Hayek - The "Inevitability" of [Central] Planning

Monrovians - Unite! Hayek asserts that the most frequently heard argument employed to demonstrate the "inevitability" of central planning is that due to technological changes that have made true competition impossible in an increasing number of fields, the only choice left to us is between control of production by private monopolies and direction by the government. This primarily derives from Marxist thought, but it has been repeated so often that people often have no idea of its origin.

The alleged technological cause of the growth of monopoly is the superiority of the large firm over the small, owing to greater efficiency of mass production.

 Various economic studies have concluded otherwise. Monopoly is, rather, attained through collusive agreements and promoted by public policies. When these agreements and policies are reversed, competitive conditions can be restored. Big businesses at every turn seek to obtain favorable treatment from government.

 The big idea behind the believe that large and complex problems require a central government solution is that it is difficult to obtain a coherent picture of the complete economic process, hence only government can obtain the information necessary to properly plan and direct the economic activity of each person.

"This argument is based on a complete misapprehension of the working of competition." It is because of the complexity of the division of labor under modern conditions which makes competition the only method by which such coordination can be adequately brought about.

 It is only as the factors which have to be taken into account become so numerous that it is impossible to gain an overall view of them that decentralization becomes imperative, writes Hayek. The problem of coordination requires that separate agents be free to adjust their activities to the facts which only they can know, and yet brings about a mutual adjustment of their respective plans.

 If instead of central control we have a system by which each agent obtained the information he must possess in order effectively to adjust his decisions to those of others, with constantly changing conditions of supply and demand, we would have the perfect system.

 It happens that the price system does this under competition, and no other system can possibly hope to do so. By watching just a few prices, an entrepreneur can adjust his or her activities to those of their fellows. "The more complicated the whole, the more dependent we become on that division of knowledge between individuals whose separate efforts are coordinated by the impersonal mechanism for transmitting the relevant information known by us as the price system."

 When there is a strong and urgent demand for copper in one part of the world, we do not have to know the details, but only that the price of copper has suddenly increased, causing us to adjust our use of it. Whether we use less of it, or are willing to pay more for it, or stop using it altogether, we affect the price (and the supply and demand) and further transmit important information to all others who might use copper.

 By comparison, a system of central planning is incredibly clumsy, slow, inflexible - and ultimately disastrous.

 One need only survey our world to realize that it is not the product of a central planner but instead rose up of its own accord.

 Then there is always the problem of the identity of the planners - who decides? The very people who are so sure that they have the only true answers and that their preferences are entitled to priority over those of everyone else would be motivated to become the ones with the power, yet they would be the ones most likely to terrorize everyone else if they ever had true power. So, do we really need central planning? Would a politician have come up with the i-phone?