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Quotation of the Day…

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… is from page 403 of the 2014 collection, The Market and Other Orders [2] (Bruce Caldwell, ed.), of some of F.A. Hayek’s essays on spontaneous-ordering forces; specifically, it’s from Hayek’s previously unpublished lecture at the University of Virginia titled “Economics and Technology,” which is the third of four lectures that Hayek delivered in UVA’s Newcomb Hall during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” (comma added between “production” and “technological” for clarification):

That the practical man does not clearly distinguish between the two kinds of problems is not really surprising. In the actual direction of production, technological and economic considerations so constantly interact that they are hardly felt to be separate and different. But though they are not always psychologically separable, logically they are distinct and in certain connections it is rather important that we clearly distinguish between them. The danger is probably not that the importance of the technological considerations will ever be overlooked. But there is undoubtedly some danger that the technological considerations may be regarded as alone decisive and that the economic aspects are simply disregarded. Some people at least seem to believe that the organization of production is entirely a matter of technology, and in particular, that technological knowledge alone and unambiguously decides what is the best way of obtaining a given output.

DBx: Proponents of industrial policy, blind to the unfathomable complexity of the details of market processes, quite naturally conceive of economic problems as technical ones – as problems solvable by the same mental processes used by an engineer to carry out his or her assigned task. Yet even if (grossly contrary to fact) a counsel of government officials could somehow learn the order in which different consumer goods and services are ranked in relative importance by all individuals in their capacities as consumers, this question remains unanswered: What is the least-costly means of producing each of the these many outputs?

To ‘solve’ this economic problem is not the task of an engineer or of state officials playing the role of social engineers. The reason is that state officials charged with the task of producing these outputs – or, indeed, of any array outputs – cannot possibly know which manner of production is most economical. These officials cannot know, without prices set on markets, the relative scarcities of the many different alternative resources that can be used in production. Without this knowledge, the government allocator of resources acts with no more direction and good sense than does a drunk donkey. This official’s actions perhaps appear to be scientific and rational. But appearances here are deceiving. To the extent that this official makes resource-allocation decisions in ignorance of relative resource scarcities – for example, how scarce is this kind of low-skilled labor relative to that kind of higher-skilled labor – this official acts in ignorance of crucial facts that must be taken account of if the resulting allocation of resources is to come within a million miles of improving human well-being as much as it can possibly be improved.