Human nature and economic institutions: Instinct psychology, behaviorism, and the development of American institutionalism

This paper explores the evolution of the psychological foundation of institutional economics between the early XXc and the 1940s. The first part deals with the rise and fall of instinct psychology. Inspired by Veblen’s taxonomy of instinctive behavior, several American economists attempted to build a viable alternative to psychological hedonism of neoclassical economics then only at its infancy. In this debate we show how instinct theory came to be applied to the field now as industrial psychology. The second part discusses some of the reasons why this methodological approach began to lose momentum among leading American institutionalists. In this section we also present the emergence of behaviorism in 1930s American economics and the different impact which it gained also within neoclassical economists. This paper particularly dwells upon the contributions of C. Parker, L. Edie, M. Copeland and F. Knight.