The institutional approach to the economy rejects a laissez-faire view of the economy and stresses the role institutions play in the functioning of the economy, and in the process of economic change. Institutional economics sees economic behavior in a more habitual way and rejects the utilitarian view of human economic behavior.

                                       Thorsten Veblen

American economist and sociologist Thorsten Veblen is considered one of the founders of the institutional economy. Veblen connected economy and sociology in his works, studying how economics and society intertwine and achieve mutual influences. Institutional economics places great emphasis on the legal and political system and studies how legal and political institutions affect the functioning and development of the economy. 

Veblen is best known for his book The Theory of the Leisure Class (1899), which studies the status consumption of the "leisure class", which consists of renters and absent property and business owners. Veblen rejects the idea of ​​completely rational economic behavior and believes that a large part of consumption, and thus production, can be explained by the desire of people to increase their own social status and reputation. To achieve this higher status, individuals, especially those belonging to the upper classes, indulge in the wasteful consumption of luxury goods. In countries that have great social and geographical mobility, such as the United States, luxury spending is the fastest and safest way to confirm one's social status. The wasteful spending of the leisure class has no function other than creating a social distinction that allows that class to reproduce the social hierarchy.

In several of his books, Veblen makes a sharp critique of capitalism, and he has a particularly negative view of the absent owners of large companies, which he considers to be complete social parasites. He studies the process in which the management of large companies is taken over by professional directors and managers who do not own the capital of the companies they manage. In addition, he criticizes the superiority of financial capital over productive capital, as well as the exploitation of workers by capitalists. In his opinion, the technology that enables the production of new things has the most positive impact on the development of the economy.

                           John Kenneth Galbraith

Canadian-American economist and political scientist John Kenneth Galbraith is also an important representative of institutional economics. In the book  American Capitalism (1952), he argues that a decentralized private economy has led to a huge increase in productivity and innovation. Since the tendency to concentrate and enlarge capital is inevitable, it is necessary to establish a counterweight to that process. Instead of anti-monopoly laws, it is much more effective, as a counterweight, to increase the power of consumers, unions, and government, in order to control monopolists.

The book Affluent Society (1958) describes the disparity between the enormous wealth and consumer potential of the largest part of American society, and on the other hand, inadequate state investment in public goods: infrastructure, education, transport, ecology, etc. This book also emphasizes the new feature of modern corporations that survive, above all, creating new needs, and not only, as before, passively responding to the already existing needs of consumers.

In the book The New Industrial State (1967), Galbraith concludes that in the modern age, large corporations are led and controlled by employed bureaucratic technocrats, while owners have less and less power. The technocratic non-proprietary elite, which Galbraith calls “technostructure”, exert actual control over corporations, and they primarily strive to survive, thrive, and maintain independence, while less interested in profit maximization. Management, marketing, and connections with politicians are key resources of this group. Galbraith differed from most economists in that he did not believe that the essence of a good economy was the maximization of GDP, but it was much more important to build social harmony and meet the real needs of the people.

                                    Gunnar Myrdal 

Swedish economist and sociologist Gunnar Myrdal was both a scientist and a politician (he was a member of the Swedish Social Democratic Party for many years) and advocated the position that the state should intervene in the economy. He received the Nobel Memorial Prize in Economic Sciences in 1974, for his contributions to the economy. Myrdal, based on his economic and sociological theories, wrote two books: Rich Lands and Poor (1957) and Asian Drama: An Inquiry into the Poverty of Nations (1968), to answer the question of why some countries remain poor while others become rich. To answer this question, he formulated his version of institutional economics. Myrdal believes that state-level economic and social planning, public investment in agriculture, social and educational reforms, as well as democratic participation, will enable poor countries to break the vicious circle of poverty and break the alliance between national elites and foreign capital that is keeping them down.

Books:

Galbraith, John Kenneth. American Capitalism: The Concept of Countervailing Power (1952);

     -     The Great Crash 1929 (1954);

     -     The Affluent Society (1958);

     -     The New Industrial State (1967);

Myrdal, Gunnar. Rich Lands and Poor (1957);

     -     Asian Drama: An Inquiry into the Poverty of Nations (1968)

Veblen, Thorsten. The Theory of the Leisure Class: An Economic Study of Institutions (1899);

     -     The Theory of Business Enterprise (1904);                                 

     -     Imperial Germany and the Industrial Revolution (1915).