The basic institutions of capitalism are: (i) the right of ownership in productive assets, (ii) freedom of contract, and (iii) constitutional (limited) government. Those three institutions set capitalism apart from other social systems. They generate incentives that have specific and predictable effects on the behavior of decision makers, the allocation of resources, and the flow of innovation.


Political Power Standard Theory Economic Behavior Capitalist Society Basic Institution 
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Suggested Readings

  1. Alchian, A. “Uncertainty, Evolution and Economic Theory,” Journal of Political Economy, 58, 1950.Google Scholar
  2. Alchian, A. Economic Forces at Work, Indianapolis: Liberty Press, 1977, Part II.Google Scholar
  3. Buchanan, J. The Limits of Liberty. Chicago: University of Chicago Press, 1977.Google Scholar
  4. Friedman, M. Capitalism and Freedom, Chicago: University of Chicago Press, 1962.Google Scholar
  5. Furubotn, E. and Pejovich, S. The Economics of Property Rights, Cambridge: Ballinger, 1974, chapters 4–12.Google Scholar

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© Kluwer Academic Publishers 1990

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