Volume 2, Issue 2 -

The concepts of free will and uncertainty are inseparably intertwined. This interdisciplinary essay, instead of expounding upon the technical difference between risk and uncertainty (as classically delineated by Frank Knight), assumes that both words bring to mind the same general idea to a layperson, namely, something that’s not certain to occur but may occur, whether or not the precise degree of likelihood can be calculated. With this simplification as a given, the article proceeds to analyze, first, the cultural perspective that’s a prerequisite to the existence of a belief in free will; second, the role of the limits of human knowledge in constraining the efficacy of the quest to battle uncertainty by building models of predictability and control in the physical sciences versus the social sciences; and third (and finally), the negative implications for capital-market health of attempting to satisfy, through the adoption of public policies of redress and entitlement based on a Rawlsian system of fairness, the alleged yearning by individuals to obviate distributional uncertainty.

This paper attempts a character study of China’s economic system under Mao to uncover changes and continuities between Mao’s economy and post-Mao Chinese economic reforms. While some historical roots of China’s market transformation can be readily traced back to Mao’s era, it remains open to debate how Mao’s legacies were actually translated into institutional forces facilitating China’s transition to a market economy. In addition, the presence of such linkage leads us to ponder why Mao’s economy failed so miserably, particularly in comparison with the rapid rise of the Chinese economy in the post-Mao era.

Herbert Spencer (1820–1903) wrote on the emergence of railroad corporations and corporate governance matters. Since Spencer is typically considered a staunch libertarian, the fact that he expressed some criticisms over the emergent corporate capitalism might surprise many. But what Spencer did was mainly identifying the so-called “agency problem,” which he considered very much worth addressing, especially in a market economy. Writing on the “railway mania,” Spencer was appalled by fraudulent schemes. But he did not consider them an inevitable feature of the capitalist economy. He focused on the institutional dimension of conflict of interests within the then-emerging corporation, and suggested to uphold freedom of contract in its strictest meaning, as to offset those. Spencer’s theory may be seen as a pure freedom of contract answer to agency problems, that stands in striking contrast with theories – such as Adolf Berle and Gardiner Means’s – that stresses the need for a technocratic solution, to make corporate capitalism viable in society.

What did Coase teach about “The Social Cost Controversy” in the classroom? In 1972, an important year in the development of the economic approach to law, Coase taught “The Problem of Social Cost” and some important critiques of it, making his classroom a model of the market for ideas. Coase stressed the importance of his proposal for a new welfare economics, in which the opportunity cost of alternateve proposals would be examined, taking transaction costs into account . He used court cases to provide real world examples where transaction costs could be considered. He also presented a comprehensive critique of Pigou and his followers. Coase demonstrated that the nineteenth Century in Britain was not a period of unregulated laissez faire but a time when harmful effects were governed by the common law of nuisance. Accordingly, he advocated neither laissez faire nor government regulation in principle as a solution to problems of harmful effects. Instead, he proposed that problems of harmful effects be examined in their institutional settings considering the cost of transactions, examining the costs and benefits of alternative institutional arrangements. The cases he chose generally involved technical innovation which produced new benefits as well as harmful effects, producing many insights into how society responds to innovation. Coase taught “The Social Cost Controversy” in order to propose his new welfare economics. However, the content of this portion of his course had many practical applications for his students.