INSTITUTIONS keep society from falling apart, provided that there is something to keep institutions from falling apart. On the one hand, institutions shelter us from the destructive consequences of passion and self-interest, but on the other hand, institutions themselves run the risk of being undermined by self-interest, the “rust of societies” as Tocqueville called it. An institution presents two faces, as it were. It seems to act, choose and decide as if it were an individual writ large, but it is also created by and made up of individuals. Each face deserves attention. Although the latter is the more fundamental, I begin with the first and more familiar face.

For this purpose, an institution can be defined as a rule-enforcing mechanism. The rules govern the behavior of a well-defined group of persons, by means of external, formal sanctions. The implied contrast here is to social norms, which enforce rules by external, informal sanctions, and to internalized rules. A policeman may fine me if I litter in the park. If there is no policeman around, other people may glare at me. If there are no other people around, my own conscience may be sufficient deterrence.

Institutions can be private or public, depending on the nature of the sanctions. Private institutions include firms, trade unions, religious organizations and universities. The main sanction at their disposal is expulsion from the group.