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. Some years ago, when I published The Construction of Social Reality, I was aware that it had implications for the ontology of economics, but I was not aware that there had already been an important revival of the tradition of institutional economics. It would be an understatement to say that I welcome this interest in institutions; I enthusiastically support it. But I think that in the institutional literature there is still an unclarity about what exactly an institution is. What is the ontology, the mode of existence, of institutional reality? This article tries to add to this discussion. Economics as a subject matter, unlike physics or chemistry, is largely concerned with institutional facts. Facts about money and interest rates, exchange and employment, corporations and the balance of payments, form the very heart of the subject of economics. When Lionel Robbins, in a classic work, tells us that “Economics is a study of the disposal of scarce commodities,”2 he takes for granted a huge invisible institutional....
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