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What is an institution?

Published online by Cambridge University Press:  27 May 2005

University of California, Berkeley


When I was an undergraduate in Oxford, we were taught economics almost as though it were a natural science. The subject matter of economics might be different from physics, but only in the way that the subject matter of chemistry or biology is different from physics. The actual results were presented to us as if they were scientific theories. So, when we learned that savings equals investment, it was taught in the same tone of voice as one teaches that force equals mass times acceleration. And we learned that rational entrepreneurs sell where marginal cost equals marginal revenue in the way that we once learned that bodies attract in a way that is directly proportional to the product of their mass and inversely proportional to the square of the distance between them. At no point was it ever suggested that the reality described by economic theory was dependent on human beliefs and other attitudes in a way that was totally unlike the reality described by physics or chemistry.

Research Article
© 2005 The JOIE Foundation

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This article grew out of my participation in a conference on Institutional Economics at the University of Hertfordshire in 2004. I am grateful to the participants for helpful comments and I especially want to thank Geoffrey Hodgson and Tony Lawson. I also want to thank two anonymous reviewers for JOIE and most of all I thank my wife Dagmar Searle for her help.