To Karen and Stephanie

by Dominick T. Armentano
University of Hartford

In 1978 I was taking a microeconomics course in my masters program at the University of Hartford and we were covering the issues of perfect competition and economic efficiency. At this same time I had begun to familiarize myself with some of the Austrian school economists particularly Hayek, Kirzner, and Rothbard and I was having many very enlightening conversations with Professor Armentano, who was also on the U of H faculty.

First I’d want to thank my wife Karen Palasek and my daughter Stephanie—for everything—and, as always, my parents, now deceased, Joseph and Mary Cordato.

Roy Cordato is Vice President for Research and Resident Scholar at the John Locke Foundation in Raleigh, N.C. and he teaches in a program administered jointly by the economics and political science departments at North Carolina State University. From 1993-2000 he served as the Lundy Professor of Business Philosophy at Campbell University in NC. From 1987-1993 he was Senior Economist at the Institute for Research on the Economics of Taxation (IRET) in Washington, DC.

Along with renewed interest in the Austrian school of economics over the last two decades, important advances have been made in applying its principles to concrete issues that typically face market economies. Several studies have appeared that analyze standard economic problems from an Austrian perspective. These include books in the areas of competition and monopoly (Armentano, 1990), monetary theory and policy (White, 1984 and Selgin, 1988), and industrial policy (Lavoie, 1985).

... one must concede ... that objective cost data do not enable us to calculate the ideal Pigouvian taxsubsidy figures to deal with externalities ... (Baumol, 1970, p. 1211)

   In spite of his recognition of this point, he concludes in favor of the Pigouvian approach:

In casually surveying the analysis of externality questions among modern Austrian economists one is struck with the fact that most discussions center around externality problems involving conflicts in the use of property, such as pollution. On the other hand, very little is written about the consequences of other external effects such as free-rider or public goods problems. This narrow focus does not arise from any oversight on the part of Austrian writers.