Friday, December 5, 2008

Legal foundations of free markets

A new book The Legal Foundation of Free Markets published by Institute of Economic Affairs.

Here is the what this book is about:

The law, together with the institutions associated with it, plays a central role in economic prosperity, which concerns all of us. The legal foundations of free market economies, which have delivered enormous improvements to the quality of life of countless people, evolved over centuries. Their justification does not lie simply in utilitarian concepts of economic efficiency but also in moral concepts of natural law and a broader concept of freedom. Great care needs to be taken when changes are made to areas of law that can be foundational in shaping market behaviour, to ensure that they are not undermined. Similar care needs to be taken in developing other areas of law, such as competition law and environmental law, where significant inroads may be made, often justified by reference to alleged market failure. This book suggests various practical solutions to these problems, including ensuring greater jurisdictional competition, greater adherence to the doctrine of the rule of law, the restoration of economic rights, greater use of judicial lawmaking,and more constructive engagement between economists and regulators.

And, a little bit over praise the virtues of free markets and all bad stuff dumped on the government.

First, the market is more capable of producing institutions for its own enforcement than conventional wisdom permits. Where government is absent, society does not launch itself into a violent and dishonest frenzy that leads to the end of trade and the death of many of its members. Instead, private institutional arrangements emerge as the result of individuals’ efforts to find alternative mechanisms of securing peace and honesty so that they can realise the tremendous benefits of exchange.

Second, commercial rules, specifically those relating to contracts, can and do emerge where government is absent. Perhaps more importantly, private mechanisms for their enforcement emerge alongside them. Evidence from stateless societies not considered here, such as that from Somalia, and from the international arena, which I considered only briefly, supports this claim. Significantly, this latter arena is a massive one and involves thousands of traders from many different backgrounds and countries who are able to coordinate on such a level that their resulting market activities constitute nearly 25 per cent of global economic activity.

Finally, contrary to prevailing wisdom, criminal behaviour poses no special problem for markets under anarchy. Like rules for dealing with ‘peaceful theft’, such as those that emerge endogenously to govern commercial contracts, rules for dealing with ‘violent theft’ also emerge endogenously without central direction to regulate the violent disposition of some members of society. importantly, private institutions for their enforcement, including mechanisms for adjudicating claims of criminal behaviour, and mechanisms for enforcing the decisions of such adjudications, evolve along with rules regarding criminal conduct to enhance the safety individuals require for markets to function.