The economy-circle at the centre of ‘The Embedded Economy’ scheme mentions four instances that influence / steer / cause economic flows. Their importance, impact and freedom of operating, however, differ. That makes the total societal system intricate and why most people, while they know that everything is connected to everything, call it complicated and inextricable.
The following analysis will help you cut the Gordian knot. This analysis has enabled the development of the Economic Reality System (ERS) – WWW.ECREALSYS.ORG.
As such the four ‘quarters’ in the circle represent the decision taking instances or organizations, while the financial flows at the core are flowing among all the economic entities in the society, like the physical flows do. In all households (= economic entities) decisions are taken (consciously by knowledge and/or information or automatically / out of habit) by people!
The three decision taking instances state, commons and market have always influence on (overlapping) groups of households (plural). But these three instances need their proper embodiments in the form of households / economic entities in order to be able to function (e.g. the government needs ministries, markets use physical marketplaces and auctions).
Every single household takes decisions for which only the ‘manager(s)’ of that household are accountable.
The way decisions on all state levels and in a family come about can vary from autocratic to democratic. In the context of commons decisions are mostly taken in general consent based on shared experiences and desires. Decisions in non-family(*) economic entities are of course based on the profit aspect; they can, however, take in account social and ecological aspects as well.
(*) Family is in this context to be understood as a social-biological unit or entity, counting from 1 to N members.
The following is a more detailed X-ray picture of the four ‘quarters’ in order to complement the preceding general description.
State = government on different levels from national to local. Governmental economic entities produce themselves goods (mostly infrastructure) and services (police, justice, army, etc.) of general interest, but also prepare and/or stimulate infrastructure projects. Next to that government(s) structure and regulate (laws, etc.) the conditions wherein markets, commons and households can function.
The fact that supra-national decision centres (especially on the world level) have in many cases no compelling authority undermines and/or obstructs the proper functioning and/or effectivity of markets and states.
A (biological or in whatever way composed) family is to be considered as the lowest level of political entity because the economic decisions in a family-household are in many cases influenced by the fact that care has to be taken of the solidarity with the other (dependent) family members. The way to take decisions can vary in time from autocratic (always only the father or the mother) to democratic (both parents together with the adult children).
Commons typically manage the use (or abstinence of use) of ‘free’ input from land and capital goods that are ‘owned’ in common by larger communities. In many cases it is impossible to regulate the use by specific rules because there is always a gray zone where some exceptions are logical.
Market is the free space allowed to the economic entities by the state / a group of states. As said above the decisions are in principle based on profit with room for social and/or ecological aspects. Because the real societal situations are seldom equal to the theoretical idea of markets in the dominant economic theory, it is the responsibility of states to impose locally and in time the necessary restrictions.
A household is an economic entity. This means that the management can be held responsible / accountable for the decisions taken. The identity of household with economic entity means strictly that in the economic sense there is only one type of player / actor, but with many variations; the ERS has a single valid and usable model for them. But of course there is need in real life to give a limited number of groups a specific name based upon their most prominent characteristic or activity. In daily speech we use names (with variations and synonyms) for the following groups: families, enterprises-for-profit, enterprises not-for-profit, financial institutions, and governmental institutions.