To Know How Government Fails…

Hayek once wrote something along the lines of, “To know where markets fail, we need to know how they can work.”

I’ve written quite a bit about governance these past two weeks. A long post would be repetitive, so I’ll keep my point short and sweet. I’m motivated — or, at least, reminded of this — by Daniel Kuehn’s brief critique of Bob Murphy’s recent article on space exploration. He thinks that some libertarian economists don’t take externality arguments seriously enough. They aren’t willing to concede the a priori possibility of the existence of a public good. I certainly see where Daniel is coming from, and I agree to some extent or another. But, I think there is another, related problem.

Most economists, libertarian or otherwise, probably do agree that there are such things as externalities, information asymmetries, et cetera. The reason they do think that these do not call for public provision of the affected goods and services is because they assume, a priori, that government can’t fulfill this task without creating more inefficiency than we originally started out with. I think this is certainly a possibility, and is definitely true regarding some (probably extensive) range of goods and services. But, it doesn’t necessarily have to be true.

Libertarian economists also probably overstate the case against government. Or, maybe they don’t. But, I don’t think there is any set of theory out there that can tell us for sure. Actually, there is — The Myth of Democratic Failure (?), “Voting as Communicating,” The Calculus of Consent, “The Allocation of Goods by Voting,”… —, but it doesn’t usually inform libertarian policy prescription and there is probably a lot of room left for research. Libertarians rarely ask themselves, “How do institutions of governance communicate local knowledge and coordinate disparate plans between agents to provide order?” But, to know where government fails at achieving order, we have to understand the process by which it reaches the order it does. If we have no theory about how exchange-based governance works, how can we comment on what the proper role of government is?

This is a theme I’ve been pushing on this blog, because I don’t think most libertarians take it seriously enough. Before we can say how governments fail, we have to know how governments work.

2 thoughts on “To Know How Government Fails…


    “But, it doesn’t necessarily have to be true.”

    Hey Jon,

    Do you think Mises would agree with you? Have you written about this before?

    1. JCatalan

      I don’t know if Mises would agree with me. But, he did think government was necessary for the provision of security and the enforcement of property rights. Government must work, by some process, if it can do those things.


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