The Struggle Over the Soul of Economics: Institutionalist and Neoclassical Economists in America Between the Wars.

• Author: Caldwell, Bruce J.
• Position: Review

By Yuval Yonay. Princeton, NJ: Princeton University Press, 1998. Pp. xiii, 290. $39.50.

Yuval Yonay makes two broad claims in this ambitious book about institutionalism during the interwar period. First, conventional histories of economic thought have, through neglect or misinterpretation, gotten the institutionalists all wrong. Second, the errors arise because the standard stories are either "Whig histories" (i.e., history as constructed from the perspective of the winners, the neoclassicals) or histories that utilize philosophical frameworks (borrowed from Thomas Kuhn or Imre Lakatos), which are poor vehicles for telling this particular story. The claims are related: The historiography we have been using is wrong, and that has led us to do bad history. The author's positive goals are to correct the historical record and to provide an alternative framework for doing the intellectual history of economics.

Yonay's themes are important ones, and were he able to deliver on his claims, his book would be a very significant one. However, in my opinion there is less here than meets the eye and much less than Yonay promises. After reviewing Yonay's arguments, I will offer my reasons for this assessment.

Yonay opens with an introduction outlining both his criticisms and his preferred alternative explanatory framework. Next come two chapters that aim to correct the historical record, one reinterpreting the development of neoclassical economics and the other reconstructing the history of institutionalism. Five chapters follow in which classic debates between the institutionalists and the mainstream are reconstructed. Among these are the importance and meaning(s) of theory; the role of rational economic man and social institutions in economics; the evaluation of market institutions; the value of various types of empirical work, and the historical treatment of institutionalism. Chapter 9 offers a brief description of "modern economics," that is, economics since World War II, which the author claims differs from both insitutionalism and the neoclassicism that preceded it. In the final chapter, Yonay summarizes his case, compares it against some other characterizations of economics in the twentieth century, and draws some conclusions.

The highlights of Yonay's argument can be briefly sketched. The "textbook version" of economic thought that he rejects has economics beginning with Adam Smith and the classicals. Neoclassical economics appeared at century's end and built on classical analysis in terms of both its assumptions of hedonism and rationality and its preference for a laissez-faire approach regarding government intervention. Neoclassicism was dominant until the Great Depression, when the challenge of Keynesian economics arose. However, this debate was resolved in the postwar period when a "neoclassical-Keynesian synthesis" emerged (pp. 7-8). In this textbook version, institutionalism is all but forgotten: "Current historians of economic thought usually ignore the institutionalists or consider their movement to be an ephemeral and inconsequential episode in the history of economic thought" (p. 4).

Yonay notes that a number of things are wrong with this story. The textbook version misses the fact that the neoclassical era was a period of considerable diversity. For example, Marshall and other neoclassicals shared the institutionalist predeliction for certain forms of...