The Review of Austrian Economics

, Volume 30, Issue 4, pp 401–413 | Cite as

The fable of the leeches, or: The single most unrealistic positive assumption of most economists

  • Edward Peter StringhamEmail author


Most economists assume that markets depend on government to enforce contracts and rules against default or fraud. With small transactions, however, the cost to use the legal system far exceeds the value at stake in a contract, and even with large contracts, the legal system often cannot solve problems quickly enough to be helpful for companies. This article focuses on four real stories that illustrate how market participants solve problems privately rather than through law and then concludes with a fable to help illustrate that point.


Private governance Role of government Legal centralism 

JEL classification

P11 P16 B53 


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Copyright information

© Springer Science+Business Media, LLC 2017

Authors and Affiliations

  1. 1.Economic Organizations and Innovation, Trinity CollegeHartfordUSA
  2. 2.American Institute for Economic ResearchGreat BarringtonUSA

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