----------------- HES POSTING ----------------- 
November 28th 
 
It seems to me that much of the answer to your query depends upon what you call
Institutionalism.
 
>From my standpoint which tends to separate Veblen's views from those of Commons and
Mitchell, much of what Veblen contributed was an attack on the pretentious self-confidence
of what we would call 'mainline' thinking. In that sense the Keynesian criticisms of
Marshall (and Pigou) can be seen as Veblenian-like applications.
 
Commons's institutionalism combined two quite opposing strands. On the one hand he was
very much involved in stressing the virtues of a self-developing American labor movement,
part of the Method of Collective Bargaining volunteerism that de Tocqueville noticed
during his visit to America and that Frederick Jackson Turner used as his 'frontier
thesis.' By way of contrast Commons was also very much involved in using the Method of
Legal Enactment in terms of workmen's compensation, public utility regulation, and
unemployment insurance. Commons's position in his signing of the report of the United
States Commission on Industrial Relations leaned very heavily towards the Method of Legal
Enactment - so much so that not a few of his students (specifically Selig Perlman & Edwin
Witte) thought his position something of an unfortunate and confusing reversal (for a
fuller discussion see Appendix: Four Congression Investigations in my LABOR UNION THEORIES
IN AMERICA). Their (Perlman's and Witte's) pro-AFL posture during the CIO-AFL debates on
the National Labor Relations Act bothered no small number of their students who thought
that the labor union movement ought to be absorbed into the general New Deal movement.
 
However the Wesley Clair Mitchell approach to institutionalism with its tremendous
commitment to expanding statistical information became clearly a foundation to mainline
modern macroeconomics.  Whatever one may think of Koopman's criticism in FACTS WITHOUT
THEORY (something I always reckoned
was Schumpeter's friends' rebuttal to Simon Kuznets's review of Schumpeter's BUSINESS
CYCLES), the indisputable historical fact was that Kuznets's work in developing the
American National Income series plus his incredible performance while working on the
planning committee of the War Production Board revamped the whole military procurement
procedures over the outraged resistance of General Marshall certainly should convince even
the most skeptical that the Mitchell approach was alive and flourishing during World War
II (John Brigante's doctoral dissertation entitled THE FEASIBILITY DISPUTE details that
episode - the whole Kuznets impact can also be seen in one of my essays, "Political
Purpose and the National Accounts" to be found more recently republished in my 1996 THE
CHARACTER OF ECONOMIC THOUGHT, ECONOMIC CHARACTERS, AND ECONOMIC INSTITUTIONS.
 
In sum, there is a wonderful story about Kuznets and Viner. After Kuznets had finished
supervising the development of the American national income accounts he turned to studying
professional incomes. However, because Jacob Viner, who had agreed to do a National Bureau
study of capital formation could not handle the task (his time was occupied in part with
advising Secretary of the Treasury Morganthau), Mitchell asked Simon to undertake the
capital formation study.  (Simon, Mitchell assured him, would not have to abandon his
professional income studies but would be assisted by a bright young fellow, Milton
Friedman - who eventually did, indeed, finish that study and after much opposition was
able to use it as his Columbia dissertation. But that is another story for another time).
Anyway Simon completed the capital formation study. And when he was asked to join Robert
Nathan's War Production Board Planning Committee he went to D.C. In the course of about
three months he wrote three memoranda. In the
first, he urged the Army to double its orders - General Somerville tripled the orders,
Simon wrote a criticism of Somverville's actions with the immediate result that Somerville
personally attacked him (Simon, being Simon, wrote an equally stinging rebuke to
Somerville's logic). Meantime Simon wrote a third memorandum noting that the Army was
ordering from its traditional suppliers - firms generally lacking recent capital
formation. At that point General Marshall, himself, came down to the WPB and told them
that the Army didn't need professors telling them how to do their business. The immediate
result was that both Nathan and Simon resigned, and that would have been the end of the
story, had not Nicholas Eberstadt, a New York investment banker who had the ear of
Secretary Henry L. Stimson, gone to Stimson and told him that Kuznets was the real expert.
Stimson then ordered Marshall to comply. The output result was staggering; in 1941 only
about 4 percent of the American GNP went to procurement of military materiel; by 1944 (the
last full year of the war) the percentage was 48.
 
A Princeton professor of political science, George Graham, had learned of the story -
hence Brigante's dissertation. Another result was that Princeton gave Kuznets his first
honorary degree. As Simon told me the story, he was walking down Nassau Street with his
cap & gown on one arm and his wife (Edith) on the other when they ran into Viner. Viner,
never one for hiding his surprise, asked Simon, "What are you doing here?"
 
Simon's reply, "They are giving me an honorary degree." 
 
To which the ever-crisp Viner said, "Whatever for?"  End of story. 
 
Mitchell's institutionalism went through its own evolution (quite apart from Mitchell,
himself).  Simon's system of national accounts was replaced with Keynes's. This led to a
caustic Kuznets critique of the American system (largely an attack on George Jaszi) - it
appeared in the Review of Economics and Statistics.
 
But my general point is that those who think that Institutionalism was a vague episode
confined to American academia between the 1890s and the 1930s have been too thoroughly
influenced by the impact of an economics predicated on logical models. Rather what has
happened is that we are reentering an era when volunteerism may be the social answer to a
program of the privatization of most economic activities and when new and better
statistical (including accounting) studies of private firms will be seen as a social
necessity. Just as Copeland's and Leontieff's accounting systems really complemented both
the Kuznetsian and Keynesian system of income and production accounts, so we may have to
look forward to similar developments anent the kind of Securities & Exchange reports from
private companies.
 
Or, as it said, "It ain't over 'til the fat lady sings."  
 
Mark Perlman 
  
 
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