Many blog posts cite F.A Hayek’s essay Use of Knowledge in Society and, well, it’s a pretty impressive and
important part of the intellectual foundation for free enterprise. Hayek wrote
the essay when large-scale, centralized economic planning was becoming the norm
and touted as the way of the future. It was central planning vs. capitalism and
Hayek’s essay in the American Economic Review put the nail in the coffin of the
intellectual (not political) debate.
As most
readers know, Hayek argues that central planning cannot work because not only
lack the tacit and local knowledge needed to allocate resources, but also the
knowledge needed to allocate resources isn’t available to them; that knowledge
is communicated in a market via prices- knowledge, which the process itself
creates.
Those on
the ‘far’ left almost universally admit that markets can outperform central
planning, and, in fact, large scale, nationalized, economic planning is dead
both as a public policy and academic debate. However, Hayek’s most cited, and
perhaps most influential contribution (The
Use of Knowledge in Society) remains as important as ever- even though
central planning doesn’t exist as it did in 1940.
Today, governments
are increasingly engaging in a new form of central planning; it’s central
planning that isn’t quite like the 1940’s but nonetheless very similar. High-level
bureaucrats, which we politely call ‘enlightened experts’, are attempt to
socially engineer a better society via public policy. Though they aren’t making
five-year plans for the entire economy, these enlightened experts are still
subject to tall of the problems that Hayek points out.
The
statisticians, economists, and super computers at The Federal Reserve are
trying to engineer an Economic recovery. Similarly ‘trained’ experts over at
USAID are trying to engineer economic development abroad. Legislatures want to engineer a more ‘fair
society’ by redistributing wealth, while other legislatures want to engineer a
virtuous society by redistributing their moral values- nearly without regard to
the consequences of their moral preference. Other lawmakers are busy
subsidizing ‘good’ habits, like homeownership (that turned out swell), and
taxing the ‘bad’ ones, like cigarettes.
Unfortunately,
all of the government workers described above lack the knowledge to be able to
execute their plans, and their constant failures place costs on the rest of us.
Large scale economic planning may be dead, but understanding the Use of Knowledge in Society is
increasingly relevant.
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