Michael E. writes: > Hayek's argument was that the market was the most "efficient" way for >information about each person's valuations to be distributed to those >with the greatest desire to know (among them, those most likely to want >to supply something to satisfy those valuations) -- efficient in the >sense that, as a post-Coasian might say, the costs of acquiring the >information are lowest and the incentives for producing and making >available the information the greatest. But we now know this argument is wrong in general. The market may systematically misallocate information in such a way that there is scope for Pareto-improving government intervention. See for example the survey article by Stiglitz in the March 1987 Journal of Economic Literature. > From that economic-theory base he went on to argue that "market >efficiency" was a desirable thing for a society, and hence that >government action (which tended to impeded that distribution of >information) was a bad thing, taking one thing with another (this >argument is apart from his well-known contention that history amply >displays the noticeable tendency for those possessing political power to >seek mightily to acquire yet more). (And apart from his well-known neglect of the amply displayed historical fact that "political power" also flows from property ownership, and the "corresponding noticeable tendency for those possessing [property] to seek mightily to acquire yet more". ) > Hence, "market efficiency" is >important "in the politically important sense" (I quote Henwood here). >Not a "useful confusion of terms," as Henwood put it, but an >understanding of a connection. An invalid one, it turns out. See above. I'd add that in his articles on this point Hayek addresses the possibility of systematic market failure in his usual way, i.e. by ignoring it. In light of the above I agree with the sense of Michael's response, but not the substance. It seems clear that Hayek's theoretical choices were strongly dictated by ideological considerations, to the point of consistently ignoring plausible social outcomes. Gil
