The Adam Smith address: economic theory in a dynamic economic world

The Adam Smith address: economic theory in a dynamic economic world

However, it has been the relative flexibility of the institutions of the western world -- both economic and political -- that has been the mitigating factor in dealing with these problems. Adaptive efficiency, while far from perfect in the western world, accounts for the degree of success that such institutions have experienced. The basic institutional framework has encouraged the development of political and economic organizations that: (1) have replaced (however imperfectly) the traditional functions of the family; (2) mitigated the insecurity associated with a world of specialization; (3) evolved flexible economic organization that has induced low cost transacting; (4) resolved some of the incentive incompatibilities of hierarchies and encouraged creative entrepreneurial talent; and (5) tackled (again very imperfectly) the external effects that are not only environmental but also social in an urban world.

THE DIRECTION OF THEORETICAL RECONSTRUCTION

The second economic revolution is transforming the economies, politics, and indeed the entire structure of human societies. Understanding the nature of that transformation is a prerequisite to confronting effectively the policy issues of both the developed world and the third world. The place to begin is to understand the nature of efficient markets -- economic and political -- and the way they evolve.

The key to efficient markets is institutions that result in low costs of transacting. Transaction costs are the costs involved in measuring what is being exchanged and in enforcing agreements. Goods and services or the performance of agents have multiple valuable attributes, and the ability to measure those attributes at low cost is a necessary condition for capturing the gains from trade that were the keys to Adam Smith's Wealth of Nations.

But a sufficient condition requires in addition that the contracts embodying the exchange process can be enforced at low cost. As noted above, these conditions have been only partially met in the developed economies. They are not met in third world countries, and in consequence markets either do not exist or are beset by very high costs of transacting. Because transaction costs will influence the technology employed, both transaction and transformation costs will be higher in the factor and product markets of such economies.

Sumber : http://findarticles.com/p/articles/mi_m1094/is_n1_v30/ai_16348989/pg_3/

1.      However, it has been the relative flexibility of the institutions of the western world -- both economic and political -- that has been the mitigating factor in dealing with these problems

Translate : Namun, telah fleksibilitas relatif dari institusi dunia barat - baik ekonomi dan politik - yang telah menjadi faktor yang meringankan dalam menangani masalah ini

2.       tackled (again very imperfectly) the external effects that are not only environmental but also social in an urban world.

Translate : ditangani (lagi sangat tidak sempurna) efek eksternal yang tidak hanya lingkungan, tetapi juga sosial dalam dunia perkotaan.

3.       Understanding the nature of that transformation is a prerequisite to confronting effectively the policy issues of both the developed world and the third world.

Translate : Memahami sifat transformasi yang merupakan prasyarat untuk menghadapi secara efektif masalah kebijakan dari kedua dunia maju dan dunia ketiga.

4.       Because transaction costs will influence the technology employed, both transaction and transformation costs will be higher in the factor and product markets of such economies.

Translate : Karena biaya transaksi akan mempengaruhi teknologi yang digunakan, baik transaksi dan transformasi biaya akan lebih tinggi di pasar faktor dan produk ekonomi tersebut.