We have arrived at the following main conclusions in this paper:
1. Dynamic efficiency may be described as the capacity of an economic system to stimulate entrepreneurial creativity and coordination.
2. Nevertheless, the dynamic aspect of efficiency has been almost completely overlooked up to now by the majority of professional economists, who have focused almost exclusively on the merely allocative or static dimension of economic efficiency.
3. However, dynamic efficiency is the most important aspect of the economic concept of efficiency, especially in the real world, where equilibrium can never be reached and the ideal of allocative or static efficiency is by definition unattainable.
4. Many behaviors and institutions which appear to be inefficient by short term allocative or static criteria are actually able to vigorously stimulate dynamic efficiency. This idea opens up an interesting field to scholars and researchers and challenges them to analyze the possible trade-offs between the two dimensions of efficiency and to design reform proposals which tend to promote entrepreneurial creativity and coordination.
5. Dynamic efficiency is far from compatible with different models of ethical behavior and instead emerges from only one of them: the one that most respects private property, specifically the appropriation of the results of entrepreneurial creativity. In this way, ethics and the dynamic concept of efficiency appear as two sides of the same coin. Moreover, we have put forward the original argument that the basic principles of personal morality which have prevailed throughout the evolution of mankind also tend to foster dynamic efficiency. Hence, our dynamic view of economic analysis permits a uniform, scientific handling of all social problems, and in this context, the dimensions of efficiency and justice are not separate at all, but self-explanatory and mutually strengthening.
6. In conclusion, we believe that no economic-efficiency analysis should exclude the dynamic aspect. In other words, in all applied-economics studies, the analyst should always consider, from the perspective of dynamic efficiency, the possible effects of the practice, institution, or reform proposals in question. In this way, dynamic efficiency will become a key factor to be considered in every economics study, and this change will not only open up a vast and hopefully very productive field of research to the future scholars in our discipline, but we also feel sure that it will lead to a much more fruitful and dynamically efficient development of our discipline in the service of humanity.
Jesús Huerta de Soto
Professor of Political Economy
King Juan Carlos University of Madrid, Spain
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