Walt Byars wrote: > Thanks. Also thanks for your help in that "evolutionary analogies thread" > which I failed to mention earlier. > >>The argument is based on the idea of "tacit information," which is used >>to make the claim that the group cannot acquire this information (by >>definition) and thus that information cannot be included in the plan. >> > > This doesn't seem like a very strong argument. Doesn't tacit information > play a bigger role on the shopfloor or sphere of production, than in the > allocation of inputs. I mean, if someone can go to the hardware store and > purchase some productive inputs (even if they are going to employ them in > a production process they can't explain to others) couldn't they tell a > planner they need them? Would a planner's capacities be limited by the > fact that they know input ---->???------> output if they know what output > one gets from an input, but not how to transofrm them. I am not sure how > common it would be for the inputs one uses, or the outputs they produce, > to be a matter of tacit knowledge. And they certainly couldn't buy or sell > them on a market if they couldn't tell others what they were. > --- If the demand for inputs is a derived demand, which orthodox theory claims and which Austrian theory concurs, then consumer preferences (or subjective valuations in Misian terms) determine the allocation of inputs. Under central planning the plan must be able to match inputs with consumer preferences, but if the planners cannot know the preferences (because they are, at least in part, based on tacit knowledge and cannot, thereby, be easily transferred from person to person--for example, do we know, ex ante, what to buy for people on our Christmas gift list before shopping around to see what's out there?) then how can they know where to use the inputs?
I believe that Hayek must be taken seriously, not because I support the argument, but because I think the argument has much persuasive power and should be debunked in a most serious way. As Duncan Foley points out in the context of the Cockshott and Cottrell paper on information, "In Hayek's view a society producing with a complex division of labor faces the problem that the information necessary to operate production is dispersed among many different people. He views the market as a device that ... induces people to reveal at least some of this information, which he thinks they otherwise would be reluctant or unwilling to do. The market willy-nilly forces people to take positions (or risks) that reveal some of their information. ... The point is not ... just the difficulty of collecting and processing "messages", but the social necessity of getting people to generate them." In my view, the problem with the Hayek argument is not that tacit information has no real baring on central planning, but rather, that markets are the solution to the problem. To his credit, the Austrian Steven Horwitz recognizes that volatile market prices undermines the Hayekian argument and makes individual calculations extremely difficult. But he then goes on to argue that markets are inherently stable and that the observed instability is the "unintended consequence" of government involvement. I believe this one of the flaws in the Hayekian argument. My own view of market institutions is closer to the Post-Keynsians. For example, Jan Kregel writes: "The information required for rational decision making does not exist; the market mechanism cannot provide it. But, just as nature abhors a vacuum, the economic system abhors uncertainty. The system reacts to the absence of the information the market cannot provide by creating uncertainty-reducing institutions: wage contracts, debt contracts, supply agreements, administered prices, trading agreements." And Paul Davidson writes: "Modern society has developed the institution of legally enforceable forward money contracts to permit he contracting parties to possess a measure of control over future performance and cash flow, even in the face of ignorance regarding future real economic conditions. All legal contractual agreements among parties are enforceable solely by monetary payments under the civil law. ... "The conclusion that a free market economy will automatically achieve a full employment, inflation-free utility-maximizing output equilibrium, not only requires the presumption of a statistically reliable, calculable future but it also has as a logical prerequisite that all payments for goods and services must be made at the initial instance of time--even if delivery is no expected until tomorrow, next year, or even next century." In other words, even in a capitalist economy, collective solutions are often pursued to deal with information problems. Individual, self-seeking "purposeful action" does not do the the trick. Another flaw in the Hayekian argument is to view the information problem ahistorically. Michael Lebowitz has taken Hayek's argument and turned it on its head. Think about the knowledge we do not have in this world because knowledge comes in the form of monetary units (e.g. through market prices only). Michael suggests that this situation promotes ignorance, unlike Hayek, who seems to believe that ignorance is universal. Michael notes that our current situation is one of socially created ignorance of others, and that this very ignorance is what divides us. Moreover, market competition encourages people to hoard information. So Foley states that Hayek's problem "raises the question of how socialism will either make this issue irrelevant or provide alternative institutions to resolve it." I have faith that, with a lot of work, socialism can make the issue irrelevant. > >>Subjective use-value or the neo-classical notion of "willingness-to-pay" >>are often offered as examples of tacit information. The state cannot >>make a valid plan for loaves of bread because the state cannot discover >>the use-values the group places on bread. Only market prices will >>reflect such information. >> > > Inequality of wealth should foul this up, right? > The Austrians would bring out arguments about comparative advantage and gains from trade as a replay. But, yes, even a Post-Keynesian would discuss the distribution of wealth in connection with consumption. Geoffrey Hodgson, a Veblenite, is very good on this point. The Austrian's commit a great error when they maintain that subjective value is the "uncaused cause." They seem to think that markets are the result of our genetic make-up. > > >>The other realm where tacit information is thrown up is technological >>creativity and economic change. There is no way for a group to make a >>creative discovery, only the individual, who relies on tacit >>information, can do this. Or so the argument runs. > > This seems pretty incompatible with what I have read about technological > change usually being a collective, social endeavor. And even if the > knowledge about how to generate some innovation from some input was tacit, > isn't it still possible that one could be explicit about what inputs were > necessary? Isn't this all that is relevant to a planning agency? > > I have also come across arguments, usually by advocates of Korean style > industrial policy and the like, that tacit knowledge about production is a > market failure. Since its non-codifiable, it would be impossible to give > intellectual property rights in it so it becomes an externality that is > impossible to internalize. > I agree, technological development is a collective activity. And this fact does cast more doubt on Hayek's argument. The National Science Foundation and much university based research are both organized without market prices and profits. And those who defend Hayek cannot explain Sputnik. > >> Hayek argues >>that it is an empirical issue, then points to Eastern Europe. > > But certainly this can't be a result of the single planner idea, because > plans were formulated by multiple people, and the despots were usually not > the planners, right? > I'm not sure I understand this question. > > >>It seems to me the modern corporations have found ways to make plans >>even if tacit information cannot be acquired. >> > > Yeah. I have always thought that the existence of highly centralized > capitalist institutions seriously damages Hayek's argument, but not Mises' > calculation argument (which I merely think is logically invalid). Mises > argument applies to the situation in which a central planner has no > external price information to refer to. Defenders of Mises, such as the > book reviewer at mises.org say that his argument only shows that worldwide > socialism can't work. Thus, misesians wouldn't find much to contradict > their arguments in the existence of large corporations, but it seems to be > more problematic for Hayekian claims. > But the Misians' view the corporation as a person--as "merely" the institutional framework of an entrepreneur. They follow the Alchian and Demsetz notion that firms are mechanisms for carrying out team production, they are not authority structures (bosses aren't really bosses). > > >>My view is that it is a mistake to be trapped by the dichotomy: >>decentralized==private markets; centralized==state planning. There is >>much social interaction that is collective but is not within the state, >>and private markets are not the only way to make decentralized decisions. >> > I agree. I have read some theoretical literature on the interaction of > centralized and decentralized state (or democratic) planning. Are oyu > aware of any empirical literature on it? > I hope the socialism means that state power is unnecessary. So I look for examples of non-state, collective activities that are used in place of markets for coordinating economic relationships. Labor historians and anthropologists are two groups that I've found useful.
