Der Apriorist - Abstracts 14. May. 2011

The Austrian Theory of Efficiency and the Role of Government

by Roy E. Cordato

Tags: market failure, efficiency, neoclassic
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Roy E. Cordato. The Austrian Theory of Efficiency and the Role of Government. The Journal of Libertarian Studies 4.4 (1980).


Abstract: Orthodox public goods theory and its corollary-the standard economic justification for government intervention-have both been based on particular definitions of efficiency and optimality. According to the ortho- dox approach, if a market is not operating "efficiently," some sort of gov- ernment intervention to correct the inefficiency may be warranted. But this view of efficiency is derived directly from a neoclassical view of market structures and in particular from the notion of perfect competition.

The point to be emphasized in this paper is that if one starts with a different view of efficiency and market optimality, an entirely different set of conclusions relative to government intervention can be reached. In particu- lar we will examine the approach to economics taken by the Austrian School and detail how that approach is applied to arrive at the Austrian theory of efficiency. In addition, we will examine how Austrians view government in- terventions into the market and their ultimate conclusions on the role of government in society.




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