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Regulation and Best Practices

Markets cannot exist without rules, and the regulation of market transactions takes place through layers of rules, formal and informal.  Rules emerge through the need to mediate economic transactions by reference to a framework of generally understood and articulated expectations about behaviour and conduct.  Regulation is essential to the operation of any system of social organization; but the generalization of social relations mediated by commodity circulation resulted in the autonomization of the state, which legitimizes the definition and allocation of property rights, and ultimately guarantees the enforcement of those rights and their circulation.  It is the combination of economic relations mediated by markets, and political processes dominated by the state, through which social relations are reproduced. That combination is mediated primarily by money and by law. This is not an automatic process, nor one that flows logically from the development of economic and social relations. Hence, it is important to understand the ways in which the forms taken by social and economic activities have developed historically, and the role that regulation has played in that development.

It should be clear that the development of regulation takes place in response to both political and economic processes. While major events, such as war or depression, have broad political repercussions and often lead to radical changes in regulatory forms, the continual operation of economic and political processes also produces changes, generally at the micro-level. A key feature of legal regulation within capitalist market economies generally is that they aim to produce and maintain equalization of the conditions of competition: hence their basic ideal or feature is equal treatment or rule-fairness in relation to similarly-situated economic actors.  However, competition is not a static state but a process. Furthermore, economic actors are quite different in their factor endowments, market power and sunk investments, so rules affect them differently. Moreover, the very operation of a regulatory system produces inequalities resulting from competitive advantage. Hence, an important function of the process of interpretation, application and enforcement of rules is to resolve the persistent antinomies resulting from rule-structured market transactions.  For that reason, a regulatory system by nature is not a static but a continually evolving and dynamic process. The interpretation involved in the application of rules to specific transactions generates modification, supplementation and amendment.

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