№ XVIII
The twelve plates
We speak of the market as though it were a fact of nature — a force that simply exists, that the State may leave alone or interfere with, that has laws of its own we can only obey. But there is no market without rules: without property, contract, money, and a power to enforce them, there is not a free market but a brawl. This volume is about the rules themselves — the institutions that make economic life possible, and that, being made, could always have been made otherwise.
the rules of the game look like the neutral ground of all economic life — but who laid them, and in whose interest do they hold?
We speak of the market as though it were a part of nature. It has its laws, we say, as the tides have theirs; it is a force that the State may shelter us from or expose us to, that may be left alone or interfered with, but that exists, in itself, prior to all human arrangement — a wilderness of exchange that was there before anyone thought to govern it. The picture is vivid, intuitive, and almost entirely false. There is no market without rules, and the rules are not part of the landscape. Before two people can trade, something must already have decided what each of them owns and may sell, what a promise between them is worth and whether it will be kept, what they will use for money, and who will come if one of them simply seizes the other's goods. Property, contract, money, enforcement — these are the market, and every one of them is a human institution, made and maintained at cost, enforceable only by power. Strip them away and you do not find a free market underneath. You find a brawl. This volume is about the rules themselves: the institutions that make economic life possible, and that, because they were made, could always have been made otherwise.
What is an institution? In the broadest and most useful sense, it is a rule of the game — a constraint, devised by human beings, on what one may do and on what will befall one for doing otherwise. Some institutions are formal and written: the laws that say what may be owned and sold, the contracts the courts will enforce, the constitutions that distribute power, the deeds and statutes and codes. Others are informal and unwritten: the customs and conventions and norms that can govern conduct as firmly as any law, and that the volume on norms will take up in their own right. Together, formal and informal, they compose the structure within which all economic action runs its course — the channels that direct it, the walls that bound it, the rewards and penalties that give it its shape. North gave the metaphor its canonical form: institutions are the rules of the game, and the firms and households and states that act within them are the players. The metaphor carries the argument entire. A game is constituted by its rules; there is no game beneath them to which they are merely added; and to change the rules is to change the game, and everyone's prospects in it.
From this a conclusion follows that unsettles a great deal of loose talk. The market is itself an institution — perhaps the most elaborate that human beings have ever constructed — and the familiar image of a natural market, existing before the State and merely interfered with by it, is a fiction. Property must be defined: what may be owned at all, and by whom, and with what power to exclude — questions to which nature returns no answer, having set no fences and recorded no deeds. Contract must be made binding, by a law that selects which promises will count and a power that compels their performance. Money must be established and its value upheld. None of this maintains itself; all of it is the standing work of rules backed by force. Polanyi saw, against the laissez-faire faith of his age, that the self-regulating market was not the state of nature from which regulation is a departure but a deliberate, and at times violent, construction — that markets are made, and unmade, by policy. The choice a society faces is therefore never the one it is so often told it faces, between the market and the State, between rules and no rules. It is always and only a choice among different sets of rules; and that choice is political to its marrow.
Two rules among the many are foundational, in that the rest presuppose them. The first is property — the bundle of rights that settles what is mine, what is yours, and what each may do with his own. Its necessity is plain: no one will sow what another may reap, or build what another may seize, or save toward a future another may confiscate, and so without secure property the springs of effort run dry. Yet property is no fact of nature but a social grant, defined by a community and enforced by a power, and what counts as property has shifted beyond recognition across history — human beings were once the most prized property of all; land was once beyond sale; ideas, long free, are now fenced; and the right to foul the common air, once nobody's to give, is now being parceled and sold. Each such change is a decision, contested and reversible, about who may exclude whom from what, and the sum of those decisions is the property system a society treats, at any given moment, as simply the way things are. The second foundational rule is the rule of law itself: the principle that the rules are known, general, stable, and impartially enforced, and that they bind even those who make them. The difference between a society in which the law constrains the powerful and one in which the powerful command the law is, as the volume on growth found, very nearly the difference between wealth and want.
But rules are only words until some power enforces them, and with the enforcer the central problem of institutions arrives. The power that can compel obedience is the State — the holder, in Weber's formula, of the monopoly of legitimate force — and it stands behind every title and every contract as the guarantor that theft will be punished and promises made good. Hobbes saw in this the cure for the war of all against all, and so it is. But the cure carries the disease within it, for the power strong enough to enforce the rules is strong enough to break them, to rewrite them for its own profit, to become the supreme predator it was raised to restrain. The deepest institutional problem any society must solve is therefore double-edged: to make a power great enough to protect property and constrained enough not to plunder it — to leash the sovereign with a constitution, to bind the maker of rules by rules he cannot unmake at will. And over all of this lies a further question, of how institutions come to be at all: whether they are designed or grown. Hayek insisted that the most valuable of them — language, money, the common law, the market — are the result of human action but not of human design, evolved orders carrying more knowledge than any planner could possess, and that the constructivist dream of remaking society from reason is a recipe for destroying what it does not understand. The volume keeps both truths in view: some institutions are built and some are grown, and much of wisdom lies in telling the two apart.
And so the volume arrives where the whole work has been tending from the start. A price is a verdict on a hidden contest, mistaken for a fact of nature — and the rules are that hidden contest, settled and set down in law. For behind every price stands the structure of property and contract and enforcement that makes the price possible; and behind that structure stands a contest, won long ago or raging still, over whose interests the rules shall serve. The rules of the game are neither neutral nor natural. They are the frozen outcome of struggles over power, written by those who had the power to write them, and serving — beneath whatever impartial face they wear — the ends of their authors. To take the rules for the neutral background of economic life, the way things simply must be, is the master mistake in its purest and most consequential form: it mistakes the deepest verdict of all — the settlement of who shall rule, and whose purposes the whole economy shall serve — for a fact of nature, like gravity, that no one chose and no one can be blamed for. A price is a verdict on a hidden contest, mistaken for a fact of nature; the rule is that same verdict, raised to the level of the system itself. The twelve plates anatomize it: property and the rule of law, the sovereign who enforces and the leash that binds him, the bandit who becomes a king, the order that is grown against the order that is built, the dead hand of inherited rules and the varieties of arrangement that prosperity allows — and, at the last, the question beneath all the others: where good rules come from, and whether a people can ever make them on purpose. To study the rule is to study the contest at its deepest source. The argument remains open.