“1. The standard neoclassical model the formal articulation of Adam Smith's invisible hand, the contention that market economies will ensure economic efficiency provides little guidance for the choice of economic systems, since once information imperfections (and the fact that markets are incomplete) are brought into the analysis, as surely they must be, there is no presumption that markets are efficient.
2. The Lange-Lerner-Taylor theorem, asserting the equivalence of market and market socialist economies, is based on a misguided view of the market, of the central problems of resource allocation, and (not surprisingly, given the first two failures) of how the market addresses those basic problems.
3. The neoclassical paradigm, through its incorrect characterization of the market economies and the central problems of resource allocation, provides a false sense of belief in the ability of market socialism to solve those resource allocation problems. To put it another way, if the neoclassical paradigm had provided a good description of the resource allocation problem and the market mechanism, then market socialism might well have been a success. The very criticisms of market socialism are themselves, to a large extent, criticisms of the neoclassical paradigm.
4. The central economic issues go beyond the traditional three questions posed at the beginning of every introductory text: What is to be produced? How is it to be produced? And for whom is it to be produced? Among the broader set of questions are: How should these resource allocation decisions be made? Who should make these decisions? How can those who are responsible for making these decisions be induced to make the right decisions? How are they to know what and how much information to acquire before making the decisions? How can the separate decisions of the millions of actors decision makers in the economy be coordinated?
5. At the core of the success of market economies are competition, markets, and decentralization. It is possible to have these, and for the government to still play a large role in the economy; indeed it may be necessary for the government to play a large role if competition is to be preserved. There has recently been extensive confusion over to what to attribute the East Asian miracle, the amazingly rapid growth in countries of this region during the past decade or two. Countries like Korea did make use of markets; they were very export oriented. And because markets played such an important role, some observers concluded that their success was convincing evidence of the power of markets alone. Yet in almost every case, government played a major role in these economies. While Wade may have put it too strongly when he entitled his book on the Taiwan success Governing the Market, there is little doubt that government intervened in the economy through the market.
6. At the core of the failure of the socialist experiment is not just the lack of property rights. Equally important were the problems arising from lack of incentives and competition, not only in the sphere of economics but also in politics. Even more important perhaps were problems of information. Hayek was right, of course, in emphasizing that the information problems facing a central planner were overwhelming. I am not sure that Hayek fully appreciated the range of information problems. If they were limited to the kinds of information problems that are at the center of the Arrow-Debreu model consumers conveying their preferences to firms, and scarcity values being communicated both to firms and consumers then market socialism would have worked. Lange would have been correct that by using prices, the socialist economy could "solve" the information problem just as well as the market could. But problems of information are broader.”

Source: Whither Socialism? (1994), Ch. 1 : The Theory of Socialism and the Power of Economic Ideas

Adopted from Wikiquote. Last update June 3, 2021. History

Help us to complete the source, original and additional information

Do you have more details about the quote "1. The standard neoclassical model the formal articulation of Adam Smith's invisible hand, the contention that market e…" by Joseph E. Stiglitz?
Joseph E. Stiglitz photo
Joseph E. Stiglitz 39
American economist and professor, born 1943. 1943

Related quotes

Adair Turner, Baron Turner of Ecchinswell photo
David Orrell photo
Barack Obama photo

“Adam Smith, the father of free-market economics,”

Barack Obama (1961) 44th President of the United States of America

2013, Remarks on Economic Mobility (December 2013)
Context: It was Adam Smith, the father of free-market economics, who once said, “They who feed, clothe, and lodge the whole body of the people should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged.” And for those of you who don’t speak old-English let me translate. It means if you work hard, you should make a decent living. If you work hard, you should be able to support a family.

Joseph E. Stiglitz photo
N. Gregory Mankiw photo
Robert Costanza photo
Nicholas Barr photo

“So far as school education is concerned, many of the assumptions necessary for market efficiency fail, the main problems being imperfect information, imperfect capital markets, and external effects.”

Nicholas Barr (1943) British economist

Source: Economics Of The Welfare State (Fourth Edition), Chapter 13, School Education, p. 318

“Even in financial markets, the concept of market efficiency does not hold.”

Part II, Chapter 8, The Dynamics of Unemployment, p. 176
The Death of Economics (1994)

Steve Keen photo

“Since in reality the stock market is inhabited by mere mortals, there is no way that the stock market can be efficient in the way that economists define the term.”

Steve Keen (1953) Australian economist

Source: Debunking Economics - The Naked Emperor Of The Social Sciences (2001), Chapter 10, The Price Is Not Right, p. 216

Related topics