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This paper is an initial attempt to discuss the American institutionalist movement as it changed and developed after 1945. Institutionalism in the inter-war period was a relatively coherent movement held together by a set of general methodological, theoretical, and ideological commitments (Rutherford, 2011). Although institutionalism always had its critics, it came under increased attack in the 1940s, and faced challenges from Keynesian economics, a revived neoclassicism, econometrics, and from new methodological approaches derived from various versions of positivism. The institutionalist response to these criticisms, and particularly the criticism that institutionalism “lacked theory,” is to be found in a variety of attempts to redefine institutionalism in new theoretical or methodological terms. Perhaps the most important of these is to be found in Clarence Ayres’ The Theory of Economic Progress (1944), although there were many others. These developments were accompanied by a significant amount of debate, disagreement, and uncertainty over future directions. Some of this is reflected in the early history of The Association for Evolutionary Economics.

The first Wisconsin Ph.D.s who came to MSU with an institutional bent were agricultural economists and included Henry Larzalere (Ph.D. 1938) whose major professor was Asher Hobson. Larzalere recalls the influence of Commons who retired in 1933. Upon graduation, Larzalere worked a short time for Wisconsin Governor Phillip Fox LaFollette who won passage of the nation’s first unemployment compensation act. Commons had earlier helped LaFollette’s father, Robert, to a number of institutional innovations.⁴ Larzalere continued the Commons’ tradition of contributing to the development of new institutions rather than being content to provide an efficiency apologia for existing private governance structures. He helped Michigan farmers form cooperatives. He taught land economics prior to Barlowe’s arrival in 1948, but primarily taught agricultural marketing. One of his Master’s degree students was Glenn Johnson (see below). Larzalere retired in 1977.

In 1959, Al Schmid joined the faculty at Michigan State, where he taught in the Department of Agricultural Economics until his retirement as a University Distinguished Professor in 2007. Over the course of his long career, Schmid authored eight books and more than a hundred journal articles, monographs, and book chapters. He also lectured and consulted extensively, in Michigan, across the United States, and abroad (including Mali, Zimbabwe, France, and Romania).³

I. Introduction to the Study of the Economic Role of Government: Alternative Approaches to Law and Economics

The “winner's curse” (or, more precisely, failure to account for the winner's curse) was one of the first behavioral “anomalies” to be discussed in the literature. The idea dates back to 1971, and was first applied to the bidding for oil drilling rights (See Capen, Clapp, & Campbell, 1971). The winner's curse is the phenomenon of systematically upward-biased winning bids in an auction market. That is, the winning bid in an auction tends to be much higher than some objectively defined value of the good.² The basis of the anomaly is relatively simple. In an auction with a large number of buyers, each possessing imperfect information concerning the value of the auctioned good, there will be a spread of estimated values. If buyers possess rational expectations, we will expect roughly half (assuming a symmetric distribution of estimates) of the bidders to overestimate the value of the good, and roughly half to underestimate its true value. If buyers naively bid their estimated value of the good, the winning bid will equal the most extremely over-valued estimate. Thus, the winning bid will not only be an overestimate of the good's true value, but it will be the most extreme overestimate made by any bidder. Hence, while on average an individual's bid may equal the actual value of the auctioned good, the winning bid will most likely be a severe overestimate of the good's value. For this reason, bidders who naively bid their estimated value at an auction will tend to regret winning.

Review essay on Neil Fligstein’s, The Architecture of Markets: An Economic Sociology of Twenty-First-Century Capitalist Societies. Princeton: Princeton University Press, 2001. 274 pp. Competitive markets are the sine qua non of economics principles texts. A system of competing firms, input suppliers including labor, and consumers is automatic and can be taken for granted. Firms are busy combining inputs and choosing what products to produce. They come and go, forming, dissolving and reforming. There is little place in this theory for cognition, social movements, shared meanings, that is, of economic sociology. Fligstein wants to change that. He wants to add a “political-cultural theory” to the theory of the firm.

This is the second set of lecture notes from courses in public finance published in an archival volume in this series. Volume 19-C (2001) was entirely devoted to notes from lectures by E. R. A. Seligman at Columbia University. Two differences mark Seligman’s lectures and the lectures by Henry C. Simons at Chicago, as reported below. Seligman seems to have been lecturing primarily to students in tax administration, hence he presented very little economic theory; whereas Simons was lecturing to graduate students in economics, and presented relatively more theory. Seligman did not refrain from some passing of judgment but his lectures were largely descriptive and non-judgmental; whereas Simons has no hesitation in presenting his own normative approach on various issues. These issues tended strongly to focus on inequality, tax justice, and progressivity.