Defending Imperfect Markets
By Arnold Kling
Sean Gabb explains how Austrian economics differs from Anglo-American economics.
the standard economics textbooks provide an utterly unrealistic defense of the market. They begin with the claim that markets are efficient, and then define efficiency as it does not and cannot exist. A perfectly efficient market, they agree, is one in which there are many buyers and sellers, in which there are no barriers to entry or exit, in which all products are of the same quality, and in which all players know everything about prices, costs and production methods…
[Austrian economists] see the economic value of markets as a discovery process, in which particles of knowledge dispersed among billions of individuals – knowledge about wants and costs and techniques, knowledge that would otherwise remain dispersed – are brought together into a rational structure of opportunities for exchange. Markets allow people to blunder around, or make intelligent guesses, and every so often to light on some previously unimagined way of making the world a better place.
Now, real market outcomes will not necessarily look anything like a perfectly competitive equilibrium. There may be a single supplier in a market, which may earn very high profits in the short and long term. Or there may be general collusion among suppliers to fix prices. But, so long as there is no use of government force to close the market – as is the case with the British Post Office – this must be taken as an efficient outcome for the time that it endures.
More on Austrian economics can be found in this article from the Concise Encyclopedia of Economics.
For Discussion. Based on Gabb’s description, the Austrian school almost surely would leave Microsoft alone. Do you think that this view is correct?