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… is from page 30 of Randy Holcombe’s 2023 paper “Untangling Political Economy,” which is chapter 2 of The Legacy of Richard E. Wagner [2] (Peter J. Boettke and Christopher J. Coyne, eds., 2023):
Markets enable people to coordinate their activities so that individuals can make use of the knowledge of others without having that knowledge themselves.
DBx: This statement is very simple and straightforward. This statement also conveys a profound truth.
This truth, alas, is ignored, or insufficiently appreciated, by nearly everyone outside of a tiny band of economists and classical liberals. Yet one glance at everyday reality in modernity makes this truth impossible to deny.
Consider, for example, the device on which you’re now reading my words. Even if you’re a renowned computer scientist or a genius software engineer, you have no idea how to make any of the vast majority of the components of your device. You don’t know how to make the glass that is the screen, the plastic or metal that forms the casing, the tiny lens of the tiny camera that’s in that device, the electricity-generating and transmitting processes without which that device would be useless. Yet each of these myriad different things exist. Each exists because a few individuals have the specific knowledge necessary to produce it, without any of these individuals – or you – having anything close to the knowledge necessary to produce the entire device.
The millions of different individuals each with his or her own specific knowledge must have their productive efforts coordinated with each other if the final results are to be useful – are to have value. This coordination is achieved by each person being guided by market signals – that is, by prices of outputs, prices of inputs, asset values, and profits and losses.
Advocates of industrial policy wish either to censor or to ignore the knowledge conveyed in markets. But the only ‘knowledge’ that they have to replace that which they censor or ignore comes from their hunches and personal preferences. Industrial-policy advocates simply assume that, if they can imagine some economic outcome, then the government can directly allocate resources to achieve that outcome and do so in ways that improve the well-being of ordinary people. The particular imagined outcomes, depending on what they are, might be achievable. What is not achievable, save by pure and highly unlikely chance, is the attainment of these outcomes in ways that are not excessively costly – that is, in ways that improve the well-being of ordinary people.