Abstract vs. Practical Knowledge and Economic Policy. An Institutional Perspective

The paper compares the conventional economic approach with institutional economics as proposed by Karl Polany and William Kapp. The argument is that the two aproaches rely on different types of knowledge: abstract and universal principles, the former; based on practical guidelines and contextual facts, the latter. Even the representation of agents differ: an “image” of the agent is needed in conventional economics, whose behaviour is consistent with the rest of the formal model; institutional economcis instead can deal with real social actors who are built in the process. Such differences become crucial when the aim of economics comes at stake; both approaches have a strong policy orientation (see Varian 1997 and Kapp 1976 as references), but the paper argues that an abstract knowledge is not suited to economics as a practical science in aristotelic terms – which include locally sound principles of action.