Ratio Working Papers,
The Ratio Institute

Abstract: Discourse theorists such as Habermas tend to disregard the communicative character and discoursive power of market processes and at the same time overrate the ability of political deliberation to discover and implement social problem solutions. Mainstream economists have little to contribute to this debate since they regard both economic and political “markets” as simple instruments for the aggregation of given preferences. Hayek and other “Austrian” market process theorists, however, provide a rich theory that highlights the role of competition as a process of discovery, persuasion, experimentation and opinion formation. I use this analytical framework in order to show first that real market processes in many respects correspond to most ambitious claims of ideal deliberation such as “domination-free discourse” or “the unforced force of the better argument”. Next, I confront the deliberative ideal with predicaments of real political discourse, stressing opportunity costs (rational ignorance, shortage of attention, decision costs), asymmetric incompetence and the interventionist bias of political deliberation, and problems of “cheap talk” (preference falsification, opinion cascades, enclave deliberation). In order to make political discourse most effective within the limits described above, I argue in favour of privatisation, decentralisation and constitutionalisation as policy conclusions. I end with a summary comparison of economic and political competition as means to discover and disseminate local knowledge in society.

Keywords: discourse theory; market process theory; deliberative democracy; preference falsification; opinion formation; interventionism

JEL-codes: A12; B53; D78; D83; P10

34 pages, May 25, 2004

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