Bonus Quotation of the Day…

by Don Boudreaux on February 8, 2020

in Complexity & Emergence, Hayek, Hubris and humility, Myths and Fallacies, Prices

… is from page 155 of the 1996 FEE edition of Henry Hazlitt’s wonderful 1973 book, The Conquest of Poverty:

[H]ow would the Planners decide what machines to design, what capital goods to make, what technological methods to use, and at what localities to produce the consumers’ goods they wanted and in the proportions they wanted them?

This is not primarily a technological problem, but an economic one. The purpose of economic life, the purpose of producing anything, is to increase human satisfaction, to increase human well-being. In a capitalist system, if people are not willing to pay at least as much for the consumer goods that have been produced as was paid for the labor, land, capital equipment, and raw materials that were used to produce them, it is a sign that production has been misdirected and that at least some of these productive factors have been wasted. There has been a net decrease in economic well-being instead of an increase.

DBx: Proponents of industrial policy – from conservatives such as Oren Cass to “Progressives” such as Elizabeth Warren – never bother to answer the question that is most fundamental to their policy: how will government officials acquire the information necessary to out-perform the market? The standard move is to point to real-world instances of markets failing to perform as ideally as the proponent of industrial policy can imagine the economy performing, and then to conclude from this utterly banal observation that ‘science’ directs us to entrust government with more discretion over the allocation of scarce resources.

I know of no proponent of industrial policy who gives any hint of taking seriously the profound lessons in Hayek’s “The Use of Knowledge in Society” article – profound lessons about the dispersion of unique bits of knowledge and about the fact that the knowledge of the details of reality that must be acted upon ‘efficiently’ if the economy is to work are often fleeting.


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