Tuesday, January 18, 2011

Unsurveyable Pattern

"It is no accident that many abstract rules, such as those treating individual responsibility and several property, are associated with economics.  Economics has from its origins been concerned with how an extended order of human interaction comes into existence through a process of variation, winnowing and sifting far surpassing our vision or our capacity to design.  Adam Smith was the first to perceive that we have stumbled upon methods of ordering human economic cooperation that exceed the limits of our knowledge and perception.  His 'invisible hand' had perhaps better have been described as an invisible or unsurveyable pattern.  We are led - for example by the pricing system in market exchange - to do things by circumstances of which we are largely unaware and which produce the results that we do not intend.  In our economic activities we do not know the needs which we satisfy nor the sources of the things which we get.  Almost all of us serve people whom we do not know, and even whose existence we are ignorant' and we in turn constantly live on the services of other people of whom we know nothing.  All this is possible because we stand in a great framework of institutions and traditions - economic, legal, and moral - into which we fit ourselves by obeying certain rules of conduct that we never made, and which we have never understood in the sense in which we understand how the things that we manufacture function.

Modern economics explains how such an extended order can come into being, and how it itself constitutes an information-gathering process, able to call up, and put to use, widely dispersed information that no central planning agency, let alone any individual, could know as  as a whole, possess or control."

Friedrich August von Hayek - The Fatal Conceit: The Errors of Socialism (page 14)

Prices convey information.  Price changes are contingent upon new and/or better information, and it is therefore extremely important that prices are dynamic, as opposed to static.  Central planning (a result of collectivism) disregards information and sets prices upon arbitrary determinations or what is believed to be "fair".  Clearly the idea of what is fair is subjective, and most maintain different beliefs on this principle of fairness.  To ask the federal government to determine what is fair in every industry of a nation made up of over three hundred million people is na├»ve, at best.  Central planning therefore ultimately leads to malinvestments, market dislocations, and ultimately shortages and rationing.  For these reasons; central planning always fails, wage and price controls are always to the detriment of consumers/patients/customers, and people are always best left to make their own voluntary decisions free of coercion or plunder (which are usually created in the name of "the greater good", despite the ultimate outcome).  This is an incredibly simple concept; yet the "leaders" of our country continue to expand central planning in agriculture, education, health care, energy, and retirement.


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