Corruption, Fiat Currency, and System Imbalance: A Control-Theoretic Framework for Structural Defects in Socio-Economic Systems

Abstract This study presents a rigorous control-theoretic framework for understanding corruption as a systemic instability arising from defective feedback mechanisms in socio-economic systems. Fiat currency is treated as a symbolic control signal governing access to real resources, and its value is modeled as a function of institutional trust, accountability, and systemic coherence. Corruption is formalized as a leakage rate within a first-order dynamic system, driven by structural defects including information asymmetry, weak accountability, and concentrated authority. The closed-loop transfer function of the socio-economic system is derived, and asymptotic stability is proven rigorously using both Lyapunov's direct method and the Routh–Hurwitz criterion, yielding the stability condition β > γ, where β denotes corrective feedback strength and γ denotes the corruption leakage rate. An empirical case study grounds the framework in Philippine data drawn from Transparency International's Corruption Perceptions Index (2012–2023), World Bank Governance Indicators, and the Commission on Audit. Findings confirm that structural defects—rather than monetary interventions alone—are the primary drivers of sustained socio-economic imbalance, consistent with predictions of the Universal Balance–Feedback Framework (UBFF).