Institutional - what is it? What is the essence of institutional economics?

"Institutional" is a word that can often be heard in relation to the economy. However, not everyone knows exactly what it means. But it’s worthwhile to understand that this word, as well as related expressions and utterances, play a very important role in modern life, and also were of great importance in the past, in the process of improving production and consumer relations. The concept of "institutional" is what started the development of the modern economy in the form in which it can be observed today. So what does it mean?

Meaning of the word

institutional is

So, first of all, you need to understand the meaning of this term. Institutional is an adjective that describes something that is directly related to public institutions and is directly related to them. This is the main meaning of this word, which underlies the well-known movement of the economy, which is better known as institutionalism. However, this will be discussed a little later, but now it is worth considering the second meaning of this word.

Institutional is one that is officially established and enshrined in its public status. That is, institutional relations are those relations that are actually fixed, perhaps even at the legal level.

As you can see, there are two main meanings of the mentioned word, but nevertheless, the first is used much more often and received impressive publicity thanks to what was written above. Institutionalism is a direction in the economy, which will be discussed later.


institutional development

And what is an institutional economy? This is an extensive theoretical school that focuses on the impact of social institutions, such as the state, law, morality, and so on, on the economic activities of society as a whole and on the adoption of specific economic decisions in particular.

It originated in the early twentieth century, and the term "institutional economy" was introduced in 1919. Until now, the named school has a serious influence and is one of the most recognized in the world.

Institutional approach

institutional economy

An institutional approach is what lies at the very core of institutionalism. As a matter of fact, he considers two aspects - institutions and institutions. The first concept refers to the norms and customs of human behavior in modern society, and the second - about the same, but only enshrined in law, that is, laws, official rights, as well as organizations and institutions.

To summarize, the difference between the institutional approach and other economic approaches lies in the fact that its supporters propose to consider not only the economic categories and processes themselves, but also the social non-economic factors affecting them, such as institutions and institutions.

Direction of thought

institutional structure

The socio-institutional line of thought has a number of distinctive characteristics. For example, proponents of this approach criticize the abstract and formal nature of neoclassical economic analysis, which was characteristic of this science before the advent of institutionalism.

Also, one of the main distinguishing features of this line of thought was an interdisciplinary approach. As you can already understand, institutionalists advocated that the economy should not be considered on its own, but integrated with the humanities. At the same time, they strove for empirical and factual research, for the analysis of urgent pressing problems, and not universal issues.

Institutional change

socially institutional

Institutional changes, which also have a different name - institutional development - is a process of transformations that have a quantitative and qualitative form. These processes are carried out in collaboration with a wide variety of institutions - political, economic, social, and so on. And the institutional environment is the one where these metamorphoses take place, but at the same time they are manifested not in changes in rules and laws, but at the level of various institutions.


Well, the last thing worth mentioning is the institutional structure. What it is? As the school of institutional economics says, this is an ordered set of institutions that affect the economic behavior of people, communities, groups, enterprises, and so on. At the same time, certain economic matrices are formed that create restrictions on the activities of a business entity. Naturally, all of the above occurs within the framework of a specific system of coordination of economic activity. Simply put, this is the very institutional environment in which the changes described in the previous paragraph occur.

Naturally, this is far from all that the school of institutionalism consists of. It has a huge number of concepts, methods, approaches, movements, and so on. However, it is these basic terms that will help you get a general idea of ​​the named type of economy as such, as well as directly about the word “institutional” itself, which for almost a century has been one of the fundamental in the field of economic theory.

This term is very important for every person who wants to be well versed in the totality of relations in the system of production, consumption, distribution and exchange, since it is with him that many modern movements and concepts in this field are connected.


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