Internet Austrian libertarians often object to taxing negative externalities on the basis that the optimal price is subjective. But if this is true, then how can free markets be justified on utilitarian grounds? How can it be argued that markets achieve allocative efficiency if allocative efficiency is different for each person?
Please note that I’m not objecting to the fact of subjectivism so much as wondering if Austrians take subjectivism so far in their critique of government intervention that they lose their ability to compare economic systems and policies.
Free markets (voluntary exchanges) achieve individual allocative efficiency, by definition. Nothing else does, also by definition. Free markets are nothing but individuals acting to maximize their individual measures for efficiency (satisfaction).
The third person doesn’t like the prices and exchanges the other two have settled on. Furthermore, value is subjective–he hates the arrangement more than they like it. Free markets do not achieve allocative efficiency.
Economics is a value free science. How the parties in the transaction feel about one another or about the transaction is not relevant., nor is how a third party feels relevant. The only thing that matters is that the parties in the transaction made the transaction freely. This makes the transaction efficient because if either party could enter into another transaction or no transaction at all and satisfy their individual preferences better then the transaction would not have taken place. Even if the parties hate eachother, they still might enter into the transaction as both of them rank the benefits of the transaction over their hatred of eachother.
Note that no third part can increase the efficiency of this transaction. If a third party offers better terms to one of the parties then the transaction will not take place. This is especially true if the third party uses force to coerce one of the parties to accept worse terms or not participate in the transaction.
All i can say is wow. How thick can someone be? Free and voluntary exchange solves this problem because each individual actor is able to strive for what they subjectively value.
If valid, your “critique” would also apply in a two-person economy. Person A may not like how fat Person B is. He’d prefer a world in which no one is fat. Or A may “hate the arrangement” by which B caught six fish while he caught none. How do you propose A and B maximize their efficiencies (satisfaction) in these scenarios?