CHOOSING BY RULES AND

INSTITUTIONS: THE INSTITUTION OF

AN ECONOMIC SYSTEM AND THE
INSTITUTION OF A CHURCH

Definitions: Rules and Institutions

Reguli=fac ca o alternativa sa aiba atasate costuri:aleg sa trec
pe verde la semafor, nu pe rosu
Institutii=reguli care institutionalizeaza viata umana=costuri
de oportunitate atasate diferitelor obiective umane ( natura si
omul)=sunt costuri de oportunitate stereotipe ale celor doua
megaobiective umane (avutia absoluta si relativa)

Institutions and Economic

Performance
Sistemul economic are menirea de a imbunatati
performanta economica(perspectiva
ortodoxa).=>Sistem de piata si sistem centraliat
incurajeaza performanta economica. dar nu
performeaza in mod egal (explicatie: invidivii sunt
de inteligenta diferita)
Cele doua tipuri de sisteme sunt adoptate pentru
ratiuni diferite . Sist de piata-focalizat pe productia
de avutie, cel centralizat pe productia de putere

THE INSTITUTION of an ECONOMIC

SYSTEM
Sist ec suedez-economie de piata dar si o mare
interventie statala
-religie-protestantism lutheran

Sist ec chinez-mult timp un sistem centralizat( ce

asigura conservarea puterii imparatului)
-pt a creste balanta de putere internationala ea
trebuie sa creasca economic

STANDARD ECONOMICS ABOUT

ECONOMIC SYSTEMS
China-impotriva industrializarii
-totul era organizat pe autosuficienta: China trebuie sa
fie o tara autosuficienta iar toti barbarii straini trebuie
sa se inchine in fata imparatului chinez si sa plateasca
tribut
-religii: taoism, budism, confucianism(fara legatura cu
libertatea economica)
Religia-descriere a sistemului social terestru. Ea descrie
cele doua obiective umane

FUNDAMENTAL TYPES OF ECONOMIC

SYTEMS

Ascentismul
Nivelul de concentrare si disipare a divinitatii
Importanta Vietii de Apoi
Nivelul de obedienta a autoritatilor
Puterea barbatului asupra femeii

Componente de dogma: fiecare ne spune ceva despre

PUTEREA RELATIVA
1.Tipul de ascentism-semnaleaza pozitiile de putere
monastica
Cost functional=consum atat cat imi trebuie si cat imi asigura
performanta viitoare
Concentrarea divinitatii-un singur Dumnezeu=un singur tata
si fii egali=egalitate in viata terestra
Budismul=cel mai concentrat pe putere
Nivelul de transcendenta-capacitatea noastra de la dialog
cu divinitatea

THE CAPITALIST SYSTEM

SYSTEM OF MARKET ECONOMY: all
decisions are made by economic units and
individuals employing the mechanism of perfect
competition (interplay of demand and supply)
markets with perfect competition= institution
of economic liberty
Capitalist system= free markets+ private
property

THE PRIVATE FIRM

Basic rules of a private firm:

1. Earnings/benefits especially the profit

owned by the owner

2. The owner has the right to hire and fire

3. The owner has the right to sell output at
the market price

UNLIMITED LIABILITY FIRM

The owners are liable with all their property
for whatever damages or debts; it is a kind of
firm with very high risk. It prevailed before
1929
the number of assciates is small=difficult to
get capital for the firm
no associate can sell its share without the
others consent

LIMITED LIABILITY FIRM

- to directly attract capital firms issues shares = small
equal parts of the total attracted capital of the firm.
These shares are then sold to small investors
- advantage : large capitals can be attracted from small
investors
- management and ownership are separate.
They are called corporates

SOCIALIST SYSTEM
The system of central planning: all decisions
are made by a central decision unit or an
individual=the institution of an economic
dictatorship
Socialist system = system of central planning
+ collective or state property

SWEDISH ECONOMIC SYSTEM

Swedish Economic Model

1. An outline of Swedish economic model
2. The basic macroeconomic philosophy
3. Cultural backgrounds
4. Corporatism
5. Government policies
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Economic performance of Swedish economic

model
4. Industrial sectors, beginning with 1700: iron, timber,
chemical pulp processing (cellulose), telephones
(Erikson), steam turbines, self-adjusting ball bearing,
dynamite (Nobel)
5. More closer than any nation in eliminating poverty
(about 1% of its population)
6. Swedish women have the best living conditions in the
world
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An outline of Swedish economic model

It is similar to German, Austrian, Belgium and Dutch

systems

It is a social market system: a middle way between

laissez faire market capitalism and command socialism

Market forces and private ownership plus high

government income redistribution and a strong social
support system (cradle to grave system)

Strict fiscal policy with high marginal tax rates

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Cultural Background
1. At 1600 Sweden adopted Lutheran church, which fits
perfectly Swedish culture.

The consequence: church and religious values became a good substitute

for economic institutions: people kept working despite generous social
welfare and high taxation

2. Beginning with 1980, the turning around:

Champs of sick (26 days on average) and parental leave

3. Behavioral traits:

independence (peasantry has never been enserfed), honesty, respect for

law

4. Behavior and power equality:

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by PDI Sweden is ranked the forth (firm, age, profession) plus

organizational structures based on equality

Basic Economic Correlations,

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Corporatism

Labor-management cooperation towards macroeconomic

stabilization

Corporatism: liberal and authoritarian

Liberal: the state has a supporting role

Authoritarian: established and enforced by state

Corporatism: based on power equality (not a cessation of

struggle) and based on consensus.
Examples: Sweden and, respectively, Austria

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Government Policies (I)

The most extensive and successful reallocation program

in the world:

government spending in GDP is 67% (about 30% in Japan)

Public health system began in 1874 and became

universal in 1953

Pension system began in 1914 and was made universal

in 1959

Holiday with pay started in 1931 (four days); in 1989

five weeks and 2 days
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Government Policies (II)

Maternity leave started in 1945 (three months);

Swedish wage solidarism: equalizing wages across

skills, firms and seniority.

In 1991 18 months with 90% pay

Example: 9 years/20 years; 0.43 in 1968 and 0.73 in 1981

In 1974, unlimited sick leave with 90% pay.

The system was abused: in 1988, 26 days per year and

employee

Sweden EU member: still committed to full

employment and welfare
state
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CHINESE ECONOMIC SYSTEM

Economic Decision Methods: Plan versus

Market
Real economic life:
-Information is dissipated
-decisions are based on information

Two Methods
1.Sending information to a central unit=central
planning
2.Sending information to as many decision
units as possible=market;
Price collects and send information

The Market
1. Method for collecting and sending
information
2.Descovery method: Hayek
3.Market=Catalaxy

CHINESE ECONOMIC SYSTEM

Characteristics:
1.one of the largest population
2.one of the highest rate of economic growth
3.imposed by a communist party

Chinese Religion

Taoism
Confucianism
Buddhism
A situation similar (to a lesser degree) to
Japan: three religions simultaneously
employed by each individual

The State Confucianism

1.against industrialization
2.against foreign trade and connections with
the world
3.favorable to a self-sufficient China to whose
emperor foreign barbarians should kowtow
and pay tribute
4.defended equal division of land among
patriarchal families and equal division among
male heirs

THE INSTITUTION OF A CHURCH

THE GENERAL POWER MODEL (I)

Religious dogmas = religious values + religious
rules
Religious values: preferences for absolute wealth
and relative power
Religious rules : opportunity costs for absolute
wealth and relative power

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THE GENERAL POWER MODEL (I)

The Logic: The preference for absolute wealth
determines the level of resources employed for
the end of absolute wealth;
Economic performance: absolute wealth per
capita or GDP per capita
High preference= high level
Low preference= low level

30

THE GENERAL POWER MODEL (I)

Starting form religious values
The inverse relationship between the
preference for absolute wealth and the
preference for relative power

31

Starting form religious values

THE GENERAL POWER MODEL (I)

Starting from religious rules:
The inverse relationship between the supply of
relative power and its opportunity cost
The inverse relationship between the
opportunity cost of relative power and the
opportunity cost of absolute wealth
The inverse relationship between the
opportunity costs of the megagoods and the
preferences for the megagoods
33

Starting from religious rules

STANDARD ECONOMIC THEORY MODEL

Types of man: (1)focused on economic
activities and (2)focused on religious activities
Allocation of individuals resources: (1)on
economic activities and (2)on religious
activities
Assumption: any religious activity is a waste

STANDARD ECONOMIC THEORY MODEL

WEBERIAN MODEL
Each religion has an intrinsic level of
rationalism
High level of religious rationalism induces a
high level of economic rationalism= good
economic performance
Low level of religious rationalism induces a
low level a economic rationalism= bad
economic performance

WEBERIAN MODEL

THE DIRECT CRITERIA OF CONSISTENCY

The direct criteria: depict the megagood

absolute wealth or, besides relative power, also
absolute wealth:
-The level of prohibition of interest
-The type of preference for general wealth,
-The type of asceticism
39

THE INDIRECT CRITERIA OF

CONSISTENCY
The indirect criteria: depict only the megagood
relative power:
The level of concentration/dissipation of divinity
The level of transcendence

The kind of salvation

The importance of afterlife

The level of obedience to earthly authorities

The power of man over woman

Type of organization of religious activities

40

THE KIND OF ASCETICISM

Religious asceticism: limitation of
consumption, biological pleasures to prove
association with God;
Higher limitation means a higher relative
power
Hedonism: increase in consumption of the
laity; higher consumption proves more relative
power in relation to others

THE KIND OF ASCETICISM

The level of concentration/dissipation of

divinity
Monotheism, Polytheism and All-Soul;
The higher the dissipation, the higher the level
of relative power
Monotheism=equality=low preference for
relative power, high preference for absolute
wealth=high level of consistency

THE RANKING
Relatively higher: Judaism, Protestantism,
Catholicism, Orthodoxism and Islamism
Close to zero: Buddhism
Not ranked: Confucianism

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The Level of Transcendence

Transcendence suggests a significant limitation of
individuals power; an individual can never become
God. Lack of transcendence opens the gate to
intermediaries, saviours and mysticism and allows a
considerable degree of earthly power concentration
The entailed consistency ranking, listed in an
descending order: Judaism, Protestantism (Puritanism,
Lutheranism), Catholicism, Orthodoxism, Islamism,
Buddhism
Not ranked: Confucianism
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The Level of Transcendence

The Importance of the Afterlife

Its role: punishments and rewards are moved away
form this life
Shifting them to the afterlife is a measure of the
ability to fool=level o relative power
The greater the importance of the afterlife, the higher
the relative power, the lower the opportunity cost of
relative power, the higher the preference for relative
power, the lower the preference for absolute
wealth=the lower the consistency level

The importance of the afterlife

CONSISTENCY RANKING

THE EVOLUTION OF CONSISTENCY

LEVEL
Unidirectional evolution of cultures
Pro and cons

THE EVOLUTION OF JUDAISM

THE EVOLUTION OF CHRISTIAN FAITH

THE EVOLUTION OF BUDISM

THE EVOLUTION OF ISLAM