Planned Despotism

Welcome to your life
There's no turning back
Even while you sleep
We will find you
--Tears for Fears

Another thoughtful article by the unassuming Hayek. As he is prone to do, he offers a potpourri of observations, leaving the reader reflecting on multiple fronts. Here are various notes from this article:

The desirability of planning as a general activity in the rational design of human institutions has little room for argument. When applied towards economics, however, planning is not regarded as a general activity in rational economic organization but as conscious central direction of all economic activity. The objective of planning in this sense is to overcome the results of competition.

Competitive economic systems are grounded in prices. Prices reflect the combined knowledge of all market participants. Planned systems lack pricing mechanisms.

While a central planner may be smarter than a single entrepreneur under competition, the planner can not possibly incorporate the decentralized knowledge of all entrepreneurs engaged in economic activity. The combined knowledge incorporates particular facts and ever changing circumstances--something that an individual planner in a room cannot possess. Planning systems are thus static; market systems are dynamic.

Prices in competitive markets reflect this dynamic knowledge.

"This method of solving by an automatic decentralization a task which, if it had to be solved consciously, would exceed the powers of any human mind, would have been hailed as one of the most marvelous inventions--if it had been invented deliberately. Compared with it the more obvious method of solving the problem by central direction appears incredibly clumsy, primitive, and limited in scope."

As such, markets and the competitive pricing system may suffer from the fact that they were not the deliberate construction of scientific personel seeking to solve the economic problem themselves. (nice observation)

GREAT quote from American National Temporary Economic Committee paper: "It is sometimes assumed, or asserted, that large scale production, under the conditions of modern technology, is so much more efficient than small scale production that competition must ultimately give way to monopology as as large establishments drive their smaller rivals from the field. But such generalization finds scant support in any evidence that is now at hand." (amazing quote given its 1938 tag)

Hayek goes on to observe that "Indeed few people who have watched economic development during the last 20 years or so can have much doubt that the progressive tendency toward monopoly is not the result of any spontaneous or inevitable force, but the effect of a deliberate policy of governments, inspired by the ideology of 'planning.'"

In other words, free markets do not deterministically create huge monopoly-like firms. Competition and innovation are likely to destroy slow, unresponsive operators in favor of innovation (Schumpeter's 'creative destruction'). Rather monopolistic tendencies are created by government intervention. This is very much counter to today's 'conventional wisdom'...

Trying to study social sciences like a natural science is a mistake. He includes a quote "one of the most terrible examples of unscientific mindedness is frequently an eminent, i.e. physical or biological scientist speaking on societal matters." I am reminded of the global warming issue...

Similar to Mises' observations, if the argument between markets vs. planning were merely one of economic efficiency, then the issue is easily put to bed. However, if the intent is to make distribution of incomes conform to some predetermined standard, then central planning is likely the only way this could be achieved.

Central planning needs an authoritarian mechanism to accomplish this redistribution. Inevitably this leads to a totalitarian government. Whoever controls the means must also decide which ends they are to serve. Lacking a price system, planners must impose their scale of value, their hierarchy of ends, which must include a rank order of all people's status. Nearly total control of human action is necessary to achieve the equality outcome. Mises suggests this end cannot be even be realized to any durable degree due to the chaos created in transit.

In theory socialism may wish to enhance freedom, but in practice every kind of collectivism carried through must practice the totalitarian features that Facism, Nazism, Communism, et al have in common. Totalitarianism is nothing but collectivism--the ruthless execution of the principle that 'the whole comes before the individual' and the direction of all members of society by a single will supposed to represent the 'whole.'

Ironic comment by FDR in 1938 that a pending program for restoring competition in the United States was based on the thesis "not that the system of free enterprise has failed in this generation, but that it has not yet been tried." Feels like a bait-and-switch to me...

Corruption of minds often comes from intellectual and scientific leaders. Hayek offers the German example.