The Efficiency of the Market Process: an Evaluation of Three Recent Austrian Contributions

2 Three new books on the "market process" approach to economics are reviewed. Each uses Hayek's famous 1945 article to criticize aspects of modern economics and to further develop Hayek's own insights, particularly along the lines of Kirzner's theory of entrepreneurship. The topics considered are central economic planning, the economics of information and complexity, welfare economics and the economics of regulation. Underlying each of these is the question of economic efficiency. Each author considers a claim for the "efficiency" of the market economy as a whole based on the concept of individual plan coordination. Close scrutiny reveals that all such claims are bound to fail if by "efficiency" we mean an objective or logically derivable construct. On the other hand, the efficiency criterion, when based on defensible notions of subjective value, comes down to "preferred choice". The basis of that preference includes the usual arguments in favor of efficiency and that inform the market process analysis of the topics considered by our authors. Introduction The market system is usually thought to be responsible for increases in productivity and technological changes that have led to the development of an extraordinary variety of affordable consumer products, and that have generally enriched the lives of average people. It is to this that many of the defenders of free markets point. In a strongly intuitive sense the market economy is simply more "efficient" than any alternative system. This has become painfully obvious in recent years with the demise of almost all of the world's avowedly socialist economies. The collapse of socialism had been predicted by some economists from at least the1920's, (for example Mises 1922) and the same insights which informed such convictions have been consistently carried over into a blanket condemnation of any form of central planning including piecemeal regulation, subsidization or any other form of " socialism writ small. "