Economic Institutions

In his work, "Institutions as the Fundamental Cause of Long-Run Growth" Acemoglu tries to give an answer to the question of why are some countries more successful than others, in the economic sense. First of all he explains how the role of economic institutions can be perceived as one of the most important ones in a society since they are the holders of property rights. This is what gives people incentives to develop and moderate the society. However, since these institutions are also responsible for distributing wealth, it becomes obvious that there are many differences among different types of economic institutions. Since political power actually impacts the economic institutions, we can say that politics is what makes the distribution of resources and it depends on which kind of political organization is present in order to understand differences in economic well being. De juro political powers as well as the "true", direct power of the people effect the evolution of economic outcomes. It is not that some societies chose "bad" economic institutions but some states are not able to establish institutions that provide security of property rights and equal distribution of resources in the society. Differences can originate out of not so functional political power, natural conditions, as well as the culture in a certain society.

According to McCloskey, what changed in the modern industrial times is not economy nor embracing new economic principles but change in ideas and mindsets of the people. This especially refers to the bourgeoisie who accepted some sense of dignity and liberty and started with the innovations. The Industrial Revolution and the big changes that happened in Europe during 17 and 18 century were a product of changes in opinion among the people. Therefore the ideas were the driving force behind those new occurrences. Not even thrift nor original accumulation of capital can be used to support the claim that economy was the most important issue. Thrift is a precondition for existence of any society, so even before the Revolution people had to organize distribution and accumulation of wealth. Also, transportation improvement could not have caused that much development. The wealth among societies did not grow because of economic factors, but rather because of change in the nature of markets and the free enterprise culture became more enthusiastic and dignitary. Language with its broad spectrum of activities and possibilities is what made progress towards wealthier, modernized world.