Though conflicts of interest are central to economic reasoning, they are addressed in an artificial and misleading way in the conventional neoclassical model. This treatment is apparent in the following quote from the distinguished economist Abba Lerner:
An economic transaction is a solved political problem. Economics has gained the title of queen of the social sciences by choosing solved political problems as its domain.
Exchanges may be solved political problems where contracts are comprehensive and enforceable at no cost to the exchanging parties. We use the term exogenous claim enforcement to refer to this type of comprehensive and third party (generally state) regulation of contracts; it tends to occur where the transaction is transparent in the sense that the characteristics of the goods or services exchanged are readily determined, and hence contractual transgressions are readily detected and redressed, often by resort to the courts.
Where some aspect of the object of exchange is so complex or difficult to monitor that comprehensive contracts are not feasible or enforceable by a third party, however, exogenous claim enforcement does not obtain, and the exchange is not a solved political problem. By comparison with the transparency of the exogenously enforceable exchange, these exchanges are characterized by opacity: Some aspect of the good or service exchanged is not readily determined. Far from being a special case, the absence of exogenous claim enforcement is quite general; the two critical exchanges of the capitalist economy – the labor and the capital markets – provide, as we will see, the archetypal examples.