… is from page 143 of the 2015 Mercatus Center reprint of my late colleague Don Lavoie’s insightful 1985 book Rivalry and Central Planning:
Since rule-following behavior cannot legitimately be inferred from the existence of a published rule, the analyst must apply choice theory to explain the self-motivated actions that people are likely to take when confronted with the rules under consideration. As soon as a rule is proposed as a substitute for directly self-motivated action, such issues as how to distinguish compliance from disobedience, how to provide sanctions for disobedience and rewards for compliance, and the extent to which desired actions can be articulated in explicit rules must be examined.
The fundamental difference between the self-directed action of profit seeking and the other-directed action of rule obedience is completely overlooked in the market socialists’ discussion. Nothing is said of the allocation of responsibility that would have to supplant the legal institutions of private ownership. No justification is made for the implicit claim that this ruled behavior will conform to the intentions of the rule makers.
DBx: Don here pointed out one of the many flaws in the arguments offered by so-called “market socialists” – a group of economists active in the second quarter of the 20th century who insisted that government officials are capable of out-performing the market at allocating resources in ways to achieve desired economic efficiency. Although the details of the proposals and arguments of today’s advocates of industrial policy differ from the details of the proposals and arguments of “market socialists,” at root the two groups of interventionists are identical. Both believe that the free market cannot be trusted to bring about optimal economic outcomes and, therefore, government can and should intervene to bring about desired outcomes by design.
Yet as demonstrated conclusively by, most notably, Ludwig von Mises, F.A. Hayek, Trygve J. B. Hoff, and Don Lavoie, proponents of such intervention naively assume away many of the essential problems that any economic process must ‘solve.’ The largest of these problems is the challenge of gathering and effectively using information dispersed in bits across millions of minds and square miles. Industrial-policy advocates no more than socialists have managed to explain how their schemes will ‘solve’ the challenge of gathering information and ensuring that it is used in ways that improve the general welfare. (Actually, in the case of industrial-policy advocates, they haven’t even bothered to try to explain how their schemes deal with this problem. Industrial-policy advocates simply assume – if only implicitly – this problem away.)
But there are other problems in addition to the information one. One of these other problems is identified in the above quotation from Don Lavoie (who is pictured above).