ABSTRACT
Discoverers of ‘market failures’ as well as advocates of the general efficiency of a ‘true, unhampered market’ sometimes seem to disregard the fundamental fact that there is no such thing as a ‘market as such’. What we call a market is always a system of social interaction characterized by a specific institutional framework, that is, by a set of rules defining certain restrictions on the behaviour of the market participants, whether these rules are informal, enforced by private sanctions, or formal, enforced by a particular agency, the ‘protective state’, in James M.Buchanan’s (1975) terminology. ‘Market failure’ arguments sometimes tend to ignore that the rules upon which a market is based may well be variable and that an adjustment in these rules may often be a better way to deal with alleged shortcomings than to replace market forces by a political mechanism. Arguments using the notion of a ‘true, unhampered market’, on the other hand, sometimes either sound as if markets operate in an institutional vacuum, or seem to presuppose that an ‘unhampered’ market is, by definition, one that is based on ‘proper’ or ‘appropriate’ rules-begging the question of what rules are actually considered to be characteristic of a ‘true, unhampered market’.
