The cornerstone of early Institutional Economics was an analysis of the cyclical behavior of American capitalism during the era of corporate mergers and acquisitions. The foundation was in the work of Thorstein Veblen, in and around the turn of the 20th century. J.P. Morgan was the most prominent investment banker in the late 19th and early 20th centuries. By some accounts, Morgan served as the "unofficial central banker" for the federal government throughout most of that era. Veblen was fascinated by Morgan and his role in financial markets, and this influenced his analysis of corporation finance in The Theory of Business Enterprise. His observations of Morgan's investment banking activities became the central component of his theoretical explanation of Industrial Capitalism and the cyclical behavior of the modern industrial economy. This paper analyzes the role of J.P. Morgan during the merger era of the last quarter of the 19th century. Next, the paper will review Veblen's observations about Morgan and his place in the realm of American corporation finance. Major developments in the U.S. securities markets during the Morgan era are analyzed. The central role of financial markets in the literature of early Institutional Economics is critically analyzed in this paper. Finally, a modern interpretation of Veblen's theoretical structure is provided, and his anticipation of later 20th century theoretical developments is underscored.
William T. Ganley. "Institutional Economics in the Age of J.P. Morgan." Proceedings of the New York State Economics Association. vol. 1, October 2008, p. 11-21
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