Mark You all squared off, now? Or about ready to unsub?
> Would you be happier if I said that market prices in a competitive economy
> (that is, "exchange value") are the values of the co-state variables that
> appear in the Lagrangian for the economic problem of arranging production
> and distribution so as to maximize the chosen welfare function?*
>
> *Where the welfare function is "chosen" by the society's
> distribution of income and wealth: the greater your income
> and wealth, the greater weight your preferences have in
> determining the shape of the welfare function that the
> competitive market economy tries to maximize. For this
> reason most--liberal--economists think that if you take
> care of the distribution of income and wealth (and
> externalities, and monopoly) that most other economic
> good things will take care of themselves.)
>
> Market prices in a competitive economy ("exchange values") *are* indicators
> of scarcity: they carry information about the money-metric utility of that
> particular commodity or resource in its most favorable alternative use.
> This is one of the two key reasons that markets appear to be very flexible
> and "efficient" mechanisms for allocating production and distribution (but
> if the distribution of wealth is wrong, or if externalities or monopoly are
> rife, then they will flexibly and efficiently carry you to the wrong
> destination).
>
> The second key reason is that the possibility of bankruptcy appears better
> than alternatives in enforcing "sunset" on inefficient and unproductive
> organizations. Certainly neither bureaucracy nor politics are very good at
> closing down organizations that have outlived their usefullness. As former
> Undersecretary of Commerce Ev Ehrlich once said, "It is a good thing we
> didn't have the Federal Government around 3,000 years ago. We would still
> have 4,000 people down on the Mall working in the Department of Hunting and
> Gathering."
>
> But I digress...
>
> Brad DeLong