Quotation of the Day…

by Don Boudreaux on August 23, 2020

in Competition, Complexity & Emergence, Myths and Fallacies, Prices, Reality Is Not Optional

… is from page 37 of Kristian Niemietz’s superb 2019 book, Socialism: The Failed Idea That Never Dies:

Socialism’s failure, and capitalism’s relative success, has much more to do with capitalism’s capacity to generate economically relevant knowledge.

DBx: Indeed so. And note that the amount of economically relevant knowledge generated by capitalism does not begin to diminish only when an economy becomes fully socialized. Whenever resources are allocated by command backed by coercion, some economically relevant knowledge is destroyed – that is, not generated. The reason is that the value of these resources in different, alternative uses is prevented from being discovered by voluntary bids expressed to resource owners who are free to accept or to reject.

An economy in which the state directs the production only of toothpicks will fail to generate only an infinitesimal amount of the economically relevant knowledge that would otherwise be generated. Increased failure to generate economically relevant knowledge will occur if the state expands its control of resource allocation to include not only toothpicks but also toothpaste. Yet still, of course, the amount of knowledge thereby not generated will remain minuscule.

But the more the state controls, the greater is the amount of economically relevant knowledge not generated. This reality is important to grasp because much of the discussion today of government intervention into the economy is premised on the mistaken notion that the Mises-Hayek demonstration of the impossibility of full-on socialism becomes relevant only when an economy is close to, or at, full-on socialism.

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