“Woah there girl,” some readers will be saying. “You’re here giving me a libertarian story about economics—at least, that’s what your Hayekian windup suggests—but you’re admitting that people don’t chose rationally? Doesn’t that sort of undermine your own argument, a bit?”
Yes, and no. It would
kill my argument if I were arguing that the market is to be followed everywhere
and always and in every way left free, because it is wiser than ourselves. But I’m not arguing that.
Actually, I don’t think Hayek argues for that either—nor the
much-maligned Adam Smith, for that matter—of which more, perhaps, later. No, the point of the invisible hand is not
that the market solves all problems. The
point is that people can’t really solve any economic problems. Or, as Hayek puts it in his penultimate
paragraph,
“The problem is thus in no way solved if we can show that
all the facts, if they were known to a single mind (as we hypothetically assume
them to be given to the observing economist), would uniquely determine the
solution; instead we must show how a solution is produced by the interactions
of people each of whom possesses only partial knowledge. To assume all the
knowledge to be given to a single mind in the same manner in which we assume it
to be given to us as the explaining economists is to assume the problem away
and to disregard everything that is important and significant in the real world”
(VII).
No central planner can know everything, and no one acting
within the market can know everything either.
That is why Hayek closes by suggesting that “equilibrium analysis” of
economies does not have “direct relevance to the solution of practical
problems,” because “it does not deal with the social process at all” and indeed
“is no more than a useful preliminary to the study of the main problem” (VII).
Hayek ends with a teaser, so I suppose I may as well.
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