Knowledge And Decisions

Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated. To say that we “cannot put a price” on this or that is to misconceive the economic process. Things cost because other things could have been produced with the same time, effort, and material. Everything necessarily has a price in this sense, whether or not social institutions cause money to be collected from individual consumers. Prices under capitalism are not simply a mechanism for transferring wealth among persons; they are a way of carrying out the rationing function inherent in all economic systems. Someone must recognize a price on everything, and the only real question is who, and under what institutional incentives and constraints.

Chapter 4 Social Trade-Offs

Trade-offs may be easier to visualize in economic terms, but they are no less pervasive and no less important in social processes. Political and judicial institutions, the family, and voluntary associations of various sorts must also balance opposing effects under inherent constraints — must seek an optimum rather than a maximum. The most basic inherent constraint is that neither time nor wisdom are free goods available in unlimited quantity. This means that in social processes, as in economic processes, it is not only impossible to attain perfection but irrational to seek perfection — or even to seek the “best possible” result in each separate instance.

Courts which devote the time and effort required to reach the highest possible standard of judicial decisions in minor cases can develop a backlog of cases that means dangerous criminals are walking the streets while awaiting trial. Lofty intellectual standards, rigidly adhered to, may mean rejection of evidence and methods of analysis which would give us valuable clues to complex social phenomena — leaving us instead to make policy decisions in ignorance or by guess or emotion. Unbending moral standards may dichotomize the human race in such a way that virtually everyone is lumped together as sinners, losing all moral distinction between honorable, imperfect people and unprincipled perpetrators of moral horrors. In the early days of the Civil War, some leading abolitionists condemned Abraham Lincoln as being no better than a slaveholder, and no more a defender of the Union than Jefferson Davis.¹ Their twentieth-century counterparts have morally lumped together the wrongs in democratic countries with mass murder and terror under totalitarianism.

Rejection of a social optimum cannot mean that something better than this optimum will be achieved. It may mean that something far worse will result from a failure to recognize the inherent limitations of the situation — limitations of knowledge, resources, and human beings. Had the whole society adopted the position of a few perfectionist abolitionists and refused to support Lincoln and the war effort against the Confederacy, the abolition of slavery would not have come sooner but much later, if at all. Similar perfectionism among people of diverse political persuasions led to concerted efforts to bring down the troubled Weimar Republic. However morally satisfying it may have been to believe that “nothing could be worse” than the Weimar Republic, many of those who contributed to its downfall learned too late in Nazi concentration camps just how much worse things could be.

Social trade-offs involve not simply an incremental substitution of one consideration for another in specific decisions. These trade-offs apply to the decision-making mechanisms themselves. Legal procedures which do not meet the highest standards available may deliberately be established to deal with jaywalking and parking violations, precisely so that the system can devote more of its time and talents to reducing the likelihood of a mistake in judging a murder case.