Economic calculation under socialism

From AIERvideo comes this video on economic calculation under socialism.

Let's assume socialist central planners have the best intentions. How will they decide what to produce, where to produce it, how to produce it, and for whom? These questions by Mises kicked off the "Socialist Calculation Debate".

Rosolino Candela interviews Peter Boettke on Hayekian ideas

Widely considered as one the most influential economists of the 20th century, F. A. Hayek continues to command the attention of scholars with his life and work. On this episode, Peter Boettke and Rosolino Candela sit down to discuss Boettke's new book F. A. Hayek: Economics, Political Economy and Social Philosophy (Palgrave, 2018). Boettke presents this new book as focusing less on Hayek as an individual and more on Hayekian ideas. Throughout the discussion Boettke and Candela examine Hayek's uniting theme of epistemic institutionalism, the competitive market process, and how Hayek's contemporaries picked up on his work. They also discuss the limitations of 'Big Data' to answer the important questions of social science. These Hayekian ideas, Boettke and Candela contend, are still as pressing and worthy of research today.

F. A. Hayek: Economics, Political Economy and Social Philosophy

From the Cato Institute comes this audio of an interview of Peter J. Boettke by Caleb O. Brown about Boettke's new book on F. A. Hayek.

The project of F. A. Hayek had its historical context, and it’s worth exploring. Peter J. Boettke is author of F.A. Hayek: Economics, Political Economy and Social Philosophy.

Peter Boettke talks about Hayek

Professor Peter Boettke has been talking to a number of people about his new book, F. A. Hayek: Economics, Political Economy and Social Philosophy.

The Economic Rockstar


The Economics Detective


The Remnant with Jonah Goldberg

Bruce Caldwell on F.A. Hayek, economic history, and his life's work

From the Hayek Program Podcast comes this audio in which Peter Boettke interviews Bruce Caldwell on the life and work of F.A. Hayek.

On this episode of the Hayek Program Podcast, Hayek Program Director Peter Boettke speaks with Professor Bruce Caldwell about his current projects, including an exciting new biography of F.A. Hayek himself. Caldwell talks of his experience and inspirations in directing the Center for the History of Political Economy at Duke University, the significance of his chosen life's work, and the history of the ideas found within it.

Austrian School of Political Economy

From the The Vienna Circle comes a series of brief interviews with Chris Coyne, Associate Professor of Economics at George Mason University on Austrian Economics. The discussion is about that analytic framework developed by economists associated with the Austrian school of economics and its relevance for past and present research in political economy.

Austrian School of Political Economy I: Value, Prices, & Economic Calculation


Austrian School of Political Economy II: Knowledge & Institutions


Austrian School of Political Economy III: The Continuing Relevance of Austrian Economics

Hayek's "The Use of Knowledge in Society" - a summary

For all of you out there who have not read Hayek's "The Use of Knowledge in Society", and you all should have, Steve Horwitz comes to your rescue. Horwitz gives a summary of Hayek's argument that stresses that both private property and the price system are necessary for economic coordination.

1. Knowledge IS decentralized in that each of us has our own personal knowledge of time and place (and that is often tacit).
2. Therefore, planning and control over resources SHOULD BE decentralized so that people can take advantage of those forms of knowledge.
3. HOWEVER, decentralization of control over resources (what Hayek calls "several property") is necessary BUT NOT SUFFICIENT for social coordination.
4. Effective decentralized planning also requires that people have access, in some form, to the bits of knowledge that other people have so that they can form better plans and have better feedback as to the success and failure of those plans.
5. Providing that knowledge is the primary function of the price system. Prices serve as knowledge surrogates to enable people's individual knowledge and "fields of vision" to sufficiently overlap so that our plans get COORDINATED.
6. In other words: decentralized control over resources is NECESSARY BUT NOT SUFFICIENT for a functioning economy. Such decentralization requires some process that actually ensures that separately made decisions are, to a signifcant degree, based on as much knowledge as possible so that economic coordination can be achieved. That is what the price system enables us to do. [EDIT: and the prices in question are not, and need not be, equilibrium prices.]

Decentralized decision making without a price system will produce very little coordination and prosperity. Centralized decision making will render a price system useless for economic coordination.

The fact of decentralized knowledge requires that an economy capable of producing increased prosperity for all has both decentralized decision-making (private/several property) and a price system to coordinate those decisions.

Cool book and website

There is a cool new book and website available on the work of F. A. Hayek designed for the general reader.

The book is the The Essential Hayek by Donald J. Boudreaux.

The chapters in the book are:

1. How we make sense of an incredibly complex world
2. Knowledge and prices
3. Individual flourishing and spontaneous order
4. The rule of law, freedom, and prosperity
5. Legislation is distinct from law
6. False economic security and the road to serfdom
7. Economic booms and busts
8. The curse of inflation
9. The challenge of living successfully in modern society
10. Ideas have consequences

The website is The Essential Hayek where you can download a free pdf of the whole book, read the chapters of the book and watch short videos which explain the ideas in the book.

Keynes on "The Road to Serfdom"

It is well known that John Maynard Keynes said of Hayek's "The Road to Serfdom":

In my opinion it is a grand book [...] Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement.

What was not known, to me at least, is what Keynes said later in the letter from which the above quote comes. At the end of his letter to Hayek, Keynes wrote,

I come finally to what is really my only serious criticism of the book. You admit here and there that it is a question of knowing where to draw the line. You agree that the line has to be drawn somewhere [between free-enterprise and planning], and that the logical extreme is not possible. But you give us no guidance whatever as to where to draw it. In a sense this is shirking the practical issue. It is true that you and I would probably draw it in different places. I should guess that according to my ideas you greatly underestimate the practicability of the middle course. But as soon as you admit that the extreme is not possible, and that a line has to be drawn, you are, on your own argument, done for since you are trying to persuade us that as soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice.

I should therefore conclude your theme rather differently. I should say that what we want is not no planning, or even less planning, indeed 1 should say that we almost certainly want more. But the planning should take place in a community in which as many people as possible, both leaders and followers, wholly share your moral position. Moderate planning will be safe if those carrying it out are rightly orientated in their own minds and hearts to the moral issue. This is in fact already true of some of them. But the curse is that there is also an important section who could almost be said to want planning not in order to enjoy its fruits but because morally they hold ideas exactly the opposite of yours, and wish to serve not God but the devil. [...] What we need is the restoration of right moral thinking - a return to proper moral values in our social philosophy. If only you could turn your crusade in that direction you would not feel quite so much like Don Quixote.

It seems Keynes believed in philosopher-kings, disinterested, public-spirited people working wholly for the public good. I wish him luck with that. But his point about the "slippery path" is one often made with regard to Hayek's argument.

A country is not a corporation (updated)

In a way this statement is obvious and yet as Brennan McDonald points out many people still seem to think that a country is in fact like a corporation. McDonald asks MFAT Please Kill The Phrase NZ Inc. He writes

The phrase NZ Inc is so nauseating. Please stop using it. New Zealand is a collection of individuals, firms, government agencies, councils, charities, families, iwi and a whole lot of other fluid groups that change their composition and goals frequently.

A country is not a corporate. New Zealand is not some sort of business enterprise that can be called “NZ Inc”.

And he is right, a country is not a corporation. Hayek made the distinction between the "economies" of the small-scale entities such as firms, farms or family units and the "economy" of a nation state, that is the "economy" of a corporation and the "economy" of country. In the case of a firm's (or household's) economy, Hayek argued, the ends around which decisions are made are generally known in advance and decisions about resource allocation are therefore relatively uncomplicated. In this sense then the economy of a household or firm or farm, is the economy of an organisation, or "taxis". But, Hayek goes on to say, the same does not hold for the economy of a large-scale complex society. Society is not an organisation. Owing to its size and the indirect nature of the social relationships within it, Hayek contends that the Knowledge Problem that the economy of such a society consequently faces means that it is not immediately apparent to what use resources should be put. For this reason, Hayek employs the term "catallaxy" to describe the economic aspect of the complex spontaneous order, or cosmos, of a large-scale society.

Another way to see why countries are not corporations is to turn to Paul Krugman's essay entitled, funnily enough, A Country Is Not a Company. A distinction made in the essay is about competition between firms and countries. Firms complete while countries do not, an important distinction. Consider, for example, Coke and Pepsi, they do compete. One of them gains at the others expense, management in each company spends a lot of time and energy trying to out do the other. But what about New Zealand and Australia, do they compete? Of course they don't, Australia's loss is not New Zealand's gain and vice versa. International trade is not a zero-sum game. To see this, note that while Coke may wish to put Pepsi out of business, so that Coke can increase their sales and prices and therefore profits, New Zealand would not gain if we put Australia "out of business".

Why? Well in the Coke/Pepsi case, Coke gains a lot, in terms of sales and profits, from not having Pepsi to complete with and lose little since Pepsi doesn't buy much , if anything, from Coke. Or Coke from Pepsi. This is not true of the New Zealand/Australia example. We may gain some sales if Australia stopped producing, but we would lose much more. Australia is our biggest export market and if they "went out of business", they would stop importing, and that would hurt us a lot. Also they are suppliers of much of our useful imports and that would stop too, which would hurt us even more.

Countries do a lot of trading, but they don't compete. Corporations do little trading but a lot of competing.

Update: Matt Nolan notes that NZ Inc: Good marketing, bad for society