The inclusion of non‐economic institutions is ‘vital’ in analysing historical economies.

Historians often exclude non-economic institutions from their analysis of historical economies. A non-economic institution is defined here as internal or external organising and correcting factors that provide order to the market and other societal institutions so that they may function efficiently and effectively. In this essay, I argue that the inclusion of non-economic institutions is vital when analysing historical economies. Allocative and social organisations have a considerable affect on the workings of a society that are often missed by Marxian and neo-classical economics. I will use the examples of trust, reciprocity, household, gift-giving and ideology to illustrate the line of thinking that whilst current economic theory may suit many situations this is a simplification of the broader picture. It is thus important to take into account other factors, or it is possible that details and important explanations within an analysis will be missed.

To what extent can the behavioural assumptions of economics be generalised across history?

Neo-classical economics is built upon a series of behavioural assumptions that can be reduced to three main characteristics: rationality, self-control and self-interest. Effectively an economic model of this type assumes that individuals will act in a way that achieves maximum utility, and as they pursue this goal the market will follow. In this essay I will argue that it is useful to use these assumptions to model and explain history, as is attributed to Friedman (1953) irrationality is a self-defeating idea, but the results should still be viewed within reason and with some skepticism due to the idea of bounded rationality and the fact that in reality individuals are “dumber, nicer and weaker than Homo Economicus”.