Questions and Answers Concerning Austrian Economics

J: I was watching  a debate with you (Walter) and Bryan Caplan when a question was raised about interpersonal comparisons of utility and efficiency. My question is, if we can’t compare utility between someone who benefits from a tariff and someone who is hurt by a tariff, how can we say that tariffs are inefficient?

WB: tariffs prevent voluntary trades that would otherwise take place. All voluntary trades are mutually beneficial in the ex ante sense. So, tariffs prevent wealth increases from taking place. In saying the foregoing, I have not violated the Austrian insight that  interpersonal comparisons of utility are invalid.

J: A common Austrian argument against anti-trust is that there is no way to tell whether the business owner or the customers involved gain or lose more utility.

WB: I’m not unfamiliar with that argument. A strong Austrian argument against anti trust is that the neo classicals claim there is dead weight loss. The monopolist does not produce a sufficient amount of the product. It would cost the monopolist less utility to do so than the benefits that would accrue to the buyers. But this is an interpersonal comparison of utility, and thus invalid.

J: It seems to me that Austrians are contradicting themselves, in one case we say X is inefficient but when we talk about Y we say it is impossible to calculate.

WB: not so, not so, for reasons given above

J: If we can’t say X is more efficient than Y then why study economics? We can’t say that business cycles are inefficient, we can’t say that minimum wage laws are inefficient, and we can’t say that free trade is efficient. We are simply destined for moral arguments on whether X or Y policy is moral because of the impossibility to calculate efficiency.

WB: Read this, please: Rothbard, Murray N. 1979. “Comment: The Myth of Efficiency”, in Mario J. Rizzo (ed.), Time, Uncertainty, and Disequilibrium, Lexington, MA: Lexington Books: pp. 91-96;


2:37 pm on February 11, 2019