The Nonprofit Catallaxy: An Austrian Economics Perspective on the Nonprofit Sector

Abstract

This paper examines the nonprofit sector from the perspective of the Austrian school of economic thought. In contrast to the traditional market failure approach, the Austrian school locates the role of the nonprofit sector in the facilitation of the spontaneous order and the utilization of local dispersed knowledge about the societal needs through a Hayekian “discovery procedure.” Another contribution of the Austrian school is in calling attention to the “calculation challenge” faced by the nonprofit sector, i.e., the reduced role of monetary signals as the informational basis for decision making. The calculation challenge brings up the important issue of societal feedback mechanisms operating in the nonprofit sector. It is shown that, in the nonprofit sector context, this challenge takes the form of the accountability problem.