… is from page 180 of the original edition of the late Don Lavoie’s great 1985 book Rivalry and Central Planning:
The specific tool of this market coordination is the orientation of individual entrepreneurs to their profit and loss accounts in terms of money prices. Profit opportunities tend to encourage more socially coordinated use of resources without requiring any market participant to know more than the information required within his own particular sphere of specialization. Thus economic calculation of profit and loss serves as an unconscious coordinating mechanism for society as a whole, thereby performing a task that is beyond the cognitive ability of any member of society.
DBx: Advocates of industrial policy – whether on a scale grand or petit – propose to substitute the puny amounts of statistical knowledge and information that can be had by government officials (none of whom spends his or her own money) for the vast amounts of detailed knowledge and information that are used and acted upon daily by millions of individuals (each spending his or her own money).
In effect, advocates of industrial policy propose to replace knowledge-thick market processes, in which individuals without the power to coerce have strong incentives to create value for as many others as possible, with ignorant government officials possessing the power to coerce and imposing legalistic – and special-interest tilted – blueprint-like schemes. What could go wrong?
