Evolutionary institutionalism

The evolutionary branch of institutionalism¹⁴ , whose founder, Douglas North, became a Nobel Prize winner at the end of the 1970s, also provides, in our opinion, the necessary theoretical basis for the analysis of changes in legislation, concerning the treatment of modern money and securities, which can be viewed as a particular case of the institution.

From the point of view of North and his followers, the evolution (history) of the economy of different countries must be discussed from the perspective of institutional changes. Institutions are the «rules of the game» in any society, a restrictive framework which limits interrelations between people, reduces the uncertainty of these interrelations, and brings order to everyday life. «Institutes,» writes North, «create basic structures, with the help of which people throughout history have achieved order and thus lowered the level of their uncertainty»¹⁵.

According to North, the institutional environment evolves over time. Institutional changes can occur spontaneously (then the informal rules of the game change for separate economic subjects), and deliberately, under the influence of the State, changing certain rules of the game¹⁶.

Russia’s market economy is coming into being, that is, institutional changes are taking place. Moreover, they are not the result of previous courses of development, i.e. the changes are revolutionary. In the meantime transformation costs are springing up.

V. M. Polterovich notes that the most important factor of transformation expenses is disorganisation¹⁷ .There are two aspects of this to distinguish.

Firstly, in the process of reform, the old system is destroyed before the efficiency of the new one becomes apparent. The manifestation of this phenomenon of disorganisation represents the inadequacy of the legislative treatment of money and securities in relation to their modern economic nature. Market agents are settling in the private sector that is being generated in anticipation of future revenue; however, only some of them realise their expectations, since they can suffer losses as a result of the inadequacy of legislation in relation to the nature of modern money and securities.

Secondly, there is a lack of coordination in the actions of different agents, including the State, which does not provide market agents with an efficient legal system in accordance with the criterion of imitation of the market in law.

Inefficient stable standards of conduct are known as institutional traps. These include barter, non-payments, insufficient guarantee on deposits, and so on. V. M. Polterovich notes: «Countries with a developed market economy have different systems of market institutions. Each of these has taken shape under the influence of the culture and history of that particular country. With borrowing comes the danger that institutional conflict may arise between standards that have taken root and those that are being instilled. Sometimes institutional conflict leads to the appearance of non-viable institutions — such as the law on bankruptcy during a non-payment crisis. However, in many cases, stable yet ineffective formations appear — these are mutants, which are a type of institutional trap»¹⁸ . In Polterovich’s opinion, «what is needed is not a ‘strong’ but an ‘efficient’ government. Efficiency means the development and maintenance of mechanisms to expose and integrate public preferences, orientation towards goals shared by society, and the ability to achieve them»¹⁹

Economic agents have the right to request the State to create an efficient legal system. This position is substantiated within the framework of the property rights theory, which was proposed by D. North. A State can be seen as an agency that provides services in exchange for taxes: «…we pay the government in order that it establish and protect property rights»²⁰ . The creation of a legal system to protect property rights requires the delegation of powers from the central authorities to its agents. But the agents, naturally, will be opportunistic. Consequently, the structure and conduct of bureaucracy (executors of the wishes of the management) will be determined by transaction costs to control it.

Our study of the essence and forms of money is also based on the methodological historical method principle. According to this principle, the concept of «money» as a scientific category is examined in historical development. Money only arises when market relations appear, and evolves along with these relations. The development of this category brought about the need to study it and, correspondingly, the appearance of different scientific approaches.

As the methodological premise of our analysis, differentiation, on the one hand, and the similarity between the concepts of «money» and «securities» on the other, are used. This makes it possible to develop unified principles of their legislative regulation.

In uncovering the economic essence of money, we shall adhere to the following methodological principles:

the study of the essence of money presupposes the exposure of its internal characteristics;
analysis of the essence of money must begin with its origin, i.e. with defining the reasons and prerequisites of its appearance;
the question of the essence of money must be examined in relation to all transactions involving money.

The theoretical arguments listed contain general tenets concerning the methodology of the study of the economic and legal aspects of money and securities. It is necessary to add methodological approaches to concrete theoretical problems, and this will be done in the following discourse.