Institutionalism and the Social Control of Business

Institutional economists have always been critical of the way in which unregulated markets operate. The basic argument is that the institutions of the market that are supposed to control the activities of business have become inadequate to the task because of the development of large-scale production techniques, methods of corporate finance, and salesmanship. Institutionalists do not use the terminology of market failure, and neither do they use the competitive model as a standard, as a way of judging departures from an ideal, but in the many references to the need for new methods for the social control of business it is clear that, in their view, market activity frequently fails to serve the social interest, and that such failures are widespread, in fact endemic to the system of business. This article discusses this literature with particular attention to the work of Thorstein Veblen, Walton Hamilton, J. M. Clark, and K. William Kapp. It is seen that the main lines of the institutionalist critique of markets have been remarkably consistent over time and clearly allow for much room for government intervention, particularly in the form of administrative departments or agencies. Although often optimistic about such administrative solutions, institutionalists have not been unaware of the issues of the “capture” of regulatory agencies and the growing penetration of government by business interests.