Macroeconomics from the Viewpoint of Modern Institutional Economics

Both Keynesians and modern institutional economists are critical of the “classical economists”. In being so, they employ similar micro foundations of the business behavior (the “institutional arrangements”) of individuals. Yet in contrast to Keynesians, the representatives of modern institutional economics incorporate the institutional framework into their analysis: For them, the linkage between “economy and politics” is likewise an object of economic analysis. This is, in particular, the central issue of the “new political economics”. The concept of the “institution as an equilibrium outcome of a game” is applied in this literature an approach, which leads to multiple equilibria. The Keynesian under-employment equilibrium may be interpreted in this manner. The present essay constitutes a plea to widen macroeconomic analysis and “new political economics” by utilizing the procedure of “analytic narratives” that has been successfully put to the test by economic historians.