1 The theory of dynamic efficiency

18 The theory of dynamic efficiency
production possibility curve; that is, because supposed market ‘failures’ prevent
it from being statically efficient. According to these authors, such criticism
implies that we can come to know information which emerges only
from the real market process and which, if we knew it a priori, would render the
process unnecessary and redundant. In other words, no one can be acquainted
with the production possibility curve because it is not given, but is always
being disrupted and shifted to the right by entrepreneurial creativity. To find
fault with the market because it fails to reach a limit which no one has
knowledge of and which varies continually not only constitutes a serious
methodological error, but can also lead to the absurd justification of interventionist
economic policies which ultimately hinder the real market process,
when this very process is the driving force behind the perpetual quantitative
and qualitative increase in the possibilities of the production frontier. 47
Finally, we would not wish to conclude this review of the manuals that
have covered, even if superficially, the notion of dynamic efficiency, without
mentioning the curious case of the textbook by Wonnacott and Wonnacott,
who insist on defining ‘dynamic efficiency’ in strictly ‘static’ terms; that is, as
the ‘optimal’ rate of technological change. The reference rate used to determine
whether or not an economic system is approaching the ‘optimal’ rate is
left unspecified. These authors contend that it is the model of perfect competition
which stimulates dynamic efficiency, to the extent that it obliges
companies to rapidly implement new technologies. They also point out that a
certain amount of debate exists over whether competition or monopoly is the
system which most encourages the creation and discovery of new technologies.
In any case, Wonnacott and Wonnacott’s handling of dynamic efficiency
is not only entirely dependent upon their static view of the economy, but also
quite confusing (and disconcerting). It appears as if the authors inserted the
corresponding paragraph in the textbook to cover a topic considered
important, yet they neglected to support it with any dynamic analysis of the
real market processes that are driven by entrepreneurship. 48
In conclusion to this brief overview of the scientific literature most widely
used in teaching, we can affirm that, despite the isolated exceptions cited
above, economists are still very far from generally accepting the principle of
dynamic efficiency, and from beginning to systematically implement it and
consider its ramifications. When they do, and no study in applied economics
excludes the aspect of dynamic efficiency, its analysis will eventually filter
into the textbooks and become essential, standard material in all economics
manuals, to be used by students worldwide.
The relationship between ethics and dynamic efficiency
Introduction
We mentioned in the second section that the ‘second fundamental theorem
of welfare economics,’ developed within the static framework of neoclassical