Essays after the Collapse of Communism
New Thinking in Political Economy series
Chapter 9: Formalism in Austrian School Welfare Economics: Another Pretense of Knowledge?
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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