The Origins & Evolution of the field of Industrial Relations in the US
http://developmentinstitute.org/north/north_outline.pdf
The Foundations of New Institutional Economics by Dr Douglass North
http://www.wageningenacademic.com/_clientfiles/TOC/IEEOT.pdf?sg=%7BF855C04C-AA26-4BFC-8EFB-43A8C4E0CC14%7D
Institutional Economics and Economic Organization Theory by LHG Slangen, LA Loucks and HL Slangen
http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1458&context=ilrreview
Institutional Economics and The Minimum Wage by BE Kaufman
http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1458&context=ilrreview
Institutional Economics and The Minimum Wage by BE Kaufman

Industrial Relations 201 Institutional Economics

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Industrial Relations 201 Institutional Economics