Private Governance and the Pricing of Political Enterprises

Abstract

Austrian economists are perhaps most well-known for developing the theory of the market process — how producers and consumers, guided by market prices, are able to coordinate their actions over time. In this paper we extend Austrian insights to the provision of fundamental governance goods. It is typically thought that such goods, because of their publicness, cannot be provided by market mechanisms. We argue orthodox public finance and political economy is mistaken in this regard. The market process applied to governance goods, which we call political pricing, is capable of creating governance environments conducive to a high degree of social cooperation under the division of labor. We highlight some problems with orthodox public finance and political economy approaches, theoretically develop a market process approach to governance, and discuss two examples of such mechanisms in creating wealth.

Keywords: Austrian economics, Dubai, market process, political pricing, private governance, Singapore

JEL Classification: B53, D23, H11, P16