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This paper explores the interface between institutional theory and Austrian theory. We examine mainstream institutionalism as exemplified by D. C. North in his work with Wallis and Weingast on the elite compact theory of social order and of transitions to impersonal rights, and propose instead an Austrian process-oriented perspective. We argue that mainstream institutionalism does not fully account for the efficiency of impersonal rules. Their efficiency can be better explained by a market for rules, which in turn requires a stable plurality of governance providers. Since an equilibrium of plural providers requires stable power polycentricity, the implication goes against consolidating organized means for violence as a doorstep condition to successful transitions. The paper demonstrates how to employ Ostroms’ Bloomington School Institutionalism to shift, convert, and recalibrate mainstream institutionalism's themes into an Austrian process-oriented theory.

Political economy is a term in wide use and has been for centuries. Yet standard economic theory reduces politics to ethics or economics. This reduction is enabled by the presumption of closed choice data or given utility and cost functions. In this conceptual framework, the political vanishes into an activity of preference satisfaction according to a welfare function (ethics) or into trade (economics). To bring the political back to life within a theory of political economy requires that closed schemes of thought be replaced by open schemes. The ways in which individuals react to the indeterminacy of their subjective choice data, in innocuous small-scale settings as well as in situations of dramatic exception to constitutional rules, separates them into leaders and followers. Followership creates an opportunity for political enterprise at the social level (enterprise in rules) and at the subjective level (enterprise in visions of options, and hence preferences). At both levels the political comes to the fore of political economy as an answer to the “challenge of exception.” Much of our inspiration for this argument traces to the work of Friedrich Wieser, Carl Schmitt, and Vincent Ostrom.