Consistency and Viability of Economic Systems

Abstract

Each human society establishes a specific set of interrelationships among its institutions and its members. The ultimate survival of a society depends on whether these interrelationships are consistent with each other. Of course, not all economic systems possess identical sets of interrelationships. Different histories, cultures, ideologies, religions, and priorities give rise to unique interrelationships, resulting in different institutional forms and variations in the way these institutions interrelate and interact. Economic institutions are those elements that reflect the way we organize our economic activities. They cover a broad range of economic, social, and political activities: property, organization, government, ideology, and formal and informal practices, just to mention a few. Economic history demonstrates that economic progress depends on having the right constellation of economic institutions. On one hand, economic history reveals a plethora of examples of societies that were able to survive in time and space, making history because their structure brought people together in a productive fashion. On the other hand, there are examples of societies that did not survive in time or space because of a lack of consistency in the different spheres of life. Thus, economic history suggests that “bad” economic institutions hinder economic performance, whereas “good” institutions promote economic progress. Economic history also suggests that “good” institutions become “bad” with the lapse of time, thus societies must change the “bad” institutions into “good” institutions if they wish to achieve high economic performance and survive over time. Societies that are rich in economic resources may be poor by the unwise choice of institutions, inhibiting progress in this way.