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…

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).

That would be a great argument in a two-person economy.

How does the arrival of a third person make it a bad argument?

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.

Wait, what? How can anyone know that the third person hates the arrangement more than the first and second people like it?

Right, you can’t. It’s subjective. No utilitarian argument for markets can be advanced.

In that case, no utilitarian argument for anything can be advanced.

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 …

Coase, keep in mind that Misesian utilitarianism is quite different from mainstream utilitarianism.

Subjective prices: bad argument?

Economics Economics Questions

Autolykos June 22, 2011, 9:59pm 15

Coase, this old thread might help.

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Subjective prices: bad argument?

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