Catallactic Efficiency: Welfare Economics in an Open Ended World

Abstract

The arguments presented in the “Introduction” against efficiency and welfare economics stem from a concern that it has been constructed in the context of a fundamentally flawed vision of the world. Economists who are trying to assess the effectiveness of market activities confront a social phenomenon that is essentially different from the one depicted in the perfect competition model and the concept of social welfare that it has spawned. The essence of this difference is captured in the distinction, most consistently recognized in the works of Hayek (1976) and Mises (1966, pp. 232–234) (also see Buchanan, 1979B), between catallaxy and economy. Hayek has defined the distinction as follows:

An economy ... consists of a complex of activities by which a given set of means is allocated in accordance with a unitary plan among competing ends according to their relative importance. The market order serves no such single order of ends. What is commonly called a social or national economy is in this sense not a single economy but a network of many interlacd economies ... [T]he cosmos of the market neither os nor could be governed by a single scale of ends; it serves the multiplicity of separate and incommensurable ends of all its separate members. (1976, p. 108)