Knowledge And Decisions

In an economy directed by national governmental authorities (“central planners”), the directives that are issued must articulate the characteristics of the products to be produced. Earlier discussions of rent control or price control in general have noted (1) the difficulties of defining even such apparently simple things as an apartment or a can of peas, and (2) the tendency of products — or labor — to change in quality in perverse ways in response to price or wage controls. Both problems are pervasive under comprehensive central direction of an economy.

Examples abound in the Soviet press, where economists and others decry particularly glaring instances and demand “better” specification — rather than raising the more politically dangerous question of whether any articulated specification by central planners can substitute for monitoring by actual users, as in price-coordinated economies. For example, when Soviet nail factories had their output measured by weight, they tended to make big, heavy nails, even if many of these big nails sat unsold on the shelves while the country was “crying for small nails.”⁹⁹ When output is measured in value terms, the individual firm tends to produce fewer and more expensive units — whether clothing or steel,¹⁰⁰ and regardless of the users’ preferences. Where the articulated measurements are in units of gross output, the firm tends to buy unnecessarily large amounts of parts from other firms,¹⁰¹ receiving credit in its final product statistics for things produced by others; where the articulated measurements are in units of net output, then the firm tends to make as much as possible itself, even where the cost of parts produced by specialized subcontractors is lower.¹⁰² All of these are perfectly rational decisions from the standpoint of the individual Soviet firm, maximizing its own well-being, however perverse the results may be from the standpoint of the Soviet economy. Even terror under Stalin did not make the individual producer adopt the economy-wide viewpoint. On the contrary, where imprisonment or death were among the penalties for failure to fulfill the task assigned by the central planners in Moscow, the individual firm manager was even more prone to fulfill the letter of the law, without regard to larger economic considerations. In one tragicomic episode, badly needed mining equipment was produced but not delivered to the mines because the equipment was supposed to be painted with red, oil-resistant paint — and the equipment manufacturer had on hand only oil-resistant green paint and nonoil-resistant red paint. The unpainted equipment continued to pile up in the factory despite the desperate need in the mines, because — in the producer’s words — “I don’t want to get eight years.”¹⁰³ To the actual users, the color of the paint made no difference, but that incidental characteristic carried as much weight as articulation as the most important technical specification.

These are not peculiarities of Russians or of the Soviet economic or political system. They reflect inherent limitations of articulation. The American political demand for more high school graduates — in the academic paradigm, a solution to the “dropout” problem — led to more of that product being produced, by whatever lowering of standards was necessary. It is easy to articulate what is meant by a high school graduate — someone who receives a certain embossed piece of paper from an authorized agency — but it is much harder to articulate in operational terms what education that is supposed to represent.

In price-coordinated decision making, the user can monitor results with little or no articulation by either himself or the producers. The kinds of nails that are incrementally preferable will become more saleable or saleable at a higher price, and the producer will automatically emphasize their production, even if he has not the faintest idea why they are more in demand. If a certain color of paint makes mining equipment more saleable, the producer will tend to use that color of paint, but he will hardly forego, or needlessly postpone, sales until he can get the particular color of paint, if the demand for the equipment is such that it sells almost as fast with a different color. Where price-coordinated education (private school) is a feasible individual option, parents who have never sat down and articulated a list of education criteria can nevertheless judge educational results in a given school and compare them with results available from other private schools or public schools and determine whether the differences in results are worth the differences in cost.