History of Economic Thought. Institutionalism (most important)

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History of Economic Thought. Institutionalism (most important)

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52. INSTITUTIONALISM

Institutionalism - a direction in economic thought, proceeding from the postulate that social customs regulate economic activity. The determining role belongs to group psychology, not to individuals.

The rise of institutionalism associated with the name of the American economist Thorstein Veblen (1857-1929). At the research center Veblen is not a "rational", but a "living" person and attempts to find out what determines human behavior.

"Economic Man" - a person with independent preferences, striving to maximize their own benefit.

Veblen proved that in a market economy, consumers are subjected to all kinds of social pressure, forcing them to make unreasonable decisions.

Veblen introduced the concept "conspicuous consumption" ("Veblen effect"). He concludes that the market economy is characterized not by efficiency and expediency, but by waste, envious comparison, and a deliberate reduction in productivity.

Driving Motives of Human Behavior - not the maximization of profit, but the instinct of mastery, idle curiosity.

Veblen demanded to apply the data of social psychology to economic theory. He is the founder of science "economic sociology".

The main contradiction of capitalism - the contradiction between "business" and "industry", material production and the system of private enterprise aimed at making a profit.

This contradiction is aggravated, as the financial oligarchy receives more and more of its income through operations with fictitious capital, and not through the growth of production, increasing its efficiency.

The development of the industry leads to the need for transformation and predicts the establishment of the power of the technical intelligentsia in the future - "technocracy", not profit.

These ideas Veblen were picked up and developed by an American economist and sociologist John Kenneth Galbraith. In work "New Industrial Society" (1969) Galbraith claims that purpose of the technostructure is a constant economic growth, which only ensures the growth of official salaries and stability. However, the interests of economic growth, the necessary condition for which is the growth of consumption, lead to further pressure on consumers from manufacturers. There is a hypertrophied growth of individual needs, but social needs, to which Galbraith attributed and investment in human capital by expanding the education system, are falling into disrepair.

Technostructure Goals come into conflict with the interests of society. It lies not only in the intensification of consumer psychosis, but also in the fact that the result of the dominance of the technostructure is the waste of natural resources, inflation, and unemployment. These negative processes are the result of conciliatory technostructure policieswho wishes to live in peace with all sectors of society.

Effects: wage growth outstripping labor productivity growth, inflation.

Galbraith concludes about the need for social control over the economy by the state.

Author: Tatarnikov E.A.

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