Efficiency and Externalities in an Open-Ended Universe: A Modern Austrian Perspective by Roy Cordato

Author:Roy Cordato [Roy Cordato]
Language: eng
Format: epub
ISBN: 978-1-61016-097-1
Publisher: The Ludwig von Mises Institute
Published: 2007-11-06T16:00:00+00:00

Social Welfare as Catallactic Efficiency

The economic problem of society is ... a problem of how to secure the best use of resources known to any member of society, for ends whose relative importance only these individuals know ... It is a problem of the utilization of knowledge ...

Hayek, 1945, pp. 77-78.

Efficiency for a social system means the efficiency with which it permits its individual members to achieve their several goals.

Kirzner, 1963, p. 35.

The efficiency of a catallaxy can be judged by the extent to which it promotes economic efficiency. In other words, it is to be judged by the extent to which the catallaxy encourages individuals existing in a social context, to pursue their own goals as consistently as possible. The individual is taken out of isolation and placed in a social setting described by the notion of catallaxy, i.e., where their are other individuals all pursuing their own, sometimes mutually incompatible, goals.

By its very nature, then, questions of catallactic efficiency must focus on the institutional setting in which individual actors operate. In particular there are two overriding issues. The first centers around the institutional setting that will best facilitate the use and discovery of information, the appropriateness and relevance of which can only be known by those who need to discover and use it. The second concerns the institutional setting that will allow individuals to gather the necessary physical resources. Here, the appropriateness and relevance of these resources can only be known by the person who is seeking them. As noted above, the resource and knowledge requirements are closely linked. The fact that a useful physical resource exists is meaningless until the knowledge of its existence and its relative usefulness are acquired.

Logically these questions might best be viewed in reverse order in which they have been presented here. The question of individual acquisition and use of resources in a social setting is crucial to the remainder of the analysis. In a fundamental sense, without access to physical resources all the knowledge in the world would be useless. In order for any individual to achieve his goals he must be able to make plans with respect to the use of resources and be reasonably confident that when the attempt is made to implement those plans that those resources will be available. In the case of the isolated individual, this concern would relate primarily to natural factors or personal carelessness that could lead to the destruction or alteration of resources that were being relied upon. But in a social setting, the problem of interpersonally conflicting plans with respect to the use of the same physical resource becomes an important consideration. When placed in a social setting, then, an additional problem concerning the efficient use of physical resources arises. Individual A can only be secure in his plans with respect to resource X if he is sure that individual B is not also making plans with respect to its utilization. In a social setting where different individuals are pursuing different ends, efficient resource use can only occur when conflicts in the use of resources are minimized.

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