The Struggle Over The Soul Of Economics: Institutionalist And Neoclassical Economists In America Between The Wars

THE STRUGGLE OVER THE SOUL OF ECONOMICS This page intentionally left blank THE STRUGGLE OVER THE SOUL OF ECONOMICS INSTITUTIONALIST AND NEOCLASSICAL ECONOMISTS IN AMERICA B E T W E E N T H E WA R S Yuval P. Yonay PRINCETON UNIVERSITY PRESS PRINCETON, NEW JERSEY Copyright 1998 by Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, Chichester, West Sussex All Rights Reserved Library of Congress Cataloging-in-Publication Data Yonay, Yuval P., 1958– The struggle over the soul of economics : institutionalist and neoclassical economists in America between the wars / Yuval P. Yonay p. cm. Includes bibliographical references and index. ISBN 0-691-03419-2 (cl : alk. paper) 1. Institutional economics—History—20th century. 2. Neoclassical school of economics—History—20th century. 3. Economics—United States—History—20th century. I. Title. HB99.5.Y66 1998 330.1—dc21 97-42954 CIP This book has been composed in Sabon Princeton University Press books are printed on acid-free paper and meet the guidelines for permanence and durability of the Committee on Production Guidelines for Book Longevity of the Council on Library Resources http//:pup.princeton.edu Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 TO MY PARENTS Haim and Haviva Yonay W H O T A U G H T M E T H E I M P O R T A N C E O F L O V E, S O C I A L R E S P O N S I B I L I T Y, A N D K N O W L E D G E A N D I N M E M O R Y O F M Y G R A N D P A R E N T S, ISAAC AND ALTA YONAY AND SIMCHA A N D T Z I N A B A R-S H A L O M, W H O B E Q U E A T H E D US THE APPRECIATION OF THESE NOBLE VALUES This page intentionally left blank Contents Acknowledgments One Introduction: A Sociological Interpretation of the Modern History of Economics Overview A Textbook Version of the History of Economics The Construction of Scientific Knowledge Accounts of Scientific Development: The Actor-Network Analysis The Goals of This Study Two The Neoclassical Era (1870–1914) from a Different Angle The Economics of Marshall and His Students The Economic Rebels and the Establishment of the American Economic Association Conclusions: Economists in the Forefront of Social Reform Three Reconstructing the History of Institutionalism The Rise of Institutionalism (1890–1914) The Sway of Institutionalism during the Interwar Period The Institutionalist Contributions to Economics Is There an Institutionalist Doctrine? The “Old-Fashioned” Neoclassical School and Institutionalism Conclusions: A Prospering, Mighty, and Fertile School xi 3 3 7 14 20 24 29 30 35 46 49 50 53 60 65 70 75 Four The Struggle over the Meaning of Science The Institutionalist Attack The Neoclassicist Counterattack The Evaluation and Perception of Theory Conclusions: Contesting Perceptions of an Economic Science 77 80 87 89 94 Five Bringing People and Institutions Back In: The Struggle over the Scope of Economics 100 viii CONTENTS Exorcising the Economic Man: The Institutionalist Critique Rearranging the Boundaries of Economics: The Neoclassical Defense Social Institutions as Allies Conclusions: Changing Concepts of Human Nature Six The Free Market on Trial: The Struggle over the Gap between Reality and Theory Making Money and Making Goods: Nonmonetary Evaluation of Welfare Lack of Knowledge and Its Implications Competition as a Source of Waste The Missing Dimension: Power Disparity and Labor Relations Conclusions: Economic Realities and Economic Models Seven The Struggle over Social Relevance and the Place of Values Institutionalists: Overpriced Value Theory Institutionalists: Promises and Alleged Successes The