In 1936, the year in which (entirely coincidentally) John Maynard Keynes published The General Theory, I suddenly saw, as I prepared my presidential address to the London Economic Club, that my previous work in different branches of economics had a common root. This insight was that the price system was really an instrument which enabled millions of people to adjust their efforts to events, demands, and conditions of which they had no concrete, direct knowledge, and that the whole coordination of the world economy was due to certain practices and usages which had grown up unconsciously. The problem I had first identified in studying industrial fluctuations — that false price signals misdirected human efforts — I then followed up in various other branches of the discipline.
Here my thinking was inspired largely by Ludwig von Mises’s conception of the problem of ordering a planned economy. My early investigation into the consequences of rent restriction showed me more clearly than almost anything else how government interference with the price system completely upsets human economic efforts.
But it took me a long time to develop what is basically a simple idea. I was puzzled that Mises’s Socialism, which had been so convincing to me and seemed finally to show why central planning could not work, had not convinced the rest of the world. I asked myself why this was the case.