06 April 2009

Commercial action at a distance

Consistency in the rules that define property rights is the foundation of a workable financial system. Keeping promises and establishing predictable laws that are not arbitrary is the key to making financial systems that function smoothly. Exemptions, exceptions, unpredictable lurches in policy and in the definition of property all contribute to the drying up of liquidity.

Consistency allows for commercial action at a distance where unacquainted parties to a transaction, parties who do not necessarily know each other and who wish to transact with each other, can still depend on the workings of the system to ensure proper conduct.

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