STUFF BY HAYEK YOU’VE NEVER READ — “THE ECONOMICS OF PLANNING”

Sometime in the 1940s Hayek’ presented a popular version of the arguments found in his “Use of Knowledge in Society” and “Collectivist Economic Planning” essays to the Oxford University Liberal Club, which was published in the mimeographed “official organ” of that club called “The Liberal Review”.

The essay is six single-spaced pages of manual typewriter script title “The Economic of Planning”. The essay is notable for providing conversational explication of Hayek’s “knowledge problem” along with an account of the price system as a signaling system. Also noteworthy is the focus on the process through which “marginal rates of substitution” of inputs are adjusted according to their market price across all production plants.

A special highlight of the essay is a version of Hayek’s famous “tin” example illustrating the coordination of the use of input materials with changing scarcities, even in the face of general ignorance of changing local conditions in remote regions of the globe.

Here are some remarks I have highlighted on my copy of the text.

page 5-6:

“what is the best method of producing a given thing is not simply a technical fact. It depends on what amounts of the various skills, implements and materials happe to be available at a given time and place. There is no unique answer to the question: what is technologically the best way of supplying the people of Oxford with boots or the people of Australia with cameras. There is any number of possible combinations of resources which might produce the desired result.

Note that this insight is a classic fact about functional analysis — multiple alternative physical instantiations can produce the same effect (e.g. there’s more than one way to build a mousetrap) — a feature shared in common across Hayek’s work on the biology of the mind-brain and his work in economics.

page 7

“the more central planning there is, the less the individual can plan”

A statement similar to a famous line in Hayek’s The Road to Serfdom.

page 8

“The basic fact is that the infinite variety of physical resources which we command can in no way be reduced to some common physical unit which is of any relevance for the solution of the economic problem.”

Although part of the argument against the common engineer’s fallacy of “technocracy” in which economic problems are “solved” by reducing everything to common units of energy input, this argument from the economic way of thinking applies also to all sorts of economic arguments with their roots in classical assumptions about the existence of backward-looking, objective, and summable measure of cost and value — assumptions which moved into “neoclassical” economics in Marshall’s partial equilibrium supply and demand explanation, in Frank Knight’s influential work on capital “stocks”, and in such notions as the summable stuff “K”.

page 8

“What the problem of planning would really involve in the long run will be best appreciated if one tries to image that all the changes brought about by the industrial revolution had had to be centrally planned.”

A statement no doubt more insightful to Hayek than to most people who have never thought through the problem.

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