Econ 101.02

Anyone who has managed to wander their way through the Hayek reading, or who perhaps is already familiar with its basic concepts, may be shaking their heads.  Why did I not assign “I, Pencil,” and have done with it?  And isn’t this by now a quite stale point—that the “market” invisibly assembles all sorts of bits of information and knowledge unavailable to even the most brilliant bureaucratic army, armed with their super-intelligent computers?  Hayek smacks down the idea of a centrally planned economy pretty well.  So what?  When a young American today says she is a socialist, she is not (usually) calling for a planned economy anyway.

Fair, and fair again.  But there are a few points in Hayek’s essay that are (or were) more original, and deserve a closer look.

First, Hayek not only says the market has too much information for a central planning agency to correlate and process.  He says that the market changes too much (section IV).  We are not talking about a mosaic, but a dance.

Secondly, Hayek thinks there is not merely a problem with the amount of knowledge a central bureaucracy would need (in order to properly plan an economy); he also observes that bureaucracies cannot have access to the kind of knowledge they would need.

“… the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form. The statistics which such a central authority would have to use would have to be arrived at precisely by abstracting from minor differences between the things, by lumping together, as resources of one kind, items which differ as regards location, quality, and other particulars, in a way which may be very significant for the specific decision” (IV).