Critical point made in bold.
"Many
heterodox schools disagree with the mainstream consensus. Advocates of
laissez-faire capitalism, such as economists of the
Austrian School, argue that there is no such phenomenon as "market failures," although the notions of market efficiency and perfect competition can be redefined as to include the analytical framework of the Austrian School (
praxeology).
Israel Kirzner states:
Efficiency for a social system means the efficiency with which it permits its individual members to achieve their individual goals,
[10]
The Austrian analysis focuses on the actions that individuals make, as to attain their goals or needs; inefficiency arises when means are chosen that are inconsistent with desired goals.
[11] This definition of efficiency differs from that of
Pareto efficiency, and forms the basis of the theoretical argument against the existence of market failures. However, providing that the conditions of the
first welfare theorem are met, these two definitions agree, and give identical results. Austrians also object to the principle of market failure on the grounds that it is an equilibrium concept, which cannot occur in reality due to incessant changes in the state of the market. Austrians argue that the market tends to eliminate its inefficiencies through the process of
entrepreneurship driven by the profit motive; something the government has great difficulty detecting, or correcting .
[12]
Austrians would respond to the above examples of traffic congestion and pollution by pointing out market distortions caused by government that stifle or prohibit private road construction and dismiss liability for damaging private property against its owner's will."
http://en.wikipedia.org/wiki/Market_failure#Austrian
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