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Quotation of the Day…

… is from pages 406-407 of the 2014 collection, The Market and Other Orders (Bruce Caldwell, ed.), of some of F.A. Hayek’s essays on spontaneous-ordering forces; specifically, it’s from Hayek’s previously unpublished 1961 lecture at the University of Virginia “Economics and Technology,” which is the third of four lectures that Hayek delivered in UVA’s Newcomb Hall during the Spring 1961 semester; the title of this lecture series by Hayek is “A New Look at Economic Theory” (original emphasis):

The economic problem of society is therefore not normally solved deliberately by somebody working out all the implications of the data, because nobody has all the data. It is solved not by somebody beforehand drawing up a comprehensive plan and everybody then acting according to this plan, as a technological problem would be solved, but by the individuals so mutually adjusting their actions that an order is formed.

Each individual will always know only a small fraction of the relevant facts…. The collaboration of the individuals here involves not only a division of labour, as the working according to a single plan usually also would, but also a division of knowledge guiding the action – a division of knowledge which cannot be all conveyed to one designing mind but must be used where it exists, dispersed among many persons who must make their own separate decisions on the basis of the knowledge they individually have.

DBx: Advocates of industrial policy no less than advocates of full-on socialism are unaware of the reality identified here by Hayek, or they deny it. Either way, this reality is unavoidable.

And this reality doesn’t begin to bite only when government planning of the economy rises to the level of full-on socialism. Consider, for example, industrial policy. While it doesn’t prevent as many individuals as does full-on socialism from using their unique bits knowledge, it does prevent many individuals from doing so. Industrial policy substitutes the coercively imposed ignorance of a relatively minuscule number of government officials for the peacefully elicited knowledge of millions of individuals.

Advocates of industrial policy deny this reality because they do not understand the price system. They are ignorant of how economic competition, profits and losses, and financial markets work.

Further and more fundamentally, industrial-policy advocates believe the economy to be far simpler than it really is. Failing to grasp the economy’s complexity, industrial-policy advocates mistake the case for free markets – mistake the recommendation to “let the market handle it” – as being simplistic. But the true simpletons are those who insist that a handful of human beings imposing a single plan can outperform the competitive process of each individual using his or her unique knowledge of time and place and adjusting through the price system to the use of such knowledge by countless others.

In short, to advocate industrial policy is to advocate the replacement of knowledge and understanding (and peaceful commerce) with ignorance and stupidity (and coercive diktats).