The interactions between ‘‘economic’’ and ‘‘political’’ institutions are complexnot only because the political shapes the fate of the economic, but also because
economic institutions are critical to the fate of political institutions—the third
important ground for this chapter. In advanced capitalist democracies the shaping
inXuence is at its most obvious in the link between electoral success and perceived
economic performance. But this is only the most immediately visible—and
possibly transient—connection. There are bigger stakes than simply the fortunes
of particular governments. The fates of whole state constellations may turn on the
nexus between the economic and the political.
Writing about the design of institutions, Goodin argues that diVerent preoccupa-
tions drive inquiry in diVerent disciplines: for instance, choice in economics, and power
in politics ( 1996 : 11 , 16 ). The problem of choice is a driver in this chapter, but it is not the
classic problem of choice in the face of scarcity: It is, rather, choice (or its absence) in
the face of the constraints of history and culture. What agents can—and cannot—
do with economic institutions is thus a recurrent theme of the following pages.
2 Economic Institutions and
Institutionalism
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‘‘In the beginning, so to speak, there were markets,’’ says Williamson ( 1981 , 1547 ).
But this seems either a drastically foreshortened historical vision, or a highly
normative social model. ‘‘In the beginning’’ there were, variously, bandit groups
(Olson 2000 ) or social arrangements where exchange took the symbolic form of the
gift (Mauss 1970 ). The ideologies of market liberalism constructed a line of division
between diVerent mechanisms of social allocation: in particular, between ‘‘the
market’’ and the thing called ‘‘the state.’’ This in turn rhetorically separated out
the world of institutions from that of the market, which was ‘‘naturalized’’ as a
supposedly automatic sphere of exchange governed by immutable laws.
This discursive separation was not only strange; it was a vulgarization of the great
tradition of political economy. The founding father of the theory of the market’s
‘‘invisible hand’’ also established a powerful tradition of analysis in classical political
economy where the institutional and cultural settings of exchange were crucial to
economic outcomes (Smith 1790 / 1976 ). An ‘‘old institutionalism’’ in economics
overlapped with studies in the sociology of economic life to explore the importance
of the legal framework of economic life, and the importance of the cultures of
economic organizations (see Rutherford 1996 ). Indeed, in an obvious historical
economic institutions 145