Rules, Organizations, and Governments: Institutions and Economic History

The interactions between markets and governments are central issues in organizing economies. From the beginning, groups of people had to decide whether to let their members trade resources and the fruits of their efforts freely or distribute them in alternative ways in which the group set up rules for the use and distribution of resources and output. Governments ranged from contractual states to predatory states based on the extent to which the participants negotiated the rules, or a subset imposed their rules on others. As societies grew, the debates about capitalism, socialism, communism, manorialism, and other “isms” centered on the nexus between markets and governments. Within the last 250 years, more governments have loosened the reins and given people more economic freedom to produce and trade more freely in markets. Even in those countries, the interactions between markets and governments have been fluid as the interest groups in society have worked through the political process to provide more social insurance to protect against risk, establish regulations, adjust defense spending, solve new problems, or establish new rules that favor their position.