The Exchange Order

This book illuminates a comprehensive social system that comprises explicit markets, tort liability, and criminal liability, and describes each of these three institutions as serving the same function in different social and physical circumstances. It defines exchanges as compensated transfers of rights and objects among individuals, and shows that markets, tort, and crime each operate to organize and facilitate, to govern, exchange of a particular kind of right in a particular exchange environment to which its own rules and procedures are well suited. Under perfect conditions, each operates to move rights and objects from lower- to higher-valuing owners by requiring every taker of rights to compensate every loser in full for the costs of the taking. Markets can organize voluntary exchange of property rights only where theft can be deterred, but when rights or objects are stolen, an involuntary transfer is initiated, and markets are incapable of organizing the completion of the involuntary exchange by compensating the victim. This is the role of tort and criminal liability, which complete the involuntary transaction begun by the theft by imposing a compensatory liability price on every offender equal to the costs imposed by the theft. Marginal-cost pricing in markets controls voluntary, lawful cost imposition by distinguishing inefficient from efficient cost imposition and encouraging the latter, and corrective justice in tort and crime, each in an institutional domain determined by the character of the rights being traded, controls involuntary, unlawful cost imposition in the same way.