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Institutional Economics

Walton Hamilton coined the terms institutionalism and institutional economics in 1919. In an article in the American Economic Review (AER), he presented the case that institutional economics was economic theory. This was true, Hamilton argued, because only institutional economics provided a unified approach to economic problems. Furthermore, it rejected a laissez-faire view of the world and emphasized the role of institutions and the process of economic change. Finally, institutional economics understood the importance of habit and rejected the “pleasure and pain” view of the utilitarian theory of human behavior.

If one considers Hamilton’s definition of institutional economics, it seems evident that the mainstream of economics has come a long way toward becoming institutional economics. The mainstream has sought a unified explanation through the microeconomic foundations of ...

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