Robert D. Cooter, a law professor at the University of California, Berkeley, explains how law can end the poverty of nations:

Nick Schulz: Your book offers a framework for thinking about how it is that some nations are rich, some are poor, and others are in between. You stress the importance of changes in laws and legal structure as the catalyst for growth. Why are legal institutions so important?

Robert Cooter: Ineffective law inhibits growth by forcing too much dealing with relatives. Effective law gives unrelated people enough trust to launch innovative business ventures. The law of property, contracts, and business organizations is most fundamental for business dealings among strangers. State authorities cannot create these laws merely by declaring them. Instead, the law must evolve into institutions that keep hands off venture profits.

[. . .]

NS: You conclude by saying that we need to “legalize freedom.” What exactly do you mean?

RC: Freedom is the presence of good law, not the absence of all law. Innovative business ventures need effective laws of property, contracts, and business organizations. Legalizing business freedom allows innovation to carry us on an unpredictable journey to a richer world.

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  • fundamentalist

    Well put. I taught a class on market failure last night at my intro econ class. I explained to the students that the textbook claims that the market has failed when it doesn’t protect the life, liberty and property of the people. But protecting life, liberty and property has always been the job of the state, not the market. The sole purpose of the market is to bring buyers and sellers together. It can’t function without someone protecting the life, liberty and property of the market participants.