Markets, Planning and Democracy

Markets, Planning and Democracy

Essays after the Collapse of Communism

New Thinking in Political Economy series

David L. Prychitko

The essays contained herein span over a decade and reflect David Prychitko’s thinking about the role of the market system, and its relation to planning and democratic processes. The collection consists of previously published and unpublished articles written not only for economists but also for an interdisciplinary audience.

Chapter 9: Formalism in Austrian School Welfare Economics: Another Pretense of Knowledge?

David L. Prychitko

Subjects: economics and finance, austrian economics


9. Formalism in Austrian School welfare economics: another pretense of knowledge?* The hidden order, harmony, and efficiency of the voluntary free market, the hidden disorder, conflict, and gross inefficiency of coercion and intervention – these are the great truths that economic science, through deductive analysis from self-evident axioms, reveals to us. Murray Rothbard (1970, p.880) It would be inappropriate to conclude that those Austrian approaches to welfare economics have simply been ex post rationalizations for some ideologically desired result. It is arguable that these conclusions regarding institutional efficiency are an inevitable consequence of consistently following the constraints imposed by Austrian methodology. The consistent focus on individual goal seeking, a theme of Austrian analysis beginning with Menger, coupled with the analytical constraints of radical subjectivism, may necessarily lead to [laissez faire] or something close to it, as an institutional touchstone for normative analysis. Roy E. Cordato (1992, p.87) Welfare economics, for all its rigor, is still in trouble. The hope of developing a scientific benchmark by which to judge economic efficiency and social welfare, one that claims consistency, objectivity and relevance, has been dashed. The so-called New Welfare Economics – which held so much promise during Paul Samuelson’s (1947) tenure – accomplished a technical feat that was nothing short of brilliant. But terrific technics produced poor praxis, and today’s top welfare specialists, such as Amartya Sen, have rejected many of the foundations of New Welfare Economics in favor of cardinal, interpersonally comparable utility. Neoclassical welfare economics has...

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