Institutions

An institution is a particular pattern of relationship that connects participants to one another. These patterns actually make up the elements involved in process. In this sense, an institution as an abstract entity which must not be mistaken for physical objects such as buildings, offices, factories, stack exchange galleries, or shops where fixed behavior patterns occur repeatedly. For example, market is an economic institution in the sense that it embodies a fixed pattern of selling and buying. Private ownership is another economic institution. It institutionalizes the utilization of particular entities and confines the right of this utilization to a special individual. Likewise, we can speak of borrowing, gift and tax as economic institutions. They are established via a combination of legal rules, social punishment codes, and cultural systems that prevail in a society.

What we have so far said gives a picture of systems as objects operating in the external world independent of our minds. Processes, in particular, designate the functions of real existing systems. In order to make use of these notions in discussing a school, we need to introduce some qualifications. We shall distinguish between the two concepts of “system”; 1- “system” as a reality existing yonder producing particular results in a given period of time at a particular location; 2- “system” as a theoretical plan based on a school, theory, or religion. What we pursue in this paper is the formalization of an economic system in the second sense of the term with three constituting factors: the resources, the participants, and the institutions.

In this sense of system, institutions are patterns depicting the relation between participants and sources as well as the relation among participants themselves. It is possible to implement these patterns in a society through the aforementioned methods. So, we can say that two distinct kinds of institutions are discernible in an economic system; institutions depicting the relation between participants and sources and institutions depicting the relations among the participants. Examples of the first kind may be consumption pattern and investment. Examples for the second kind can be sale pattern, rent pattern, lending pattern, alms giving pattern, gifting pattern, taxation pattern, and the state expenditure.

So far, we made no mention of processes in the economic system because processes belong to the level of implementation rather than planning. Having planned an economic system theoretically in detail, the time becomes ripe for implementing it in a particular place and time. Then, information collection, decision making, execution, and outcome analysis as successive steps or processes come to be discussed. From this explanation, we can conclude a definition for economic system: a set of behavioral patterns connecting participants in a system to one another and to resources aiming at definite goals according to a particular consistent organization of values and beliefs they hold.

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