Knowledge And Decisions

Where prices are set by government fiat, they convey no information as to ever-changing economic trade-offs which reflect changing technology, tastes, and diminishing returns in both production and consumption. Price changes are virtually instantaneous, while statistics available to planners necessarily lag behind. As a student of British economic planning has noted: “The ceaseless changes in conditions affecting the daily demand and supply of countless goods and services must render the best statistics out-of-date before they can be collected.”¹⁰⁴ Using a relatively few “stale statistics” to “guide a complex and ever-changing economy” means “in practice falling back on ad hoc interventions interspersed with endless exhortation ‘in the public interest’. ...”¹⁰⁵ Nazi Germany had similar economic problems in basing prospective decisions on retrospective statistics.¹⁰⁶ The problem is inherent in the circumstances, and not peculiar to a given ideology, though some ideologies are more insistent on maintaining such circumstances than are others.

Another way of looking at the vicissitudes of articulation is that one cannot articulate what does not exist — namely an objective set of characteristics which determine an objective scale of economic priorities. All values are ultimately subjective and incrementally variable. No single social group, or scale of priorities can define the varying importance of multifaceted characteristics, either to disparate consumers or to equally disparate producers. The millions of users of millions of products can judge incremental trade-offs when confronted with them, but no third party can capture these changing trade-offs in a fixed definition articulated to producers in advance. When user monitoring, conveyed through prices and sales, is replaced by third-party articulation, in words or numbers, vast amounts of knowledge are lost in the process. In the absence of user monitoring of producer output through a market, there must be third-party specification of what the output shall consist of, and this runs into the inherent limitations of articulation.

However many limitations and distortions articulation may have as a means of communicating economic knowledge, its political appeal is as widespread as the belief that order requires design, that the alternative to chaos is explicit intention, and that there are not merely incremental trade-offs but objectively specifiable, quantifiable and categorical “needs.” From this perspective, one must “understand the relationship”¹⁰⁷ — which is to say, articulate the relationship — among economic sectors in order for them to coordinate. Price-coordination simply vanishes as an alternative within the framework of such beliefs. There must be “priorities” and a “time frame” articulated.¹⁰⁸ Indeed, “we need a full presentation of the items we can choose among,” which “a completely automatic free market” would not articulate — which is why we “do not accept that approach.”¹⁰⁹ Instead we “must be able to see” articulated alternatives in order to “make an intelligent choice.”¹¹⁰ Under the assumption of objectively definable, quantifiable “needs,” efficiency is merely an engineering problem rather than a reconciling of conflicting human desires, so that social policy can be analogized to such fixed-objective activities as putting a man on the moon,¹¹¹ and even “planning” is simply a matter of “technical coordination” by “experts”¹¹² using “systematic analysis.”¹¹³ In such a framework, even “the public interest”¹¹⁴ can be confidently discussed as an empirically meaningful notion, along with “objective analysis... of what is really desirable.”¹¹⁵ These quoted statements are not the glib remarks of sophomores, but the pronouncements of one of the most famous American senators and one of the most famous American economists — Hubert Humphrey and Wassily Leontief, respectively. They are by no means alone.

KNOWLEDGE TRANSFER

The limitations and distortions of articulation revolve around the simple fact that third-party central planners cannot know what users want, whether those users be consumers or other producers acquiring raw material, component parts or production-line machinery. Complex trade-offs among a given product’s characteristics and between one complex product and another, cannot be captured in a fixed definition, however detailed. Indeed, the amount of detail itself involves trade-offs, for beyond some point the detail becomes counterproductive, as in the case of Soviet mining equipment that was supposed to have a particular kind of paint.