Dominance of Firm and State Subsystems in Western Economic History

The paper develops (a) an analytical framework that views the economy as a social system with interactive subsystems, and (b) a timeline that figures major events in world development that shaped changes in the relative strength of interacting subsystems in western economies. The timeline is followed in highlighting the changing and evolving dominance of the major subsystems in the economic history of the western world, and in particular, the interactions between the firm subsystem and the state subsystem. The current dominance of the firm subsystem in the western world is demonstrated to be the accumulated result of many past events: wars, discoveries, colonies, trade, political enlightenments and industrial revolutions. The strengthening of the firm subsystem took centuries and has been accompanied not only by a weakened intensity of rival subsystems (those of traditional households, theocrats, manors, communes, royals, and not least the state subsystem), but also by a reorientation of the intrinsic motivations in these rival subsystems towards the motivational behavior characteristic of the firm subsystem.