Institutional Economic Theory

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Institutional Economic Theory

Economics 451

University of Missouri
Kansas City

Theory of Institutional Adjustment

Principles of Institutional Adjustment

Technological Determinism

Instrumental Primacy

Instrumental Primacy is the principle that all change is predicated on the actual ability to do so. Actually being
able to change requires instrumental capability and is therefore primary; Adjustments to or enhancements of
the warranted stock of knowledge.

Institutional adjustment depends upon a psychology of perception of the objective circumstances of possible
achievement. The principle of Instrumental Primacy (technological determination) is the impetus to adjustment

may be read to mean that there must be an accurate perception of what can be done as opposed to what is now being


Recognized Interdependence

This principle asserts that adjustment is specified by the pattern of interconnectedness and interdependency of the
members affected by the change. Social change requires more than the ability to "run the machines." Social technology,
the arts of associated living, are required and must be "invented" and tried out.

Understanding the relationships of Institutions to each other

Understanding relationships of people to institutions

Understand relationships of people to people



Principles of Institutional Adjustment


Minimal Dislocation

All adjustments must actually be capable of being integrated into the remainder of the
existing social fabric. This principle discloses the limits, in term of rate and degree, of
any adjustment.

The social fabric of any organization is finitely elastic at any point of
change implementation. The adjustment is more likely to be achieved we follow a path
with small increments of continuous change.


If adjustments are deferred and build to a situation where change involves
significant dislocation there will be more resistance as vested interests
accumulate around the prevailing institutional structure. This situation is more
likely to create the condition of ceremonial encapsulation making adjustments
less likely and less susceptible to deliberative processes.

Must be capable of re
correlation with other institutions

Notice the principles are instrumental in character. This is because adjustment is a change in
the relationship or synchronization of ceremonial behaviors to instrumental ones.

While adjustment is an interaction of ceremonial and instrumental behavior, the causative
agent is instrumental while ceremonial behavior is the passive and sometimes resistive.

There is an enduring tension in these and successful adjustment of institutions works to
reduce this tension. A lack of adjustment increases this tension. To recognize and to
experiment with different ways of bringing about change requires consideration of the
consequences continuum.

How close that perception is to the instrumental reality is a critical feature in the adjustment
process. This relates to the other processes.



In addition to the three principles above there are two process involved in institutional
adjustment. The first is the relationship of Means

This process relates to the problem of selecting actions that will bring about the desired
change; including the axiom that choosing means

choosing ends. It is a hypothesis about
what to do, but without the knowledge to do it.

The means
ends continuum is deceptively simple, but may sometimes have complex
implications. Means are inseparable from ends because arrival at an end has consequences
for where we can go once we have “arrived.”

Selection of means involves choices. Selection processes are based not only on the
"immediate" consequences of a choice, but future ones too.



Instrumental Primacy
Technological Change

How it develops

Genius theory

Climate theory

Cumulative evolution theory

Two big jumps as advances in technology and tools.


50K years ago, probably due to genetic changes allowing increased brain function
and speech, or both.

13K years ago due to sedentary life style, i.e., move from nomadic to sedentary life style.

Third may be going on now

from Quantum Electro Dynamics (QED) to Nanotechnology

What inhibits

traditional habits and ways of doing

What encourages

experimental /scientific habits

Scientific revolution of 1500
1700 proceeded the industrial revolution

Astronomy, mathematics, physics

Steam engine, iron, pottery, glass, concrete, etc.

Advances in chemistry and physics proceed industrial expansion in later 19


Steel, electricity, petroleum, radio waves

Advances in biology and physics have proceeded genetic and electronic advances

The Singularity

the integration of biology, chemistry, and physics


Illustrations of impact of “traditional” or conservative vs experimental behavior

New Guinea tribes Chimbu’s and Daribi

Chimbu’s are experimental and receptive.

Daribi are “conservative” and unreceptive

Japanese Samari vs peasant gun totters



Back to the Future

Third Agricultural Revolution



Fourth Agricultural Revolution



Based on Scientific and technological developments

The singularity

merger of biology, chemistry & physics

Nano technology

Nano Robots

Artificial Intelligence combined with Nano Robots

Creation Machines

Therapeutic cloning

Economic and Social Implications and Consequences of these developments

Food production

Meat in “factories”

Machines make products with little traditional human labor

build a car

Health and Life expectancy

Incurable diseases


Life expectancy expands as dramatically as during 20


For women in industrialized countries


1900 = 48

2000 = 79

2100 = ??

For men in industrialized countries


1900 = 46

2000 = 75

2100 = ??


If we can adjust institutions to correlate with dramatically changed situation.

Consider the issue of employment/unemployment

in this changed situation

what happens to definition of employment


what adjustments to the labor market will be necessary

mandatory community service

recognized interdependence


how will this affect those coming into labor force