Austrian Perspectives on Economic Organization
Edited by Nicolai J. Foss and Peter G. Klein
Chapter 8: Costs of Contracting, Psychology of Entrepreneurship and Capabilities of Firms
1 Martti Vihanto The market is in its pure form a social system in which the function of the government is confined to the discovery and enforcement of the rules of just conduct. The government has in its actions no other end except for the maintenance of the market order, and the particular content of the market process ensues as a result of the members of the market society pursuing their separate ends under the law. For an agreement to be attainable on the legal rules, they have to be abstract principles that define in terms of general classes of cases, instead of particularized enumerations, how the emerging conflicts between the ends of the society members ought to be resolved. Besides helping people to reach unanimity, the form of laws as abstract principles makes them able to protect themselves from the arbitrary actions of the government. Even though the institutions of the market enable the individuals to pursue their own ends in remarkable independence of each other, the institutions also create good conditions for the individuals to benefit in many ways from mutual cooperation. The details of cooperation are in the market often agreed on in contracts. Market contracts are similar to the ‘social contract’, laying down the laws of the society, in that both require the consent of the parties involved. The fundamental difference is that whereas the parties to the social contract are free to agree on any terms they desire, the terms of market contracts must be...
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