State-Market Relations in the Perspective of Original Institutionalism

Abstract

This article summarises the main arguments of a critical literature that radically questions the neoclassical economic theory of state-market relations and identifies the fundamental methodological weaknesses of this school of thought. As an alternative, it presents an interpretation of the methodology on which Original Institutionalism, the political economy movement launched by Thorstein Veblen, is based. The article proposes an understanding of the economy and markets as emerging institutions, reflecting a metaphysics of social systems that views the latter as complex, self-organised and interactive processes. The state-market relationship is analysed in light of this institutional interactivity. Highlighting the co-evolution of state and market, the article attributes a central role to industrial policy in economic development processes.