Institutionalism: Old and New



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http://amglifestyle.com/2011/12/08/good-read-the-wealth-of-nations-by-adam-smith/

According to Adam Smith (1976), the productivity of the economic system depends on specialisation (the division of labour). The more the specialisation is, the greater the productivity of the economic system will be.



Ronald Coase ( Nobel Laureate, is now 101 years old, born 29 December 1910).
Image from The Ronald Coase Institute http://coase.org/aboutronaldcoase.htm



Coase (1997: 73) argues that specialisation is only possible only when there is exchange and the costs of exchange (transaction costs) is low. Moreover, the costs of exchange depend on the institutions such as legal system, political system, social system, education system, culture, and so on) of a country. Therefore, the performance of an economy is, in effect, governed by the institutions (Coase,1998: 73).

According to Ronald Coase the basic difference is that “the old institutionalists were concerned in the main with describing institutions rather than with analysing them” (Ferrarini, Nye, Bullard & Eyzaguirre, 1998).


References

Coase, R. (1998) The New Institutional Economics. In the American Economic Review, Vol. 88, No. 2, pp. 72-74. Retrieved on April 18, 2012 on http://www.coase.org/coaseonline.htm

Ferrarini, T., Nye, J., Bullard, A. & Eyzaguirre, H. (1998) Interview with Ronald Coase. At Inaugural Conference, International Society for New Institutional Economics, St. Louis, Missouri, USA, on September 17, 1997. Retrieved on April 18, 2012 on www.coase.org/coaseinterview.htm

Smith, A. (1976) An Inquiry into the Nature and Causes of the Wealth of Nations. (edited by E. Cannan). Retrieved on February 03, 2005 on http://www.adelaide.edu.au/library/etext/s/s64w/s64w.zip