Austrian economics and the limits of markets

Sagoff's recent criticisms of the shadow pricing of environmental goods deploy arguments from within the Austrian tradition of economics against market-mimicking approaches to public policy. His arguments against market mimicry by public authorities do not lead him to scepticism about markets. Rather, they form part of an Austrian argument for solutions to environmental problems within actual markets themselves. In this paper I argue that it is not only shadow pricing, but the use of actual markets that is open to Austrian forms of criticism. Hayek's epistemic arguments against central planning and in defence of market economies are more ambivalent than is often supposed. The paper examines the ways in which the premises in Hayek's own arguments point in the opposite direction-to the epistemic limits of markets and in particular their limitations for the resolution of environmental problems. © The Author 2012. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.