The Constitution of Markets

Abstract

The failures of early " market reforms " in many post-communist countries have refocused attention on the relevance of the institutional framework of market economies—an aspect grossly neglected in orthodox economic theory and often overlooked by Western economists advising transformation governments. By looking at markets as social institutions, the articles collected in this volume seek to fill this void. Standard economic analysis studies markets as arenas in which demand and supply forces interact. While such analysis presupposes that this interplay of economic forces takes place within a given framework of rules and institutions, the manner in which these framing rules and institutions condition the operation of markets is rarely explored explicitly. The articles in this volume focus on the " constitution of markets " as the rules of the game within which the evolutionary process of market competition unfolds. A central theme is the connection between the nature of the constituting rules and the character of the economic process that emerges within these rules. Particular attention is paid to the relation between the market and the state, specifically the role of governments in shaping and maintaining the economic constitution of their societies. The theoretical perspective presented in this book draws, in particular, on three sources of ideas: Friedrich A.Hayek's theory of spontaneous order and cultural evolution, James M.Buchanan's constitutional political economy, and the notion of economic policy as Ordnungspolitik (politics of constitutional framing) developed by the Freiburg school of law and economics.