Market failure and the existence of the state: a restatement and critique

Abstract

In this article the ‘market failure’ approach to the existence of the state in market economies is restated and generalized in terms of transaction costs economizing. This approach is then criticized in that it asserts the pre-existence of societal consensus regarding efficiency versus distribution. In the presence of ex-ante distributional inequalities I suggest that distribution is a more plausible determinant of the existence and functions of the capitalist state, both theoretically and empirically. The possibility has implications on the notion of state neutrality, and on viewing the market as the ‘natural’ means of allocating resources. It also questions the very need for the existence of the market.

^*I am grateful to Dimitri Pitelis, Malcolm Sawyer, Roger Sugden and two anonymous referees for helpful comments and discussion, on earlier drafts of this article.

^*I am grateful to Dimitri Pitelis, Malcolm Sawyer, Roger Sugden and two anonymous referees for helpful comments and discussion, on earlier drafts of this article.

Notes

^*I am grateful to Dimitri Pitelis, Malcolm Sawyer, Roger Sugden and two anonymous referees for helpful comments and discussion, on earlier drafts of this article.