Institutions are Capital

Arnold Kling also discusses the Daley/Hooks microfinance piece. But the valedictory Kling question poses a false alternative:

For Discussion. Which is an easier problem to solve–a shortage of capital, or institutional deficiencies?

I think it’s increasingly apparent that institutions are a form of capital. Money and machines are more or less useless, aren’t really capital at all, in the absence of a system of formal and informal rules that enables extended, stable mutually beneficial coordination. That was my largely point in this TCS article on the prospects of success in Iraq, and I’m sticking to it.