Institutional infrastructure and economic games

In this chapter we provide a broad overview of the four logistical revolutions that initially only shaped European economic history, but later have come to affect all of the world’s regions. The First Logistical Revolution was a consequence of a slow but persistent extension of transport and communication networks, which eventually resulted in a sudden phase transition and a network that encompassed most of Western Europe. This led to a dramatic spatial restructuring of the European economy and the establishment of hundreds of market towns. While changes to the transport network was the underlying cause of the First Logistical Revolution, later restructurings also depended on other factors that improved network connectivity, especially technological knowledge gains and institutional reforms. The development of reliable credit systems was a major cause of the rapid increase in long-distance trade and commerce in the seventeenth century. Influential decision makers in Amsterdam seized the opportunity to innovate a series of path-breaking financial institutions and organizations in the early seventeenth century. The establishment of the first stock exchange was followed by the first bank with public guarantees. But Amsterdam did not remain unique for long. By the end of the seventeenth century, the Bank of England offered the same services but on a larger scale. The Bank of England had the right to organize transactions involving both money and bills of exchange; it later became the prototype for central banks in all parts of the world. The City of London thereby established its position as a leading financial center, which it has remained ever since. The Third Logistical Revolution is more often called the Industrial Revolution; technological progress was however only a proximate cause of this phase transition. The underlying cause was the abandonment of centrally planned mercantilism, first in Britain and later elsewhere, and the rise of the sort of liberal institutions that are closely associated with Scottish Enlightenment figures such as David Hume and Adam Smith. These institutions included free international trade, unrestricted entry to product markets and the reliable enforcement of private property rights with the help of an independent legal system such as English common law. We are now experiencing a Fourth Logistical Revolution, which is sometimes referred to as the Information Revolution. This ongoing restructuring is primarily a consequence of technological advances in information and telecommunications, which in turn reflect much earlier creative breakthroughs in science, as exemplified by the theoretical contributions of Alan Turing and John von Neumann in the 1930s and 1940s. The main contemporary symptoms are especially rapid global growth rates of international trade in services, science output and patents. In advanced regions of the world, there has been a transformation of the occupational structure away from manual work in the direction of creative knowledge services.