Law, Informal Rules and Economic Performance

Law, Informal Rules and Economic Performance

The Case for Common Law

Svetozar Pejovich and Enrico Colombatto

Capitalism has outperformed all other systems and maintained a positive growth rate since it began. Svetozar Pejovich makes the case within this book that a major reason for the success of capitalism lies in the efficiency-friendly incentives of its basic institutions, which continuously adjust the rules of the game to the requirements of economic progress. The analysis throughout is consistent and is supported by evidence. Key components of the proposed theory are the rule of law, the market for institutions, the interaction thesis, the carriers of change, and the process of changing formal and informal institutions.

Preface and Acknowledgments

Svetozar Pejovich and Enrico Colombatto

Subjects: economics and finance, institutional economics, law and economics, public choice theory, law - academic, law and economics, politics and public policy, public choice

Extract

This book is about capitalism and its economic performance. Capitalism is the only system in recorded history that has been successful in pulling the average person above the subsistence level and sustaining a steady, if cyclical, rate of economic development. Yet, from the very beginning, capitalism has had numerous critics. The twentieth century witnessed the rise and failure of two major anti-capitalist movements: National Socialism and Marxism–Leninism. These movements shared many basic premises of socialist doctrine. They advocated a command economy, despised private property rights, and pursued the objectives of the ruling elite at the expense of the right of individuals to pursue their own ends. The demise of command economies in the late 1980s did not discourage the critics of capitalism. Without missing a beat, they aligned themselves with the welfare state and social democracies. As we enter the twenty-first century, environmentalism, multiculturalism, welfarism and EU bureaucracy have become the homes for the critics of capitalism. In addition to the systems that have been tried to replace capitalism, many critics find capitalism, as it exists, inferior to blackboard models that have never existed. Karl Brunner summarized the contribution of this group of critics as follows: ‘The sacrifice of cognition is particularly easy to detect in objections to the market system introduced by discrepancies between one’s desires, glorified as social values, and the results of market processes. However, our ability to visualize ‘better’ states more closely reflecting our preferences yields no evidence that this state can be realized.’ Notwithstanding...