Mr. Samuel Hammond
I cannot resist responding to another of the many mistakes that run throughout your attempted defense of industrial policy (“The ‘Central Planning’ Strawman,” January 7). Specifically, you are incorrect to assert that Mises’s and Hayek’s identification and explanation of the knowledge problem was “stretched” by later generations of Austrian economists “far beyond its original application into a kind of epistemological nihilism.”
Who, precisely, among scholars influenced by Mises and Hayek are epistemological nihilists? Answer: no one. In fact, far from denying the existence of economically relevant knowledge – famously called by Hayek “knowledge of the particular circumstances of time and place” – Mises, Hayek, and other Austrian economists recognize not only the existence of such knowledge, but also both its ability to be accessed and the necessity of accessing and using it if the economy is to function at all tolerably well.
The question is what is the best way to ensure that as much as possible of this knowledge is accessed and used appropriately. Mises, Hayek, and other Austrians demonstrated that this knowledge is so vast in quantity, so dispersed over millions of human minds and experiences, and so nuanced as well as fleeting in its details, that the only means of ensuring that as much as possible of this dispersed knowledge is put to productive use is the decentralized competitive market in which consumers on one side, and entrepreneurs and investors on the other side, each spend their own money. The result is a system of ever-changing market prices – along with unsocialized profits and losses – that both inform and incite market participants to better coordinate their actions with each other. (By the way, this understanding of the essential role of private-property markets was understood also by non-Austrian economists such as Armen Alchian, Yale Brozen, Jim Buchanan, Ronald Coase, Harold Demsetz, Milton Friedman, Deirdre McCloskey, Warren Nutter, Vernon Smith, Thomas Sowell, Leland Yeager, and – please note – Bill Niskanen.)
Demonstrating the impossibility of government officials gaining access to, processing effectively, and acting productively on the inconceivably vast amount of knowledge that is every moment accessed and used efficiently in competitive markets is not, contrary to your assertion, an exercise in “epistemological nihilism.” It is, instead, a demonstration of epistemological realism, and a warning against the fatal conceit of epistemological illusionism.
I remind you of Hayek’s brilliant 1945 Finlay lecture, “Individualism: True and False” – a lecture that ends with this wise and relevant observation: “What individualism teaches us is that society is greater than the individual only in so far as it is free. In so far as it is controlled or directed, it is limited to the powers of the individual minds which control or direct it. If the presumption of the modern mind, which will not respect anything that is not consciously controlled by individual reason, does not learn in time where to stop, we may, as Edmund Burke warned us, ‘be well assured that everything about us will dwindle by degrees, until at length our concerns are shrunk to the dimensions of our minds.’”
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030