Today’s Quote of the Day comes from pages 7-8 of Ronald Coase’s 1988 book The Firm, the Market, and the Law [emphasis added]:
Markets are institutions that exist to facilitate exchange, that is, they exist in order to reduce the cost of carrying out exchange transactions. In an economic theory that assumes transaction costs are nonexistant, markets have no function to perform and it seems perfectly reasonable to develop the theory of exchange by an elaborate analysis of individuals exchanging nuts for apples on the edge of a forest or some similar fanciful example.
Many readers of Coase (including economists!) misunderstand him. This is evident in the improperly named Coase Theorem (it’s improper in that it’s not a theorem). In fact, Coase is so often misunderstood, he felt compelled to write the book this quote is from to clarify his point! Coase is often understood to say that…
View original post 384 more words