But there are limits and issues to be considered. In my series of posts on calculation vs. incentive problems, I highlight the importance of incomplete property rights regimes for considerations of when state action may be more efficient than market action. Contrary to the imputations of some commenters, I'm thinking of instances where the state can augment market investment and allocation, rather than substitute for it. I've also alluded to times where we think a prioritarian ethic might take precedence over a strict utilitarian ethic. Markets cannot satisfy prioritarian goals, because the price mechanism doesn't distinguish between the utilities of different persons.
I have been too busy to respond to detail to his most recent posts, but I wanted to highlight one thought I had in relation to this point that Mattheus makes:
"Certain types of allocation? The price system is the only tool EVER designed to allocate resources to any modicum of efficiency. It is a procedure that has unbelievably obvious success in meeting needs. If you are going to make a product or service to meet the needs of some people, and you do not use the price mechanism - what other recourse do you have? How can you possibly do it efficiently?"
As a side note, I would disagree with the Mattheus that the price mechanism is "designed", but that's another matter entirely. This point reminds me of a long-standing concern about markets that I've had, which I've never had the time to think through carefully. My question is simply: what about needs and demands that are correlated with a person's ability to pay?
We use examples about the relative demand for apples and oranges, and the way that the price mechanism coordinates the needs and demands of millions of people for apples and oranges, but we leave the question of income curiously vague. We act as if one person who subjectively values an apple more than another person will offer to pay more for that apple, but this of course isn't necessarily true at all. The prices we offer for goods is not only a function of our subjective valuation of that good. It's also a function of the income we have available to spend on that good. Writ large, this of course is an insight straight out of Keynes. But it also has important microeconomic consequences.
My family makes a fairly healthy income, and I feel no uncertainty at all that our standard of living will only improve over time. What I will be willing to pay for things is going to be informed by this. It's entirely plausible that I would be willing to pay twice as much for the same orange as a lower-income family standing next to me in the grocery store, despite the fact that I actually prefer apples to oranges (I'm getting a variety of produce), and in fact that other family values oranges more highly than I do. I haven't been able to think through the implications, but this would seem to throw a monkey-wrench into the efficiency of the price mechanism. How can the market communicate information about subjective valuation if those subjective valuations are mediated through a person's ability to pay? Prices are at the very least communicating information about both subjective valuation and ability to pay. Maximizing total subjective valuation is what we always like so much about the market - but what are the implications if we're actually maximizing a combination of subjective valuation and ability to pay?
From a general equilibrium perspective, of course, ability of pay is closely related to a worker's marginal productivity (how much they earn in the labor market). In that sense, it's not entirely disconcerting that the price mechanism in the product market is going to reach a general equilibrium with the price mechanism in the labor market (which is ultimately a major determinant of ability to pay). But it's not that simple. Ability to pay is also largely determined by the circumstances of birth, genetics, and the willingness of parents to make investments in their children.
Regardless, the importance of the ability to pay in mediating the willingness to pay is something that I don't think has been sufficiently considered by economists. The ultimate effect is that people who have a higher ability to pay will be treated by the price mechanism as if they have a higher subjective valuation of goods and services by virtue of their higher willingness to pay.