The State Of Nature

Dani Rodrik says “Markets are the essence of a market economy in the same sense that lemons are the essence of lemonade”, in other words you need a bunch of other stuff or else it tastes terrible:

The Friedmanite perspective greatly underestimates the institutional prerequisites of markets. Let the government simply enforce property rights and contracts, and — presto! — markets can work their magic. In fact, the kind of markets that modern economies need are not self-creating, self-regulating, self-stabilizing, or self-legitimizing. Governments must invest in transport and communication networks; counteract asymmetric information, externalities, and unequal bargaining power; moderate financial panics and recessions; and respond to popular demands for safety nets and social insurance.

In this regard, I think it’s quite interesting to read historical, anthropological, and sociological accounts of state formation and people living in non-state social orders. It’s common to represent the market as in some sense “given” and the state as a kind of positive presence against the market backdrop. But that’s not how any actual society seems to have developed. Instead, property rights and contract enforcement evolve in parallel with other elements of the modern regulatory and welfare state. Even something as fundamentally free markety as the floating exchange rate of the dollar is much newer than Social Security or the National Labor Relations Board, to say nothing of public schools.