Abstract: Institutionalist Economics and Managed Competition: The U.S. Experiment with a Coordinated Market Economy, 1920-1940
Our assessment of business practices as good or bad, benevolent or predatory, is often derived from the larger frameworks that inform how we see the world. Arguably, today many policymakers, regulators, and businesspeople are captured by neo-classical or neo-liberal frameworks that legitimate free market economics; however, this has not always been the case. During the interwar period in the United States, economics departments and law schools were heavily influenced by institutionalist economics, which supported a different view of the relationship between the state and the market. Our conventional history of modern American capitalism has neglected the variety of organizational forms and governance strategies employed by business and government because we have not taken seriously the influence of this heterodox strand of economic thinking. Indeed, intuitionalist economics was a dominant strand of economic scholarship between 1920 and 1940, and its influence was clearly visible in many New Deal programs. Additionally, institutionalists shared a close relationship with the legal realist traditionboth intended to reform the American state and market. Institutionalists rejected the classical economics assumptions of competition, pioneered studies on managed competition, and collaborated with business associations and government regulators. Many institutionalists entered government service throughout the period under consideration. Their prescription for mitigating business cycles hinged on the information-sharing practices that many trade associations in specialty manufacturing and retailing already employed. Running afoul of antitrust law encouraged collaboration between these business leaders, progressive economists, and regulators who were interested in pursuing an alternative vision for modern American capitalism. I argue that institutional economics helped unite disparate business interests and lent professional authority to business associations' claims to promote competition through associational management and government oversight. Together they composed a transformative movement to liberalize U.S. antitrust law and expand the role of the state in policing the boundaries of fair competition.