Saving "the Market” out of Cambridge: “Roles of Government”

 

Multiple Choices as to multiple Claims of us:

            Cl. 1. There are lives in Mars.

            Cl. 2. An organism can exist on the Moon.

            Cl. 3. A society may be built in Death Valley.   

            Cl. 4. A free market is untenable without the rule of law.

We are:

            Ch.1, kidding.

            Ch. 2, silly.

            Ch. 3, insane.

            Ch. 4, sober.

 

No matter what we or your answers may be, there without the rule of law won’t be such a thing as liberty or freedom in the society, not to mention in "the market" as called in economics. The thing in the first place is that each and every organism, the market included, does not exist in the vacuum.  

            Put differently, the government is supposed to create the right context for “voluntary exchanges” in the market. Therefor: 

            Job 1: To build the soft infrastructure of the rule of law, that is, strict enforcement of right rules of the game

            Job 2: To construct hard infrastructure so as to get and keep visible transaction costs minimal   

            Job 3: To maintain superstructure clean and clear, or transparent and predictable, so as to get and keep invisible transaction costs minimal.

 

Basically, there are three different categories of transaction costs:

            No.1. Commercial transaction costs in the market for title to the product and the market for rental right over a certain period of the human or physical asset.

            No.2. Industrial transaction costs in the process of production for the purpose of “supply” in the market. Prominent names in this regard include Ronald Coase from Chicago and Oliver Williamson from Berkeley.

            No.3. Financial transaction costs in general and “the broker’s fee” in particular in financial markets for transformation of assets, “preferred liquidity” included, from one type to another. The most prominent name in this regard is William Baumol from Princeton.

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