≡ Menu

Quotation of the Day…

… is from page 142 of F.A. Hayek’s 1941 Liberal Review essay, “The Economics of Planning,” as reprinted as chapter four of the 1997 collection, edited by Bruce Caldwell, Socialism and War:

The second important point which is often not realized is that what is the best method of producing a given thing is not simply a technical fact. It depends on what amounts of the various skills, implements, and materials happen to be available at a given time and place. There is no unique answer to the question: What is technically the best way of supplying the people of Oxford with boots or the people of Australia with cameras? There are any number of possible combinations of resources which might produce the desired result; and even if evidently wasteful ones are ruled out there remain a very large number of ways, each of which might be best in different circumstances. The presence or absence of all the different skills, implements, and materials and all their potential uses, not only at the place in question but in every other place from which the product might be brought, as well as the expenditure of transporting them, have to be taken into account. To choose intelligently here it is not sufficient to be informed about available supplies in generic terms, as they can be easily summarized in statistics. Small differences in quality, in the state of preservation or in the location of implements or materials, or of the skill and number of the people available at the particular time and place can be of greatest importance. All this would have to enter the master plan – as it enters into the calculations of the entrepreneurs in our present [pre-war] economy.

DBx: The reality described here by Hayek cannot be emphasized too often, for it’s a reality that is universally overlooked not only by advocates of full-on socialism, but also by advocates of industrial policy. These advocates of replacing market-directed allocations of resources with political or bureaucratic allocations of resources have no good answer to this question: From where will the government planners get the information and knowledge they must have if their allocations are to be superior to the pattern of resource allocation that arises from the market-governed price system?

I suspect that industrial policyists ignore this question because they presume that resource allocation is as simple a business in reality as it appears in textbooks and in the press releases of politicians. The presumption apparently is that there are a handful of industries (such as “manufacturing,” “services,” and “agriculture”), a handful of inputs (such as “labor,” “capital,” and “land”), and a handful of types of economic actors (such as “consumers,” “business,” “labor,” and “government”) each of which reveals itself with sufficient fullness in statistics. The forces believed to give rise to these statistics are then thought to be easily manipulated in order to rearrange the statistical outcomes so that these become more pleasing to the industrial policyists.