Chapter 6: Wine and government
A discussion of transactions assumes the presence of government. Many of the ideas behind transactions that we have discussed up to now virtually require the existence of some authority that facilitates the making and enforcement of contracts, the accuracy and completeness of information, the definition and enforcement of property rights, the safety and security of everyday life from working and shopping to traveling, the defense of the community which includes the marketplace—and the authority to raise funds through taxation to pay for itself. Beyond these government activities which are, in economic terms, microeconomic, lie all government’s macroeconomic activities oriented toward monitoring and managing the aggregate economy—pursuing monetary policy by managing and regulating a central bank and the banking system, stimulating and constraining the economy through fiscal policy, and redistributing resources in pursuit of fairness. All schools of economic thought address the choices and rules that a community must make on behalf of its members—that is, a role for government. They pay considerable attention to the choices that should be made—a normative proposition reflected, for example, in using government instead of markets for authority-based allocation that was introduced in Chapter 2. They also study the choices actually made and try to measure their impacts and understand why they occur. This emphasis on positive analysis—How does the world work?—is distinct from normative analysis which would substitute the word “should” for “does” in that question.
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