Common ground for institutional economics and system dynamics modeling

Abstract

Institutional economics traces its roots to the works, beginning in the late nineteenth century, of Thorstein Veblen, John R. Commons and Wesley C. Mitchell. They believed that orthodox economic theory, based on deduction from axioms, was not a proper foundation to study the economy. They attempted to establish relations between economic actors as defined by important economic institutions. Classical theory, on the other hand, is based on natural law rather than human organization. Natural law provided a fixed structure, and this reduced uncertainty in economic theory. Change was within the structure but the structure was always stable. Institutional economists examine institutions that provide economic order, and they study the endogenous forces that cause these intitutions to evolve. The author suggests that these are some of the same elements that describe system dynamics. Copyright © 2004 John Wiley & Sons, Ltd.