Coordination as a Criterion for Economic “Goodness” — Summary

Kirzner’s essay reconstructs welfare judgment for Austrian, subjectivist economics. It asks how economists can still offer objective policy guidance after “aggregate wealth,” interpersonal utility sums, and the image of a single social maximizer have lost authority. His answer is not that economics derives moral obligation from fact. Rather, economics can identify coordination as a value-free feature of social interaction that independent moral reasoning may then treat as desirable.

Kirzner’s medical analogy frames the issue: science can diagnose disease without itself proving that health is good. Likewise, economics can diagnose discoordination without treating utility, efficiency, or welfare as measurable social objects. The relevant question is whether individual plans fit together in light of what each actor would do if aware of others’ actions and options.

A fully coordinated state of affairs, for our purposes, is one in which each action taken by each individual in a demarcated set of actions, correctly takes into account (a) the actions in fact being taken by everyone else in the set, and (b) the actions which the others might take were one's own actions to be different.

This definition is plan-theoretic rather than aggregative. Kirzner’s air-traffic example shows that a crash is not the only failure; needless delay also reveals discoordination if pilots would have chosen differently with better mutual knowledge. Coordination therefore does not mean equality, happiness, harmony, or maximization of a social objective. It means the correction of mutually inconsistent plans. This lets Kirzner criticize Pigouvian and much Paretian welfare economics while preserving an objective economic criterion.

The criterion is nevertheless bounded by rights. Whether an exchange improves coordination depends on who initially owns the goods and what actions lie within each person’s legitimate option set. This does not make coordination arbitrary; it specifies the starting conditions under which the claim can be assessed.

Without some initially given rights pattern, a notion of coordination cannot be assigned specific meaning.

This qualification shapes Kirzner’s use of Mises’s socialist-calculation argument. A planner may issue internally consistent commands, but without private-property prices the plan lacks a way to register opportunity costs among competing resource uses. Market/socialism comparison therefore cannot proceed from a rights-free standpoint. Once a rights pattern is specified, economics can ask which institutions better enable actors to discover and correct incompatible plans. The market’s advantage lies in prices and entrepreneurial alertness, not in any capacity to compute aggregate welfare.

Kirzner’s distinctively Austrian move is to treat coordination as a dynamic process. Entrepreneurial discovery often disrupts incumbents, so competition may appear discoordinating. Kirzner replies that the earlier calm may have rested on ignorance: producers’ plans depended on consumers and resource owners not yet knowing better opportunities. Innovation reveals that hidden mismatch and permits plans to be revised around newly discovered facts.

That calm was a facade expressing the presence of as yet undiscovered (but very real) discoordinatedness; dynamic competition shattered that calm, replacing the earlier uncoordinated sets of activities by a better-coordinated set.

Thus competition is economically “good” not because economists can calculate a net gain in happiness, but because discovery brings plans into closer mutual awareness. The losses of displaced producers may still matter ethically, but they do not defeat the coordinative claim by themselves: what is removed is a false expectation that others would remain ignorant of preferable alternatives.

Kirzner finally separates coordination from Pareto-optimality. The two overlap, since unexploited Pareto improvements often signal imperfect mutual adjustment. Yet Pareto analysis tends to speak as if society were choosing among states of the world, whereas coordination keeps attention on dispersed knowledge, rights, and plan consistency. The resulting criterion is modest but substantial: within a given rights framework, economics can judge institutions by whether they promote the discovery and correction of inconsistent individual plans.