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The Externality Debate: Remember Subjectivity in Economic Science

By David Howden -- November 8, 2013

“Greenhouses set up next to carbon-dioxide emitting factories give food producers easy access to the gas their plants love…. Everyone on the planet eats food, so perhaps a tax should be imposed on every global citizen to remunerate the creators of carbon dioxide.”

I doubt this suggestion will find much support; I don’t even believe in it! But the reason that I don’t believe in it has nothing to do with my feelings over the goodness or badness of the externalities in question. Instead it stems from a recognition that we just don’t know what the relevant externalities are.

One of the greatest contributions of the Marginal Revolution from 1871-74 was a focus on subjectivity as the fount of value. From thence forth no economist could say that value was inherent in a good or the result of its costs of production, as had been the case for thousands of years.