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Institutionalism
Institutionalism, in the social sciences, an
approach that emphasizes the role of institutions. TABLE OF CONTENTS

The study of institutions has a long pedigree. It Introduction

draws insights from previous work in a wide array European institutionalism during the 19th
of disciplines, including economics, political century
science, sociology, anthropology, and psychology. Early 20th-century American
The reappearance of interest in institutions in the institutionalism
early 1980s followed a familiar pattern: it was a Mid-20th-century American
reaction to dominant strands of thought that institutionalism
neglected institutions, historical context, and Institutionalism revisited
process in favour of general theorizing.
Accordingly, institutionalism is frequently
characterized by the attention it gives to history. The institutionalism that emerged in the
1980s is called new institutionalism (NI), but it is less “new” than it is a restatement of
previous scholarship. The following discussion traces the development of institutionalism
from the 19th century to the emergence of NI in the last decades of the 20th century.

European institutionalism during the 19th century

A full overview of the institutionalist tradition would go back to Aristotle’s discussion of
regime types (politeia). More recent interest in institutions emerged during the 19th century
among the German historical economists (GHE), also called the institutional economists.
Providing a critical response to the universal theories of the classical economists, these
scholars disparaged deductive work, which they considered to be self-referential
mathematical modeling. They argued that economic life is better understood through
empirical work rather than through logical philosophy.

Their key insight was the need for historically and sociologically informed empirical analysis
of reality. The earliest gure from this group was the German economist Wilhelm Roscher.
His work insisted on the importance of context—historical, social, and institutional—for
understanding the laws of political economy, economic behaviour, and the empirical
diversity of social life. Early research focused on the relationship between the social and
economic organization of society, stages of development, and evolutionary processes. Bitter
con icts with their Marxist contemporaries (followers of the theories of Karl Marx)
notwithstanding, some scholars have come to see a close analytical af nity between the two
traditions.
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It is customary to divide the GHE into three generations: Early, Younger, and Last. The latter is
noteworthy because it encapsulates some of the work of the German sociologist Max Weber,
who was in uenced by early GHE. Weber is perhaps the most in uential modern
institutionalist. Contemporary institutional works that posit institutions as an independent
and non-epiphenomenal variable are indebted to Weber’s theorizing a political realm that is
autonomous from economics and ideas. In his discussion of the state and bureaucracy, he
proposes a macrosociological theory of institutions.

Institutionalist insights are also present in Weber’s theory of authority. For Weber,
charismatic authority is inherently transient. As charisma exhausts itself and becomes
routinized, traditional or rational-legal forms of authority take its place. With routinization,
social relations and interactions become increasingly regular, predictable, and impersonal.
Under modern capitalism, these take on a rational-legal form and become more extensive
and elaborate. Some usages of the term institutionalization are thus a subset of Weber’s
process of routinization.

Early 20th-century American institutionalism

Institutionalism appeared in American scholarship during the late 19th and early 20th
centuries in the works of the American institutional economists (AIE). The American
economist and sociologist Thorstein Veblen was a pivotal gure who criticized the
neoclassical approach for its focus on individuals. He argued that individuals are shaped by
their institutional and sociocultural context. He emphasized habit, instinct, and emulation as
alternatives to utility-calculation models of behaviour. Veblen theorized institutional
persistence and developed several mechanisms of change, including con ict between
institutions, exogenous shocks, and the interplay between routines and the variable and
volatile action of agents.

Although Veblen embraced an organicist approach to social science, favouring the biological
metaphor of evolution over the physical metaphor of mechanics deployed by economists, he
was explicitly antifunctionalist. He raised the possibility of social breakdown and described
history as an unfolding process that is cumulative but also crisis-ridden, rather than as a self-
balancing smoothly changing system.

A later gure among the AIE was the American economist John R. Commons, who in the
1920s and ’30s rejected the framework of the classical economists in which providence
endows individuals with freedom to enter into relations of economic exchange and
economics is separate from politics. Commons argued that economics was a series of
transactions that were made possible by institutional supports. He identi ed three types of
transactions: rationing, managerial, and negotiated (associated with communism, fascism,
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and capitalism respectively). Institutions have to guarantee liberty and property before
negotiated transactions can occur. He de ned institutions as the working rules of collective
action that are laid down and enforced by various organizations including the state.
Institutions produce order by creating expectations toward which individuals can orient their
economic behaviour. This interpretation of institutions is at the heart of rational choice
institutionalism (RCI) and the new institutional economics (NIE).

Mid-20th-century American institutionalism

An anthropological version of economic institutionalism emerged later in the work of Karl
Polanyi. In uenced by the GHE, he argued that economic relations are historically contingent
and cannot be understood outside of their social context. For Polanyi, economics is always
embedded in society. Rather than economic relations producing social integration, Polanyi
argued, the social background, and institutions in particular, integrated the economy.
According to this logic, markets are not the product of spontaneous acts of exchange.
Instead, personal-level acts of exchange produce prices only under a system of price-making
markets—a system that cannot arise solely from random acts of exchange. Historically, the
market system is a relatively recent innovation and only one of several, contingent
institutional solutions to the problem of economic integration. Additional forms of
integration are reciprocity (e.g., lend-lease) and redistribution (e.g., the Soviet Union).

Polanyi de ned institutions broadly as uniting, stabilizing, and giving structure to the
economic process. Although economic institutions such as price and money are important,
Polanyi also stressed the importance of noneconomic institutions such as religion and
government. Haggling over price and individual choice are understood as a product of
institutions; this foreshadows later sociological institutionalists (SI) who see human behaviour
as following a “logic of appropriateness” and institutions as creating identities. Like his
predecessors, Polanyi rejected the idea that contemporary economic science can universally
capture economic relations.

Institutionalism also appeared in political science during the mid-20th century, when
American political science was dominated by the study of democratic progress in the United
States. Analysis of other countries was rare. Nevertheless, theorists such as Carl J. Friedrich
focused on institutions in their cross-national work on constitutionalism. For Friedrich,
constitutionalism was characterized by both a concern for individual autonomy and
institutional arrangements—divided government and federalism—to prevent the
concentration of power, especially in the state. Institutions are the rules of politics and the
instruments of their enforcement. However, Friedrich was careful to note that institutions
must re ect social and political reality, and without belief in their legitimacy they are greatly

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weakened. Friedrich sharply contrasted modern constitutionalism from nonconstitutional

systems such as totalitarianism, and his work on the latter in uenced an entire generation of
Sovietologists. Finally, he was also interested in questions of institutional crafting, although
he was agnostic about the existence of a “universal common denominator” for institutional
design. Friedrich’s insights can be seen in both HI and RCI.

Institutionalism appeared in sociology with the emergence of organizational science (OS),

which was a response to the rapid growth in the size of rms starting in the 1860s. The
earliest and most in uential gure was Chester Irving Barnard, who in the 1930s argued that
an organization is a complex system of cooperation and highlighted the need to understand
the behaviour of the individuals that compose it. He identi ed a disconnect between an
organization’s conscious system of coordination (formal aspects) and its unconscious
processes (informal aspects). The latter include customs, habits, attitudes, and
understandings. The role of the executive is to create open communication and
inducements for individual members.

Barnard stressed the importance of nonmaterial inducements, which facilitated individuals’

carrying out orders without consciously questioning authority. From this perspective, a
manager directs the values of the organization so that individuals work toward a common
purpose. He also argued that organizational forms vary across organizations because the
con guration of individuals is unique to each organization, as is the appropriate
organizational solution.

Institutionalism revisited
After World War II, institutionalism lost some of its prominence in the social sciences,
displaced by theories focusing on social structures or individual behaviour. In the 1980s,
however, research on social structures led to a revival of interest in institutions and the
emergence of new institutionalism (NI). Theorists of comparative politics suggested that the
state was autonomous and called for bringing the state back in as an explanatory variable.
The study of institutions was signi cantly advanced with research in political economy on
the state-led development of the Asian NIEs, as well as institutional reforms in the developed
countries. Researchers also became increasingly interested in cross-national comparison of
institutions, with a view to understanding the process of democratization. Finally, the global
expansion of capitalism and European Union (EU) integration led to signi cant research
demonstrating the role of institutions as intermediaries between structures and outcomes.

Some social scientists explicitly referenced earlier institutional works in their call for bringing
institutions back in. This new body of work that came to be labelled NI sought to investigate
among other things the interaction of society and institutions, the sources of institutional
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coherence, how historical processes lead to delayed outcomes, and nonutilitarian models of
behaviour.

Boris Barkanov

CITATION INFORMATION
ARTICLE TITLE: Institutionalism
WEBSITE NAME: Encyclopaedia Britannica
PUBLISHER: Encyclopaedia Britannica, Inc.
DATE PUBLISHED: 14 June 2016
URL: https://www.britannica.com/topic/institutionalism
ACCESS DATE: November 24, 2019

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