Бесплатный фрагмент - Theory, history and methodology of institutional economics

Introduction

The educational process for training students in economic disciplines includes the study of the course “Institutional Economics.” The experience of teaching this discipline allows the author to draw attention to the relevance of knowledge in the field of institutional economics not only for university students but also for many layers of the socially active part of our society.

It is also important that in recent decades, the number of research directions within institutional economics has increased, which prompted the author of this monograph to focus on some problems of this discipline that are only superficially covered in standard textbooks on institutional economics.

In the conditions of the development of a market economy in the Russian Federation and the transformation of global processes — an immanent process — its institutional component plays an increasingly important role. The efficiency of formal and informal institutions, and the institutional organization of the market economy, directly and indirectly determine not only the rates of economic growth but, ultimately, the level and quality of life of the population and their life satisfaction. Therefore, providing students and citizens with knowledge of the theoretical foundations of institutional economics, and instilling in them the skills of institutional analysis and design, is a necessary element in the training of a modern economist and a capable, enterprising citizen. The experience of teaching this discipline and deepening the understanding of the subject of “institutional economics” convinces the author of the necessity of studying this discipline in all higher education institutions in our country, across all specialties and directions of higher education.

The goal of the discipline is to comprehend its theoretical foundations and methods, deepen the understanding of its interconnection and interaction with the economic, political, and regulatory-legal framework governing the functioning and development of economic entities in the context of globalization, and to form comprehensive, systemic knowledge, skills, and abilities in institutional analysis.

This discipline is based on students’ knowledge of economic theory (economics), micro- and macroeconomics, history of economic doctrines, philosophy, political science, organization theory, fundamentals of management, marketing, etc. However, it remains crucial to understand the history and theory of the emergence of new institutional economics.

To assist students, the author, with the participation of Professor N.S. Volostnov, published methodological recommendations for studying institutional economics at the economic faculty of the Volga State University of Water Transport in 2016. All this is good, but the academic course is limited by the framework of the work program, and the author sees it as necessary in this work to draw attention to a number of additional issues, especially the role of informal institutions (upbringing, family, values, culture, etc.) in the life of society under modern conditions of world economic relations.

The proposed monograph contains seven themes, which, in the author’s understanding, are central to the course “Institutional Economics,” briefly examining the key institutional theories relevant to the development of the Russian economy.

The work cites excerpts from lectures by Nobel laureates in institutional economics and original works on institutionalism, with the aim of allowing the reader to familiarize themselves with the views that contributed to the development of new institutional economic theory, the formation of a new ideology of economic relations, and gave impetus to the further development of economics as a science in the post-industrial era.

The work includes a conceptual apparatus, a list of literature supplemented by primary sources, as well as a list of famous economists and Nobel laureates in economics who have contributed to the development of institutional economics.

1. Theoretical and Historical Roots of Institutional Economics. Emergence, Main Stages, and Directions of Development of Institutionalism

1.1. Theoretical and Historical Roots of Institutional Economics: Classical School and Neoclassical Direction in Economic Theory

The development and complication of market relations by the mid-20th century demanded from economic science a rethinking not only of the role of the state but also of the nature of the firm and production, of homo economicus, through formal and informal institutions, and the formation of new institutions in a changing institutional environment.

In the second half of the 20th century, a new institutional economic theory began to take shape, which by the end of the 20th century had formed into an independent economic discipline — “institutional economics,” which has become highly relevant in the training of modern economists in all fields.

In the preface to the Russian edition of his book The Economic Institutions of Capitalism, 2009 Nobel laureate Oliver Williamson notes that “new institutional economics proceeds from two starting propositions: first, that institutions matter in economic life, and second, that they are amenable to scientific analysis.” [Williamson, O.E. The Economic Institutions of Capitalism / trans. from English. — St. Petersburg: Lenizdat, 1996. — p. 17.]

Institutional economics, as a discipline, helps economists to understand more deeply how the constantly changing market economy functions, what incentives the institutional environment creates, and how formal and informal institutions influence people’s behavior, guiding their daily lives and activities.

Under the conditions of developing market relations in our country, many rules established between people today are implicit (unfair behavior, breach of contract, “telephone law,” “regional compatriot networks,” etc.). The experience of market reforms in our country also vividly demonstrates that any borrowing of institutions is modified by the existing institutional environment and sometimes generates negative side effects (corruption, fraud, the illegal market, etc.). All this requires reflection and analysis.

Institutional economics is a scientific direction in modern economics that investigates problems of economic theory in their interdependence with institutional changes. The behavior of economic entities, the operation of economic laws, the dynamics of economic growth, the functioning of market and administrative mechanisms, transaction management, opportunistic behavior, and information asymmetry — all these phenomena and processes depend on the formal and informal institutions operating in society. The main purpose and meaning of the existence of these institutions, or as they are defined, the “rules of the game,” is to organize relationships between people. Without institutions, a developed socio-economic life would be impossible — society would represent a multitude of unconnected, and sometimes marginalized and incapable, groups. The development and complication of socio-economic relations occur alongside the evolution of institutions. Institutions are created by people to maintain order and reduce the uncertainty of exchange. They ensure the predictability of human behavior and the ability to solve pressing and strategic tasks.

Mastering the course in institutional economics involves using an institutional approach, which includes the toolkit of a number of sciences: political economy, economic theory, law and economics, sociology, political science, psychology, conflictology, etc.

A special task of the discipline is to show trends in the development of views of representatives of various modern directions of new institutional economic theory currently working in the field of institutional economics. However, I would like to highlight an important task emerging in the list of questions defining the subject of the science: the place of man in these new institutional market conditions; the role of informal institutions in shaping the technocratic man of the 21st century. In this regard, the main functions of institutional economics as a science are preserved: cognitive, methodological, and practical, determining its importance and significance in the modern conditions of economic and world economic relations development.

From the history of economic thought, we know that economics, as a science, began to form as an independent field of human knowledge in the era of the emergence of capitalist relations. With the publication of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations (1776), the subject of the science was defined as production, distribution, exchange, and consumption, its name became “political economy,” and the main subject became homo economicus. At the core of the classical thinkers’ theoretical reasoning was the idea of the existence of objective economic laws, independent of human will and consciousness, which are capable of ensuring self-regulation, limiting state intervention, and freedom of trade.

Marginalists and neoclassicists at the end of the 19th century defined the subject of the science as satisfying growing needs under conditions of limited resources through the rational behavior of economic entities. The features of the classical school and the neoclassical direction in defining the subject of economic theory and the main categories of political economy boiled down to studying how man transforms nature, i.e., transforms the world around him.

The classics, using logical abstraction, paid special attention to production and exchange, relying on the labor theory of value, and studied exchange value, problems of production and reproduction as the basis of the theory of income distribution. The marginalists, on the other hand, put consumption and use-value at the forefront of economic science, which is why they were interested in “need,” “utility,” “consumer behavior under conditions of limited opportunities,” and the resulting marginal magnitudes for all economic categories (“marginal utility,” “marginal revenue,” “marginal costs,” etc.). “Utility” and “margin” become the main measures of the behavior of economic entities and the creation of the theory of consumer behavior, theories of general and partial equilibrium, and the theory of the firm and production. They base their methodology on a subjective-psychological approach and an abstract method of cognizing economic laws.

These approaches to economic theory are studied in the course “History of Economic Doctrines,” while the laws of marginal utility, the theory of consumer behavior, equilibrium, and the theory of the firm and production are covered in the microeconomics section of economic theory. Institutional changes in Eastern European countries and the republics of the Soviet Union, as well as global processes, have made the study of these changes, and the behavior of man himself in these changing conditions (rather than some abstract homo economicus), highly relevant and in demand. Why are some countries rich and others poor? What are the roots of global inequality? These are the problems of the 21st century — the century of institutional economics.

1.2. Predecessors of Institutionalism: F. List’s “Educational Protectionism” and the Historical School

From the history of economic thought, we also know that as a result of the struggle between various schools and directions during its development, economic theory, which contributed to the emergence of new institutional economic theory, absorbed many interesting concepts, enriched its methodological toolkit, and, in addition to the classics and neoclassicists, German scientists made a significant contribution to its development by formulating economic doctrines distinct from them.

A prominent ideologue of the German bourgeoisie in the first half of the 19th century, Friedrich List (1789–1846), who laid out his main political-economic ideas in the book The National System of Political Economy (1841), contributed to the formation of an alternative to the classical school of political economy, which later took shape as the Historical School. The reason for the book’s success was probably that it was timely and pursued the goal of theoretically substantiating Germany’s pressing economic problems. In this work, criticizing Adam Smith and the cosmopolitanism of the established political economy, List formulates his position, the so-called “educational protectionism.” In considering the method, tasks, and content of political economy, he formulates: 1) historicism as a method of political economy; 2) productive forces as the source of a nation’s wealth; and 3) the active role of the state in the economy and the national idea as the basis of the state’s economic policy.

J. Schumpeter, in his History of Economic Analysis, emphasizes that “as an economist, List possesses one property characterizing great scientists, namely a great vision of his country’s situation, which, while not a scientific achievement in itself, serves as a prerequisite for a certain type of scientific achievement.” [Schumpeter, J.A. History of Economic Analysis. — Vol. 2. — St. Petersburg: Economic School, 2001. — p. 660.]

Important for the formation of the Historical School in Germany, “old” institutionalism in the USA, and, in our view, the new institutional economic theory that became popular at the end of the 20th century, is his doctrine of “productive forces as the source of a nation’s wealth.” The Russian philosopher, economist, and theologian Sergei Nikolaevich Bulgakov, who knew Marxism and economic theory perfectly, wrote about List in his Essays on the History of Economic Doctrines that “at present, the concept of productive forces and the development of production is so closely associated with the teachings of Marx and his school that it is forgotten that the first to express this idea was List. Moreover, his very understanding of the idea of productive forces is fuller, richer, and more fruitful than that of Marx.” [Bulgakov, S.N. History of Economic and Social Doctrines. — Moscow: Astrel, 2007. — p. 353.]

Criticizing A. Smith’s labor theory of value, List believed that the ability to create wealth is more important than wealth itself and put forward the theory of productive forces, the main component of which he considered to be “intellectual capital” — it is the main source of wealth. Unlike A. Smith’s doctrine of productive labor, List recognized as productive the activities of those who administer justice and administration, who hold education and religious upbringing, who drive science, work in the field of art, etc. The productive forces of nations, List believed, depend on social, political, and civil institutions, laws, i.e., the development of institutions. According to List, the well-being of a nation is determined not by the amount of wealth, as the classics claim, but by the degree of development of the productive forces that create it. For a nation, it is important not only to have a set of material goods to satisfy current needs, but it is even more important to preserve the “ability to create and multiply wealth,” because this ability is more important than wealth itself, List noted. Sometimes it may happen that it is necessary to sacrifice current wealth in order to develop and increase it in the future, List believed. A nation must sacrifice and put up with a lack of material wealth in order to acquire intellectual and social forces for its development; it must sacrifice present benefits to secure its future, he believed.

Each nation has its own path of development, List asserted. He creates his own system of historical-economic development of nations, highlighting five main stages: savagery, pastoral, agricultural, agricultural-manufacturing, and agricultural-manufacturing-commercial.

The final unification of individual nations on an economic basis is possible only when all nations fully develop their productive forces. Therefore, F. List noted, the same general measures of economic policy cannot be applied to every nation and at all times. What is useful for one nation may be premature for another, as it does not have the corresponding level of development of productive forces. According to F. List, the highest form of development of productive forces is manufacturing, i.e., the development of the processing industry. It is here, List believes, that all the material and social forces of the nation — the use of the country’s natural forces, division of labor, increased demand, market, rising wages and well-being of the population, increased profits, rent, etc. — find their highest development compared to previous economic forms.

The emergence of the historical school on German soil has deep roots and is objectively conditioned by the processes that took place there. Historian B. Seligman notes that in political economy, the historical school represented a revolt against classical political economy: “the tone of objections was nationalistic, and in content they were theoretical in nature.” [Seligman, B. Main Currents in Modern Economics. — Moscow: 1968. — p. 23.] K. Marx characterized the ideas of List and the historical school as the extreme degree of vulgarization of bourgeois political economy; however, delving into these ideas today through the prism of our current economic problems seems highly relevant.

The methodology of the historical school is based on the following:

a historical-genetic approach to the study of economic phenomena;
the thesis that economic issues are equally political issues, and therefore economics is political, which implies state management of the economy;
the denial of the existence of universal economic laws and the abstract method of cognition, favoring an empirical method for analyzing economic phenomena.

The historical school advanced the principle that, given the various states of civilization, no political institution can be suitable for all peoples regardless of time and place. The object of study in economic science must be the real human being, not “man in general.” The task of science is not to deductively derive what ought to be, but to empirically determine what is. In the present, they argued, one can only judge the future by relying on the indications of the past, even the most distant. One should not think of revolution, but of how to promote economic and social evolution and push it forward. Rejecting the main premises of the classical school, they began to look at the very character of economic life, the tasks and methods of political economy, and many of its problems from a completely different perspective. Instead of the absolute laws of political economy put forward by the classics, they came to recognize only the relativity of its laws. The laws of economic development, in their view, are not natural laws like the laws of physics, but are a product of historical social development — not eternal, but transient, and different for each individual country. Using the historical method, it is necessary to investigate how economic institutions arose and developed. All economic problems and phenomena are considered from the point of view of their historical development, in a specific historical environment, in the totality of existing phenomena. At the same time, the main motive of economic life should be not personal interest, but the interests and tasks of the whole, the tasks of a higher unity, the interests of which may sometimes not coincide with the interests of the individuals comprising that whole.

In its development, the historical school went through two stages: the “Old” Historical School (1840s–1860s) and the “New” or “Younger” Historical School (1870s onwards).

The main ideas of the “Old” school can be illustrated by the legacy of Bruno Hildebrand (1812–1878). Propagating F. List’s ideas of “national economy,” Hildebrand, drawing attention to the national characteristics of the historical development of individual countries, argued that each country develops along its own unique path; therefore, political economy cannot be an international science, but only a national one. Opposing any attempts to derive “general propositions” for the economies of all countries, he asserted that no political institution or form of government can be equally applicable to different peoples. Using the historical method to substantiate the “eternity” and “inviolability” of capitalism, and basing his periodization on the change in the form of exchange, Hildebrand, unlike List, divided all economic development into three stages: natural, monetary, and credit economy. This is exactly how he named his book published in 1864: Natural Economy, Monetary Economy, and Credit Economy.

In the 1870s, the “New” or “Younger” Historical School took shape, striving to adapt the theory and method of the historical school to the new conditions of late 19th-century capitalism. According to the well-founded opinion of the leader of this new school, Gustav von Schmoller (1838–1917), it was the only genuinely historical school in political economy. Schmoller actively supported O. Bismarck’s policies in the unification of Germany. As a leader of the conservatives and one of the founders (and later chairman) of the Verein für Socialpolitik (Union for Social Policy), established in 1872 to promote social reforms, Schmoller was elected to the Prussian House of Lords in 1884. He was an admirer of the Prussian monarchy and defended the idea of its “supra-class character.” Schmoller published the Yearbook of Legislation, Administration, and Political Economy, which became widely known as “Schmoller’s Yearbook.”

Between 1900 and 1914, Schmoller published his massive work Fundamentals of the General Theory of National Economy. He viewed the national economy as a holistic, unified system formed by interconnected elements. He believed he had developed a truly genetic approach that would ultimately find an adequate explanation for the economic structure of society. Schmoller argued that in social sciences, there is no place for mathematics. He stated: “We admit that we do not know historical laws, and therefore we can only speak of historical regularities,” meaning statistical laws. Does this understanding of historical-economic science by Schmoller not seem close to the cliometrics of Douglass North and Robert Fogel?

Alongside Schmoller, another representative of the younger school, but of a bourgeois-liberal orientation, should be highlighted: Lujo Brentano (1844–1931). A professor at the University of Munich and a renowned European pacifist, Brentano wrote Modern Trade Unions (1871–1872) and Agrarian Policy (1897). He argued that class struggle and antagonistic contradictions of capitalism could be gradually eliminated through the development of appropriate institutions (trade unions, factory legislation, and cooperatives). Brentano can be considered a predecessor of the authors of the “new nature of the firm” in new institutional economic theory.

From the new historical school emerged the prominent German economist Werner Sombart (1863–1941). He considered himself a student of G. Schmoller but evolved from Marxism to fascism, eventually attempting to theoretically substantiate the economic program of the Nazis in his book German Socialism (1934). Sombart characterized economic science as a “science of the spirit.” He argued that bourgeois society is subject to random circumstances, and its laws are unknowable. He envisioned the future society as a “social pluralism” where capitalism would be transformed into a mixed economy. This model of Sombart’s “mixed economy” was later adopted by many economists (the Freiburg school, the Swedish school, and many French and American economists).

In the 1890s, a social direction emerged within the German historical school, whose most prominent representative is considered to be Max Weber (1864–1920). Weber was a universal scholar: philosopher, historian, economist, and sociologist. His worldwide fame was brought by his research in The Protestant Ethic and the Spirit of Capitalism (1904), where he analyzed the influence of the Reformation on the economic turnaround in Europe in the 15th–16th centuries, which contributed to the formation of new market institutions of nascent capitalism. Weber introduced the category of the “ideal type” and, based on the ideal-typical method, conducted a study of the genesis and functioning of capitalism.

The ideas of the historical school in Russia were actively perceived and developed in the 1870s–1890s by many scientists, including A.K. Storch, the Chuprovs (father and son), I.I. Yanzhul, and even the politician S.Y. Witte. The most prominent personality of the Russian historical school of the early 20th century was Iosif Mikhailovich Kulisher (1878–1934). His Lectures on the History of the Economic Life of Western Europe were reprinted eight times in many European languages. The great French historian Fernand Braudel called Kulisher’s legacy a “monumental monument” and his Lectures “still the best guide and the most reliable of the generalizing works.” [Mayburd, E.M. Introduction to the History of Economic Thought. — Moscow: 1996. — p. 327.]

Today, in the conditions of economic transformations in our country, we should more deeply rethink the legacy of the historical school, whose recommendations contain valuable concepts for improving business activity, creating a middle-class layer of the population (i.e., for the establishment of small and medium-sized businesses), forming institutions of new capitalist relations, and strengthening the power of the national economy.

1.3. Features of Capitalism Development in the 19th Century, Formation of New Institutions: Processes of Capital Concentration and Monopoly Creation

The late 18th and early 19th centuries in England were marked by agrarian transformations and an industrial revolution, which consisted of the following:

The development of free market competition among commodity producers; The rapid growth of industry; The development of leasehold relations in agriculture; Changes in the social composition of the population, etc.

The agrarian revolution occurred first in England, and its beginnings date back to the 16th century, when landlords began to expand their pastures by enclosing peasant lands. This process became the most important feature of the agrarian revolution: the formation of large, individual land ownership. English landowners began to lease land to tenants (farmers) who used hired labor, while landless peasants swelled the ranks of the urban poor.

The accumulation of huge monetary funds through the violent dispossession of peasants, the development of colonial trade, piracy, and the slave trade, and the absence of serfdom by the mid-18th century — all this contributed to the active development of capitalism, labor productivity growth, and the industrial revolution.

On March 23, 1806, the English Parliament passed a law banning the slave trade. The industrial revolution in England at the turn of the 19th century was accompanied by the Luddite movement. In 1812, the government passed the Frame Breaking Act, under which the intentional damage or destruction of industrial equipment as a criminal offense was punishable by death. The industrial revolution began with the cotton industry, which increased sixfold by the end of the 18th century. The growth of cotton production was facilitated by the presence of a huge market of cheap labor; the absence of laws regulating wages, limiting the length of the working day, and restricting the use of child labor. Until the mid-19th century, the pace of industrial production in England was the highest in the world, reaching 11% in some years.

State support for agriculture was implemented through the adoption in 1815 by the English Parliament of the so-called “Corn Laws,” which established high import duties on imported bread. Member of Parliament David Ricardo (1772–1823) spoke out against this law.

On June 21, 1824, the law banning trade unions, which had been passed in 1799, was repealed in England. Strikes ceased to be considered a criminal offense, and workers were given the right to organize professional unions, which contributed to the emergence of various workers’ organizations in England and the formation of the working class. It should be noted here that when K. Marx was banned from living in European cities, he chose London, as he believed that the first revolution would take place in England, because the English working class was the most organized, and capitalism was the most developed.

The first industrial crisis in England in 1825 became the first European industrial crisis of the capitalist era. The positive aspect of crises is that they give impetus to a new surge in the development of productive forces and the renewal of fixed capital, which leads to an increase in employment.

The late 19th and early 20th centuries were an era of transition from free-competition capitalism to imperfect monopolistic competition. Social Democrats and Marxists called this era imperialism. Over the last three decades of the 19th century, world industrial output more than tripled. New industries emerged: energy, automobile manufacturing, petrochemistry, etc.

In developed industries, major technical shifts occurred based on the introduction of scientific achievements into production. Fundamental changes in the energy base of production were brought about by the invention of steam turbines: the reaction turbine (1884–1885) by the Englishman C. Parsons and the active turbine (1889) by the Swedish engineer C. de Laval. As a result, steam was replaced by electricity, the general electrification of production began, and modern technology for the generation, transmission, and reception of electrical energy was established. In 1867, Nikolaus August Otto invented the gasoline engine. The world’s first automobile was patented on January 29, 1886, by Karl Benz. At almost the same time, another engineer, Gottlieb Daimler, created his own automobile. And the car invented by Siegfried Marcus in 1875 is considered the earliest surviving gasoline-powered vehicle. In 1893, the German engineer Rudolf Christian Karl Diesel invented the diesel engine, which runs on fuel oil. The creation of the internal combustion engine revolutionized transport, military technology, and the mechanization of agriculture.

Successes in chemical production made it possible to increase productivity in agriculture, metallurgy, and steelmaking.

However, there are also negative examples of “scientific progress”: in 1866, the Nobel brothers invented dynamite, and in 1867, Alfred Nobel received a patent for it. By 1869, dynamite production had begun in many countries, and in 1870, during the Franco-Prussian War, dynamite was first used as a bomb filling. In 1896, the French scientist Henri Becquerel discovered radioactive “Becquerel rays,” and his discovery gave impetus to the study of radioactivity. In 1898, Marie and Pierre Curie discovered new chemical elements — polonium and radium — and in 1903 they received the Nobel Prize in Physics. It is also worth noting here that the inventor of dynamite, Alfred Nobel, in his will, directed that the interest from his capital be used to annually pay a prize for outstanding achievements in science, literature, and contributions to the strengthening of peace.

The growth of industrial production and world trade predetermined the rapid development of railway transport. From 1860 to 1900, the world railway network quadrupled. Railways were built especially actively in the USA, Russia, and Germany. Over the last 20 years of the 19th century, the length of telegraph lines in all countries of the world tripled. In 1895, radio was invented by the Russian scientist A.S. Popov.

By the end of the 19th century, the industrial revolution was completed in Germany, Austria-Hungary, Russia, and Italy (in England, France, and the USA, it had been completed by the mid-19th century), and thus a single capitalist system of economy was formed. In these same years, changes began to occur in the very structure of the economy (new market institutions). It can be considered a regularity that various types of monopolies emerged to replace free competition. First of all, monopolistic associations arose in those industries where the concentration of production was highest, and where entrepreneurs sought new ways to increase profits. The level of production concentration leads to the fact that monopolies, with the help of international agreements, begin to divide the world market, as V.I. Lenin said, into spheres of influence. International monopolies and monopolistic unions appear. In the last decade of the 19th and the beginning of the 20th centuries, the most effective way for monopolies to obtain the highest profit became the export of capital to backward countries that were already drawn into the turnover of world capitalism. Only in the first ten years of the 20th century, the volume of foreign capital investments of the largest countries doubled and reached 44 billion dollars. In these years, England, France, Germany, and the USA participated most actively in the export of capital. All this contributed to the unevenness in the economic development of countries. The highest rates of development were shown by the young capitalist countries, the USA and Germany. They quickly overtook England and France in terms of industrial production volumes.

Thus, between 1870 and 1913, the volume of industrial output in England increased only 2.2 times, in France — 3 times, while in the USA — 9 times, and in Germany — 6 times. If Germany was in third place in iron and steel production in the 1870s, by the end of the 19th century it had moved up to second place, yielding only to the USA. In 1890, there were about 30 cartels in England, i.e., three times fewer than in Germany. On the eve of the First World War, there were already about 600 monopolistic associations in Germany.

The specific weight of England in world industry decreased from 32% in 1870 to 14% in 1913. By the beginning of the 20th century, Germany had moved up to second place in the world; its specific weight in the volume of industrial production was 16.5%, and it took third place in capital export.

For almost the entire 19th century, France occupied second place in the world after England, but by the end of the century, in terms of industrial production, it dropped to fourth place. France’s share in world industrial production decreased from 10% in 1870 to 7% at the end of the 19th century; in terms of industrial output growth rates, it began to lag behind the countries of young capitalism — the USA, Germany, and Russia. In 1912, there were on average 8 workers per enterprise in France, compared to 17 in Germany. There were three times fewer large enterprises in France than in Germany. At the same time, France possessed huge monetary savings. In terms of the concentration of banking capital, France ranked first in the world. Although England was in first place in terms of the size of capital export, France was the main global “usurer.” Unlike England, which exported capital in the form of industrial investments, France exported it mainly in the form of loans. The number of rentiers who placed their money in foreign loans increased significantly in the country. From 1870 to 1913, France’s industrial production grew threefold, while its capital export grew sixfold.

By the beginning of the First World War, the USA had become the undisputed leader in the world economy in many indicators. In 1913, the USA accounted for 38% of world industrial output.

After the Civil War, an industrial revolution and the rapid development of capitalism began in the USA. In 1840, in terms of industrial output, the USA ranked fifth; by 1890, it was first. They also gained leading positions in the qualitative parameters of capitalist development: labor productivity growth, production concentration, and monopolization. At this time, there was a rapid growth of industry in the USA. This young country experienced a boom in almost all sectors of the economy.

New industries emerged and developed, such as the automobile, oil, chemical, and electrical industries. The first automobile in the USA appeared in the early 1890s, and by 1915 there were already 3.5 million cars. Before the Civil War, oil was extracted only from the surface of sources in oil regions and used for medicines, but by 1900, 63 million barrels of oil were extracted. Railway construction was particularly significant. By 1913, the total length of railways reached 413,000 km, almost as much as Russia, Germany, and France combined.

The abolition of slavery and the implementation of the Homestead Act (the law on land allotments) after the Civil War predetermined the American, farmer path of agricultural development. From 1868 to 1900, under the Homestead Act, 600,000 land plots were secured for settlers. The advancement of borders, the settlement of new territories, and the influx of immigrants (the US population increased 2.5 times from 1871 to 1911) led to the formation of a continuously growing solvent domestic market.

The favorable geographical position of the USA created opportunities for the country to develop in peaceful conditions. The presence of the richest reserves of valuable minerals: coal, iron, copper, oil, gas, lead, etc., provided American industry with the necessary resources. The development of capitalism in the USA was facilitated by the establishment of high duties on imported foreign goods, i.e., protectionism, which protected American industry from foreign competition.

This historically young country developed on the basis of the latest technology; it inherited everything that previous European experience had given it. Already at the end of the 19th century, the telephone, electric light bulb, tram, electric motor, and the aforementioned automobile were widely used in the US economy.

The USA was characterized by a relatively short period for introducing inventions into production, based on their commercialization. For example, in 1876, the Scottish inventor Alexander Graham Bell (1847–1922) patented the telephone he had invented, and just three years later he founded a company for the production and operation of communication facilities, which monopolized telephone communications in the USA and some other countries.

One of the greatest inventors and successful entrepreneurs was Thomas Edison (1847–1931). Being the author of over 1,000 inventions, mainly in various fields of electrical engineering, he received his first patent for an invention in 1868. He invented an electric voting machine. In 1882, according to Edison’s project, the world’s first public utility power plant was built in New York.

Despite all the favorable conditions for the development of capitalism, destructive periodic crises affected the USA to the same extent as all other countries. Thus, the crisis of 1873 led to the mass closure of factories and plants, and the emergence of a three-million-strong army of the unemployed. The crises of 1882–1883, 1893, 1900–1903, and 1907 relentlessly disrupted the development of the economy, exposed the contradictions of capitalism, and differentiated the population into the poor and the rich.

Economic crises accelerated the process of capital concentration. Fierce competition led to the ruin and demise of unstable enterprises. During the crisis of 1893, 15,000 firms were declared bankrupt, while the largest survived by concluding agreements with each other, establishing a monopolistic position in the market. At the turn of the 19th and 20th centuries, trusts became the most common and typical associations in the USA.

Monopolies first arose in the oil and railway industries. The Rockefeller oil trust, founded in the 1870s, concentrated 90% of all oil production and refining in its hands by the end of the 19th century, and by 1900 it already controlled 84% of the domestic oil trade and 90% of its export. The “Oil King,” creator of the “Standard Oil Company” trust, John Davison Rockefeller (1839–1937), became one of the richest people in the world at the beginning of the 20th century. It is believed that the idea of creating a trust was suggested and developed by the company’s lawyer, Samuel Dodd. However, Rockefeller’s biographers note that Rockefeller himself invented the trust, and Dodd only refined his scheme.

It is known that if a product is sold on the market by only one company, the buyer has no choice — he is forced to buy this product at the price set by the monopoly company. If, however, the same product is sold by several companies, and the number of these companies increases, then in the course of competitive struggle, its price will decrease. An agreement between independent companies that determines the quantity of goods thrown onto the market, sales territories for each company, and the price for this product minimizes the losses caused by competitive struggle. Such a structure is called a “cartel.” A feature of a trust is that it does not allow the companies included in it to be independent. The assets of the subsidiaries are summed up, and the total capital is managed by a board of trustees of the trust. The trust provides guarantees to shareholders, and the activities of all companies are directed by a board of directors. If a cartel includes only companies operating in the same industry, a trust can unite companies operating in various spheres and industries, which allows the trust to monopolize the entire production line of a specific product. In other words, every process necessary for its production — from raw material extraction to the sale of the finished product — can be controlled by the trust. Numerous restrictions caused by the emergence of a monopoly company hinder free competition and reduce market activity.

In the 1870s and 1880s, trusts appeared not only in the oil industry and railway business, but also in the production of canned meat, sugar, lead, coal, whiskey, and tobacco products. In the 1880s, millionaires Gould and Vanderbilt created their own “railway empires.” John P. Morgan, who headed the “Steel Trust,” concentrated 75% of the country’s steel smelting and 25% of all railway companies in his hands. Concentration also occurred in the banking system — the fusion of banking and industrial capital. It was by buying up shares that banker John P. Morgan subordinated the steel industry and created the “Steel Trust” in 1901. On the other hand, industrialists subordinated banks to themselves; thus, having made super-profits on oil, the Rockefeller brothers founded the “National City Bank of New York.”

By 1913, Ford’s factories were producing one thousand cars a day and more than 250,000 a year, which accounted for almost 50% of the total number of all cars in the USA. The Ford company was the first corporation in the world whose capital reached one billion dollars. Ford’s enterprise contributed to the scientific organization of production. At his factories, the engineer F. Taylor first introduced the moving assembly line, which made it possible to intensify production, making it more cost-effective, competitive, and profitable.

As American economists, authors of economic theory textbooks (Samuelson, Nordhaus, Rubinfeld, Fisher, McConnell, and others) believe, the historically American economy, imbued with the philosophy of free competitive markets, represents fertile ground for the development of a suspicious and apprehensive attitude of society toward entrepreneurial monopolies. The transformation of local markets into national ones, as transport improved, the constantly increasing mechanization of production, and the increasingly widespread joint-stock form of business enterprise had a powerful impact on the development of trusts, that is, entrepreneurial monopolies, in the 1870s and 1880s. The influence of trusts on the entire way of life in the country was felt everywhere. The absorption of small and medium-sized enterprises, rising prices for goods, and the ruin of farmers — all this caused indignation among the widest strata of the population. In addition to the fact that dubious tactics were used in the process of monopolizing various industries, the market power obtained as a result was almost constantly used to the detriment of everyone who dealt with these monopolies. Farmers and small businesses, being particularly vulnerable to the actions of a growing number of giant joint-stock monopolies, were among the first to condemn their development. Consumers and trade unions were not far behind in expressing their disapproval of monopoly power. Under such conditions of development in certain industries, when market forces no longer provided sufficient control to maintain a socially tolerable order, two methods of control were adopted to replace or supplement the market. First, in those few markets where the economic situation prevented the effective functioning of the market mechanism, that is, where there is a tendency toward a “natural monopoly,” public regulatory bodies were created to control economic behavior. Second, in most other markets, where, due to economic and technical conditions, monopoly did not become an integral element, public control took the form of antitrust, or anti-trust, legislation, designed to restrain or prevent the development of monopoly. The constitutional rights of the government were interpreted in the freest manner and used for the purpose of “protecting the public interest” and “regulating” the economic system. In 1887, the Interstate Commerce Commission (ICC) was founded to oversee the actions of railway companies and regulate railway traffic across state borders. Shortly after, in 1890, the Sherman Antitrust Act was passed. By the end of the 19th century, similar laws had been adopted in 27 states, and in 15 states, antitrust acts were included in the state constitutions.

The purpose of antitrust legislation is to promote the development of competition by prohibiting actions that restrict or may lead to the restriction of competition.

Monopoly power arises in different ways, and each of these methods is reflected in antitrust law. This law is drawn up briefly, concisely, and addresses the essence of the monopoly problem, the essence of which is embodied in two, one might say, main points [Williamson, O.E. The Economic Institutions of Capitalism / trans. from English. — St. Petersburg: Lenizdat, 1996. — p. 17.]: Section 1 of the Sherman Act prohibits contracts, combinations in the form of trusts, and conspiracies in restraint of trade. An obvious example of an illegal combination is reaching an open agreement between producers to restrict output and fix prices above the competitive level. However, an implicit agreement (collusion) in the form of parallel pricing can also be considered a violation of the law. To violate the Sherman Act, firms A and B do not necessarily have to meet or negotiate on the phone; it is enough to publish price information that serves as an implicit hint to the other firm. Section 2 of the Sherman Act declares illegal the monopolization or attempt to monopolize the market, and also prohibits secret agreements leading to monopolization.

In 1914, the Clayton Act was passed, supplementing existing laws against unfair restrictions and monopolies. The Clayton Act lists types of activities that counteract competition. For example, under the Clayton Act, it is illegal to require a buyer or lessee of a product not to buy the product from a competitor. This same Act recognizes participation in “predatory pricing” as illegal — a policy designed to drive out competitors and deprive other firms of the incentive to enter the industry, thereby benefiting in the future from the establishment of higher prices [Chrestomathy on the History of State and Law of Foreign Countries: in 2 vols. Vol. 2. — Moscow: Norma, 2008. — p. 426.].

The implementation of antitrust legislation is ensured in three ways:

through the activities of the Antitrust Division of the Department of Justice; through the activities of the Federal Trade Commission, which accepts and reviews complaints of antitrust law violations, and also initiates inspections on its own initiative; on the basis of private lawsuits in court for triple damages caused to their property or business as a result of a violation of the law. The threat of triple damages serves as a strong deterrent for potential violators of the law.

Even today, these antitrust laws, improved and supplemented by various amendments, constitute the main law of the country concerning the size of corporations and the level of concentration.

2. “Old” Institutionalism as a New Methodology in Economic Science and the Foundation for the Formation of New Institutional Economic Theory

2.1. “Old” Institutionalism as a Critique of Neoclassical Theory

The successes of the USA in industrial and state construction were primarily ensured by the accumulated Western European experience of building capitalism and human capital. Bourgeois democracy in the USA began to take shape in the 18th century after the American Revolution of 1775–1783. The political system of the young state was defined by the 1787 Constitution, which defined the main values of society as guarantees of freedom and prosperity, and was a historically progressive document.

With weapons in their hands, during the Civil War (1861–1865), the American people won new freedoms. A number of amendments were adopted to the Constitution. In the business world, fierce competition reigned, leading to the confrontation between labor and capital. Both farmers and workers demanded changes in the economic and social structure, the implementation of which would significantly transform the entire American social system. In 1881, an association of trade unions called the American Federation of Labor (AFL) was formed.

The emergence of new institutions and all these events were actively analyzed and assessed by a pleiad of American political economists-institutionalists (T. Veblen, J.R. Commons, W. Hamilton, W.C. Mitchell, J.M. Clark, etc.), who questioned the main values of liberalism, marginalist concepts of utility and pricing, and individualism. They believed that the object of study should be the real human being, often acting irrationally, under the influence of fear, whims, fashion, individual needs, social pressure, etc.

At the origins of institutionalism stood one of the former students of the marginalist John Bates Clark, a bright young man endowed with a lively mind, named Thorstein Veblen (1857–1929), who a few years later subjected his teacher’s views to crushing criticism. As the French historian Émile James wrote, “he killed the optimism that Americans saw in the works of J.B. Clark. He opened the way to reforms of the economic system, the way to dirigisme and the ideas of technocracy and a brain trust, which would give the government economic advice” [James, É. History of Economic Thought of the 20th Century. — Moscow: 1959. — p. 90.]. The American historian of economic thought B. Seligman, in turn, notes that “Veblen’s most mature works appeared at a time when chaos seemed to reign in America. These were difficult years. Ordinary people were so embittered that they listened carefully to Johann Most and the anarchists. These were years when the fear of intractable industrialists and the anger of hungry workers, colliding, not infrequently spawned violence” [Seligman, B. Main Currents in Modern Economics. — Moscow: 1968. — p. 156.]. Many contemporaries compared him to Karl Marx, however, as James writes about him, it would be more correct to compare him to Proudhon, not Marx; he was rather a sociologist and moralist than an economist. Veblen and his associates set the task of studying the essence of real phenomena in the American economy, investigating what constitutes the constantly changing elements in this economy, how they evolve, and what can cause this evolution. This direction was called institutionalism.

John R. Commons (1862–1945), the founder of socio-legal institutionalism, noted that for social progress, the energy of the people must be unleashed, and for this, government measures are necessary that would guarantee equality of opportunity. Frank statements and criticism on various socio-legal problems did not contribute to his work, and he was forced to move from one job to another, from one university to another. However, this did not prevent him from engaging in socio-legal research. He immersed himself in the problems of municipal reform, local self-government, and proportional representation, and began to develop projects that subsequently entered his social theory. Working in the public organization National Civic Federation, he studied the problems of settling conflicts between labor and capital. J. Commons realized the collective nature of trade unions and how a trade union, as an institution, directs and controls human behavior. He also helped develop a number of laws for the state of Wisconsin concerning the legal status of trade unions, unemployment insurance, workers’ compensation for industrial accidents, and the regulation of public utilities, which, as M. Blaug notes, made Wisconsin known as a legislative “laboratory” for other American states. Working at the University of Wisconsin, Commons participated in the preparation of a massive work on the history of capitalism, and in 1911 a voluminous ten-volume “Documentary History of Industrial Society” was published. The same group prepared for publication in 1918 the “History of Labour in the United States” in four volumes. The historian M. Blaug notes that this four-volume work alone could have “earned him a place among the outstanding representatives of American economic thought, even if he had written nothing else” [Blaug, M. 100 Great Economists Before Keynes. — Trans. from English. — St. Petersburg: 2005. — p. 145.].

J. Commons participated in the development of the Social Security Act of 1935, which created the modern American system of funded pension insurance; he developed the theory of collective action, viewed as a set of controls over conflicting private interests, and founded the direction that came to be known as the economics of law.

As M. Blaug believes, “Commons’s books were actually stillborn and attracted little attention even at the time they were published. This happened mostly because they are frankly obscure; they are filled with special terms — ‘transactions’, ‘working rules’, ‘going concerns’, which the author manipulates at a high level of abstraction” [Seligman, B. Main Currents in Modern Economics. — Moscow: 1968. — p. 156.]. However, today for the new institutional economic theory, these categories have become the subject of an independent discipline — “institutional economics”.

Accumulated practical experience allowed Commons to develop an original system of ideas, which he outlined in his books: in 1924 the book “Legal Foundations of Capitalism” was published, in 1934 — “Institutional Economics”. And at the end of his life he wrote the book “The Economics of Collective Action”, as B. Seligman writes, — “he believed that with its help he finally managed to explain to economists what he had been trying to instill in them for so many years” [Seligman, B. Main Currents in Modern Economics. — Moscow: 1968. — p. 156.]. The book was published after his death.

Analyzing the nature of market transactions, Commons came to the conclusion that the legal grounds of economic decisions should be resolved not through the dynamism of class struggle, but by clarifying the positions of the transaction participants. Assuming that courts participate in transactions, he introduced the impact of state power into his theory. State power in the Western world has historically developed in the direction of a democratic ideal, so it increasingly contributed to the public good, Commons believed. He did not deny, however, that private groups often try to seize control of the state to secure acquired privileges. The struggle for control over the state is serious in nature, but this is not Marxian class struggle, Commons believes. Rather, this struggle is waged by numerous groups, the composition and character of which are constantly changing. Commons recognizes the presence of contradictions between labor and capital, buyers and sellers, farmers and wholesale buyers of their products, borrowers and lenders, between different groups of taxpayers. Each group exerts, or tries to exert, stronger pressure on the state in its own interests. The system of proportional representation, Commons believes, could mitigate this struggle, and ultimately reasonable value and peaceful relations between people may triumph.

State power is considered by Commons as one of the main principles of economic behavior. Since the elements of monopoly in the economy are growing, it is extremely necessary to find ways to protect the worker, who repeatedly becomes a victim of pressure from monopolies. However, he believed that the influence of trusts could be beneficial to the extent that they are able to mitigate depressions and promote production growth.

Commons’s approach to labor relations, which he calls the principle of “public utility”, is also interesting. The classics viewed labor simply as a commodity. Engineers and management personnel value labor only from the point of view of production development. The principle of “public utility”, Commons believes, grants labor certain rights that must be respected in market relations, otherwise a serious conflict may arise. Social problems, he believed, must be solved gradually. The conclusion of collective agreements is the most important way to maintain social equilibrium.

Through his works, Commons contributed, as noted above, to the development of the socio-legal direction in institutionalism. Not only Commons and his works contributed to the creation of new institutions regulating economic relations and forming a rule-of-law state in the USA; one can also highlight Wesley Clair Mitchell (1874–1948), who in the history of economic thought is called an “economist without a theory”. Mitchell created the cyclical-statistical or empirical direction in institutionalism.

As B. Seligman notes, “Veblen dealt the strongest blow to orthodox theory, and Mitchell later completed it with a huge mass of quantitative data, and the classical doctrine ceased to be the last word in economic science” [Seligman, B. Main Currents in Modern Economics. — Moscow: 1968. — p. 156.].

In 1913, Mitchell published a voluminous book “Economic Cycles”, which was a study of the monetary economy. Widely using statistics as a method of analysis, he showed how it is possible to approach economic problems in a new way. For about 25 years, Mitchell headed the National Bureau of Economic Research, founded in 1920, the goal of which was defined as conducting statistical and economic research on an independent basis. The Bureau did not give recommendations, did not evaluate policies; it simply stated the facts as they were. The Bureau developed methods for collecting and processing statistical data that are still in use today. In 1927, the Bureau published Mitchell’s book “Economic Cycles: The Problem and Its Setting”, and also posthumously released the book “What Happens During Business Cycles” in 1951.

Analyzing the problems of cyclicity, Mitchell argued that the germ of a downturn must always be sought in the preceding phase of prosperity. It is impossible to construct a theory common to all cycles, he believed; economic history repeats itself, but always contains new elements.

During the Great Depression of 1929–1933, Mitchell put forward the idea of the necessity of planning. He insisted that planning does not contradict the traditions of Americanism and during Roosevelt’s “New Deal” participated in the establishment of the National Resources Board, which was conceived as a kind of central planning body. In these years, he also advocated the creation of a system of state unemployment insurance.

The institutionalist John Maurice Clark (1884–1963) made a significant contribution to economic theory as a researcher of competition problems. To evaluate the activities of industries and develop effective antitrust laws to maintain competition, a definition of actual, “workable” competition was needed, not “perfect” competition, he believed. These thoughts were laid out in his article “Toward a Concept of Workable Competition”. He set himself the task of proposing not a set of mechanical rules, but empirical ones concerning freedom of entry and alternative opportunities available to consumers in order to help courts assess whether an industry is in a state of effective competition or not.

M. Blaug believes that it had a great influence on the development of the theory of industrial organization. Clark’s article caused a stormy development of further research in this direction.

In 1915, while working at the University of Chicago, he had the opportunity to closely observe the problems of big business. Outbreaks of struggle in industry strengthened his belief in the need for more effective social cooperation.

In the 1930s, Clark was a consultant to the National Planning Board, and during World War II, to the Office of Price Administration.

One of the important problems in Clark’s sphere of interests was the problem of cyclicity. To explain the internal mechanism of cyclicity, Clark put forward the accelerator principle, which had a profound influence on 20th-century economic thought. In 1926, Clark’s book “Studies in the Economics of Overhead Costs” was published. In it, the author explored the role of internal economies of scale in explaining the growth of monopolies, the differences between internal and external economies, and between economies in production and in marketing. M. Blaug notes that this book “is highly useful for demonstrating how Chamberlin and Robertson soon came to their theories of monopolistic and imperfect competition” [Blaug, M. 100 Great Economists Before Keynes. — Trans. from English. — St. Petersburg: 2005.].

Summing up this question, it should be noted that historians, speaking of the Great Depression in the USA, usually note the merits of Keynesianism and rarely speak about the significance of institutionalism in developing the mechanisms of state regulation of the economy.

2.2. Contribution of the Austrian School (C. Menger, F. von Wieser, E. von Böhm-Bawerk) and Neo-Austrians L. von Mises and F. von Hayek to the Development of New Institutional Economic Theory

In the 1860s and 1870s, while the spirit of historicism dominated in Germany and this science, distant from theoretical reflection, was nourished by the empirical methodology of the historical school, the famous “battle of methods” (Methodenstreit) began. In contrast to Schmoller, the Austrian, professor at the University of Vienna, Carl Menger, demonstrated in his “Investigations into the Method of the Social Sciences” (1883) that, although a historical basis is necessary for solving economic problems and explaining certain specific phenomena, one still cannot do without the use of general concepts and without searching for recurring regular connections that take the form of laws.

“It [the Austrian School]” — writes N. Bukharin in his work “The Political Economy of the Rentier” — “appeared on the scientific scene as a sharp opposition to ‘historicism’. In the heated polemical clash, which found its most vivid expression in the polemic between Carl Menger and Schmoller, the new theorists of the bourgeoisie exposed the main shortcomings of their predecessors with great completeness; they again began to demand from the theorist the cognition of ‘typical phenomena’ and ‘general laws’ (‘exact laws’, exakte Gesetze, as K. Menger called them). Having won a number of victories over the historians, the Austrian school, in the person of Böhm-Bawerk, attacked Marxism… and soon declared its complete theoretical inconsistency” [Bukharin, N.I. The Political Economy of the Rentier. The Austrian School’s Theory of Value and Profit. — Moscow: 1988. — p. 15.].

Indeed, the revolution in marginalism is associated with the Austrian school, which began to take shape in the 1870s around Carl Menger, who outlined the concept of the theory of marginal utility in his work “Principles of Economics” (1871).

As B. Seligman writes, “It is generally recognized that Carl Menger’s book ‘Principles of Economics’, published in 1871, produced a revolution in economic theory… although Jevons’s work also came out in 1871, Menger’s material is better systematized, and those who preferred to deal with positive views presented in a completed form considered Menger, rather than Jevons, to be their spiritual father” [Seligman, B. Main Currents in Modern Economics. — Moscow: 1968. — p. 156.].

It should also be noted that Menger’s views gained wide recognition thanks to the works of his best students, Friedrich von Wieser and Eugen von Böhm-Bawerk.

Carl Menger (1840–1921) was a professor at the University of Vienna from 1871 to 1903. Alongside the “Principles”, his book dedicated to methodology, “Investigations into the Method of the Social Sciences and Especially Political Economy” (1883), should also be highlighted.

The ideas of the historical school, cultivated in university circles, directed the attention of German economists to practical problems. Schmoller’s “Yearbook” raised questions of reforms and the administration of Germany in the era of O. von Bismarck. And in these conditions, the voice of an economist engaged in pure theory, analyzing some “principles of marginal utility” using abstract methods — or, as he himself says, the “natural-science method” — is heard. Is this not evidence of boldness and revolution? “…we tried to reduce the complex phenomena of human economy to their simplest elements, still accessible to exact observation, to apply to the latter a measure appropriate to their nature, and, having established it, to show again how complex economic phenomena develop lawfully from their elements” [The Austrian School in Political Economy: C. Menger, E. Böhm-Bawerk, F. Wieser: Trans. from German / Foreword, comments, comp. by V.S. Avtonomov. — Moscow: Ekonomika, 1992. — p. 35.].

“This is the method of investigation,” Menger asserts, “which, having been applied in the natural sciences, led to such a significant result that, by a misunderstanding, it came to be called the natural-science method, whereas it is common to all sciences based on experience and should more correctly be called empirical. This latter distinction is important because each method receives its character from the essence of the field of knowledge in which it is applied, which is why one cannot simply speak of a natural-science direction in our science. Attempts made so far to transfer the features of the natural-science method of investigation into the field of political economy have therefore led only to failures.”

In contrast to the historical school, which denied the general laws of political economy, Menger recognized them and declared that political economy should study these laws using the so-called abstract-deductive method; on the other hand, he rejected the use of mathematics in political economy. He reduced all study of economic problems to the consideration of psychological phenomena, defining the task of political economy as establishing the “basic simplest laws,” which should be considered from the standpoint of the psychological motives of economic agents.

The development and formation of the neoclassical direction is associated with the name of Alfred Marshall (1842–1924). Starting from the 1890s and up to the 1930s, he was the dominant figure in British economic science, notes Mark Blaug, “and his book ‘Principles of Economics’ is still capable of charming and delighting the reader” [Blaug, M. 100 Great Economists Before Keynes. — Trans. from English. — St. Petersburg: 2005. — p. 205.]. Marshall taught economic theory at Cambridge University. In 1890, his main work, “Principles of Economics”, was published, which went through many editions and served for several decades as the primary textbook on economic science in the USA, England, and other countries. Marshall is known, above all, as the author of the theory of market price formation. He proposed shifting the efforts of economists from theoretical disputes around value to the study of the problems of the interaction of supply and demand as the forces determining the processes occurring in the market. Having carefully analyzed how these forces form and interact, he introduced the concept of “elasticity of demand and supply” and put forward his theory of price. In his view, price is determined by the equality of marginal utility to marginal production costs. The “cost of production” principle and the “final utility” principle are undoubtedly constituent parts of one universal law of supply and demand; “each of them can be compared to one of the blades of a pair of scissors,” Marshall noted [Marshall, A. Principles of Economics. — Moscow: 1993. — Vol. 3. — p. 86.]. He did not limit himself only to the model of “instantaneous equilibrium,” but investigated what would happen to demand and supply if certain factors changed. It was thanks to Marshall that modern microeconomic science was formed. Years of painstaking work allowed Marshall to create a truly holistic concept, which brought him worldwide fame and gave grounds for comparing his work with A. Smith’s “Wealth of Nations”.

3. New Institutional Economic Theory, Its Methodology, Difference from “Old” Institutionalism. Main Concepts of Institutional Economics

3.1. Institutional Economics: The Role of Institutions in the Modern Economy

The well-known American economist Todd Sandler humorously notes in the preface to his book Economic Concepts for the Social Sciences: “Waking up one morning, I felt a change in myself. Not that I had grown a shell and turned into a beetle, as in Kafka’s story, but my views on economics and my understanding of the role of the economist had radically changed.” He meant that his works should adopt a more accessible style of presentation for the understanding of a wide range of readers. And in the chapter “The Problem of Institutions: New Institutional Economics,” he also writes with humor: “Economists once woke up and came to an outstanding guess: the problem is institutions and their internal structure, and they are the legitimate domain of applied economics.” [Sandler, T. Economic Concepts for the Social Sciences. — Moscow: Ves Mir, 2006. — (Theme). — p. 136.]

Indeed, respected students, many great revelations and discoveries come to people in the morning. A healthy sleep, which I also wish for you, will contribute to our education. There is much truth in Rabbi Akiva’s saying that he learned much from his teachers, even more from his colleagues, but most of all from his students.

Among the pioneers who made a number of constructive contributions to new institutional economics, Todd Sandler includes Kenneth Arrow, Ronald Coase, Friedrich von Hayek, Gunnar Myrdal, Douglass North, Herbert Simon, and George Stigler.

The first to put forward new approaches to the analysis of the firm and production in economic theory from new institutional positions was the English economist Ronald Harry Coase. In 1937, he published the article “The Nature of the Firm,” and in 1960, “The Problem of Social Cost,” which brought him wide fame, and in 1991 he received the Nobel Prize for the ideas expressed in these articles. Coase was the first to draw attention to the role that law and other social institutions play in the behavior of the firm and the functioning of the market.