From Institutionalism to Legal Realism

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Book Chapter

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This chapter ventures beyond most writing on Legal Realism by focusing on its link to “institutionalism,” a movement of renegade American economists who believed neoclassical economics’ stripped down conception of the “rational actor” undermined economics’ usefulness as a policy tool. Rather, economics should accommodate much more evolutionary and behavioral conceptions of human motivation. The institutionalists believed that people interacted in a wide variety of settings, or “institutions,” and that the operating rules of these institutions varied from one to another. As a result, policies that might fix failures in one institution would not work in others. They also believed that markets were feeble instruments for managing economic resources and that more state intervention was required. Although institutionalism was rejected by mainstream economists in the 1920s, the Legal Realists carried its mantle through the 1960s. The result for some time was a separation of dominant legal policy from mainstream economic doctrine.


legal realism, institutionalism, rational actor, state intervention, economics

Publication Title

The Opening of American Law: Neoclassical Legal Thought, 1870-1970