"The Economy of Everything: How Institutions Shape Our Lives" by Alexander Auzan

Alexander Aleksandrovich Auzan is the dean of the economics department of Moscow State University, a doctor of economic sciences and a professor. Today's reading is essentially a collection of his lectures on institutional economics. You could say that this is a book about everything, but that's how institutions work: they influence the lives of all people all over the world, and there is certainly something to tell about this.

Let's share a couple of arguments in favor of this recommendation:

The book is only one hundred and fifty pages long, which is perfect for a weekend;
Along with the easy, engaging language, on the pages you will find a variety of examples from the field of economics about how our world is structured, what is there in retrospect and what elements live at the basis of social processes.

Why does the author suggest relying on institutions?

The answer to this question is simple. If society wants to develop and prosper, it should rely not on the government, which is supposedly obliged to manage literally everything, but on the “rules that we can use in communicating with each other.” That is, institutions. And all because institutions are convenient, and if necessary, they can be used as an instrument of coercion. This is, for example, when you go to work in a bank, and they prescribe a presentable appearance and a status car, because now you are the business card of the organization. Voluntary or forced demonstrative behavior defines communities, adds authenticity to them and, most importantly, brings a coordination effect. This means that the behavior of individuals will be predictable.

Where do institutions come from?

In short – from society. This structure can hardly be imposed from above.

The author gives an interesting example — we quote: “In the early 2000s, I helped establish a dialogue on export-import legislation between the owners of retail chains on the one hand and the presidential administration and the government on the other. It turned out that a small part of the goods — about 5% at that time — were imported by retail chains legally. I asked the entrepreneurs: “Why are you doing this? You can still be squeezed for the rest of the imports.” The answer was very interesting: “And this is how we demonstrate that the door is open for dialogue, that we basically want to work legally. This is a signal: let's discuss how to reduce costs and taxes so that we can legalize ourselves.” Now that's something, of course.

What role does the state play in institutional economics?

It is easy to guess that the state apparatus significantly influences the regulation of social relations, and, as a consequence, the economy. But the book examines precisely another point.

“The state has substitutes everywhere,” the author writes. And he explains: “An amazing story happened in California in the 19th century. The annexation of this territory to the United States of North America coincided with the discovery of gold there, and as a result of this coincidence, the largest state of the USA lived for 18 years without any state power at all. This is what happened there: a governor appointed from Washington would arrive with federal troops; a week later he would discover that he had no soldiers, and then he would go pan for gold himself. The federal government sent people to California three times, but then stopped – the entire army could be siphoned off to the gold mines at government expense. California lived in this regime from 1846 to 1864.”

The example is partly funny, but true to life. Such economic irony. For the sake of impartiality, we note that in the same chapter the author also develops the idea of the vast territories of Russia – with its Old Believer communities, and also about whaling in foreign countries. With whales, everything has been happening for centuries in the world's oceans, and there are their own laws. So whalers created their own system of rules that regulate their activities. Poor whales. And then there's cryptoanarchy. In general, if you don't generalize and idealize, you can find cherry-picked examples from which you can dance to the topic of institutions and self-regulation of communities in the economy. Although, we must give credit to the security apparatus: it is also a product of civilization and protects public order, in which various communities and institutions flourish.

Alexander Auzan provides many points of view in his work, from which one can admire the economy as from an observation deck or, conversely, from a window. Property, legal systems, the theory of change with its “path dependence”, a chapter on transaction costs, a block on modernization – the book resembles a summary.

Think of it as a treasure trove of ideas and reasons to think about the economy in the world and how you live yourself.

By the way, a long time ago another one of his book We have already covered this in the section. It is more recent, and we also recommend that you read it.

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