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<font face="Verdana" size="1" color="#002864">http://www.mises.org/fullstory.asp?control=1390</font>
</div>
<div>
</div>
<div>
<font size="2"><font face="Verdana" color="#002864" size="5"><strong>Energy Bills and Central Planning</strong></font>
</div>
<p class="MsoBodyText"><font face="Verdana" size="4">by William L. Anderson</font>
<p class="MsoBodyText"><font face="Verdana">[December 16, 2003]</font>
<p class="MsoBodyText"><font face="Verdana"><img alt src="http://www.mises.org/images3/energy.gif" align="right" border="0" width="241" height="167">In
the aftermath of the U.S. Senate's failure to pass an"energy bill"
for the coming year, the usual punditry has befallen us. From the demands that
the bill goes in the"wrong direction" because it does not emphasize
"alternative" energy sources, as well as increase the subsidies for
mass transit to the Washington
Post's demands that Congress impose a tax in order to pay the"true
costs" of fossil fuels, the"experts" insist that the
government must direct the production and use of energy.</font>
<p class="MsoBodyText"><font face="Verdana">While the United States does not
have a central planning agency like the former U.S.S.R.'s Gosplan, in effect,
we still have central planning all the same, at least when it comes to the
energy industry—not to mention most other areas of business as well. Whether
or not it comes in the form of a central agency, like in the U.S.S.R., or a
combination of the three branches of the U.S. Government, centralized economic
planning always creates chaos, inefficiency, and, ultimately, economic
hardship. One would like to think that the policymakers of this country
learned something from the energy debacles of the 1970s, but from the latest
monstrosity of an energy bill, it is obvious that Washington's political
classes have learned nothing except how to manipulate the economy in order to
wield power over others. (And that is something they have learned very
well.)</font>
<p class="MsoBodyText"><font face="Verdana">The Post labeled the recent
"energy" bill"as a piece of legislation stuffed with more
goodies than a Thanksgiving turkey." The assessment, while true, does not
address the real issue of why there should be any"energy"
legislation at all. (The Post editorialists justify energy legislation
because of U.S."dependence" upon"foreign oil," a </font><font face="Verdana">subject
with which I dealt</font><font face="Verdana"> in an earlier article on
this page. Furthermore, they call for a series of laws to deal with energy
issues, not just one"comprehensive" bill.) Nevertheless, one needs
to deal with the particulars of legislation, not to hope for an"improved"
version in the future, but rather to point out why such legislation always is
going to be an exercise in absurdity.</font>
<p class="MsoBodyText"><font face="Verdana">In its earlier and heady days,
socialism was supposed to substitute"rational policies" for the
supposed chaos of the market. Instead of having individuals competing with
each other to produce and sell goods in the market, socialism instead would
create a process by which planners could rationally determine the needs of
individuals in society, then direct production and distribution toward those
ends. Moreover, because planning was to be placed in the hands of economic
"experts," there would be no need to deal with the interference from
politicians and the special interests that they represent.</font>
<p class="MsoBodyText"><font face="Verdana">On the other hand, the modern
legislative process when applied to energy matters means that members of
Congress (or any legislative body, for that matter) are going to favor their
most important constituents, which supposedly is the polar opposite of
"rational" socialist planning. To think otherwise would be naĂŻve.
This means that one should not be shocked, for example, when a member of
Congress from Iowa or Kansas demands subsidies for corn-based ethanol, or when
a Congressman from Texas wants new tax breaks for oil companies. (Former Sen.
Bob Dole of Kansas often referred to himself proudly as"Senator
Ethanol.")</font>
<p class="MsoBodyText"><font face="Verdana">Such obvious pandering to"special
interests" is easy to condemn, yet such attempts to benefit the business
constituents of certain members of Congress is no less outrageous than what
the"public interest" groups are demanding. For the most part, what
we hear from such groups as Public Citizen (Ralph Nader) and the various
environmental organizations is that the government must force automakers to
build fleets of vehicles that meet higher mileage standards.</font>
<p class="MsoBodyText"><font face="Verdana">Despite the rhetoric that the
pundits repeat ad nauseum, economically speaking there is no
difference between Nader's demands for increasing mileage standards versus
Sen. Tom Harkin's call for subsidies for corn growers in his state of Iowa.
While Nader's words are treated as high-minded and far-sighted on the
editorial pages of the Washington Post and the New York Times
(and Harkin's demands are regarded as political pandering), in truth both are
nothing more than a call for central economic planning, and both ultimately
create more problems than they supposedly"solve."</font>
<p class="MsoBodyText"><font face="Verdana">As noted earlier, socialist
central planning supposedly involves rational individuals who do not have
vested interests in their decisions determining what is best for an economy.
Special interest based legislation, on the other hand, panders to moneyed
interests or those groups that can"get out the vote." Moreover, it
is easy to see that the latter is going to create many problems, something
that numerous writers have handled in these pages over the past few years.</font>
<p class="MsoBodyText"><font face="Verdana">Yet, both socialist planning and
"special interest" legislation are simply two sides of the same coin,
as they are attempts to turn the economy in a different direction than what
would be the case if individuals were freely permitted to make economic
choices unencumbered by governmental authorities. Let us look first at the
effects of ethanol legislation.</font>
<p class="MsoBodyText"><font face="Verdana">The government has required that
in some localities, ethanol, a corn-based alcohol, must be mixed with gasoline.
The official rationale behind this policy is that alcohol burns more cleanly
than pure gasoline, which supposedly means less air pollution. The follow-up
rationale is that the use of homegrown ethanol requires the purchase of less
oil from overseas—and supports the economy at home. Both are dubious at
best.</font>
<p class="MsoBodyText"><font face="Verdana">As </font><font face="Verdana">Ronald
Bailey</font><font face="Verdana"> recently wrote, the alleged
environmental benefits from ethanol are about nil, and when one factors in a
number of other factors, it is clear that the subsidy for this product is not
about saving the earth (or even saving Americans from the supposedly-rapacious
OPEC cartel). When it comes to easing pressure to purchase oil from abroad,
Bailey notes that the energy used to distill a gallon of ethanol is greater
than the energy ethanol creates. That mean Americans must run an energy deficit
in order to make ethanol, and that fuel must come from somewhere, including
OPEC nations. (Again, let me emphasize that I am not agreeing with the
argument that there needs to be less oil imported in this country. I am just
saying that ethanol clearly does not help us to achieve that particular policy
directive.)</font>
<p class="MsoBodyText"><font face="Verdana">No doubt, the farmers who are paid
higher-than-market prices for their corn believe that the ethanol program is
worthwhile. Furthermore, executives at Archer-Daniels-Midland, which is a
major producer of ethanol (and a major advertiser on the Sunday morning news
shows), are always willing to justify this program to critics.</font>
<p class="MsoBodyText"><font face="Verdana">Yet, the real economic issue here
is not what the ethanol policy does or does not achieve, but rather what would
be the state of affairs in the ethanol program's absence. If midwestern
farmers did not have subsidized producers of ethanol purchasing their corn (which
is also subsidized), they would have to find other markets. As Bailey notes in
his article, one of the outcomes of the ethanol program is that cattle
ranchers must pay more for corn, which ultimately has an effect upon beef
prices that consumers pay.</font>
<p class="MsoBodyText"><font face="Verdana">Keep in mind that no one is
prohibited from producing free market ethanol. However, without the
directives of the Environmental Protection Agency forcing fuel producers to
mix ethanol with gasoline to achieve alleged clean air effects, no oil company
would want to deal with the stuff. (Because ethanol easily separates from
gasoline, the mixture cannot be transported by pipeline, which means that it
must be blended with gasoline as close to the final use as possible. Thus, the
blending process is expensive and troublesome.)</font>
<p class="MsoBodyText"><font face="Verdana">When clean air laws demanded major
changes in gasoline reformulation in the spring of 2000, there was chaos in
many cities, as disruption in the distribution of gasoline caused prices to
spike above $2 a gallon. While consumers and politicians (naturally) blamed
oil companies, the real story was much more insidious. Taxpayers (and
consumers) paid taxes (and higher prices) to subsidize the corn which, in
turn, was made into ethanol (also subsidized). The process of adding
tax-funded ethanol in huge quantities disrupted the smooth flow of fuel, which
meant price spikes—and most likely did not clear the air one whit. In other
words, Congress forced American taxpayers and consumers to pay large sums of
money for a product that in a free market they would not purchase.</font>
<p class="MsoBodyText"><font face="Verdana">Whenever the government has tried
to control the oil markets, whether in the 1970s or in recent years, the
result has always been chaos. From the gas lines almost 30 years ago to the
wild price spikes in the spring of 2000 and 2001, the government has turned
the orderly setting of the free market to the free-for-all that characterized
the gasoline markets during those crisis periods.</font>
<p class="MsoBodyText"><font face="Verdana">The early supporters of outright
central planning believed that economic planners would replace what they saw
as the disorderly free market with a"rational" plan that would
coordinate producers, sellers and consumers. And as anyone familiar with the
results of central planning knows, what emerged was not the picture of order,
but rather the poster child of disorder. From individuals standing in long
lines just to purchase basic items to the horrendous quality of goods, the
economies of the communist countries were the best empirical refutation of
socialism.</font>
<p class="MsoBodyText"><font face="Verdana">While price and allocation
controls in the United States turned oil markets here into Soviet-style
disorder that imposed huge costs upon motorists, one should remember that the
other government policies on energy also are very costly and ultimately lower
our standard of living. The ethanol subsidy and the gasoline mileage standards
by themselves do not force people to wait in long lines, but they do limit
consumer choices. They force producers of goods—in this case, automobile
manufacturers—to make cars that people really do not want to purchase, and
they make individuals purchase lower-performance fuel that they would reject
otherwise.</font>
<p class="MsoBodyText"><font face="Verdana">(Keep in mind that if car buyers
in this country wanted the highest-mileage vehicles, there would be no demand
for sport utility vehicles and other low-gas-mileage automobiles. Thus, the
demands by some for Congress to order an increase in automobile gas mileage
standards is nothing more than an attempt to circumvent the desires of
consumers. The irony here is that Ralph Nader, one of the loudest voices for
high-mileage standards, is called a"consumer advocate" by the U.S.
media.)</font>
<p class="MsoBodyText"><font face="Verdana">No, there are no economic agencies
in this country like Gosplan, but the U.S. Government, as well as many state
and local governments, engage in central economic planning all the same. While
this article deals only with some energy issues, there are many other examples
of planners at work, from those who write and enforce government rules on
medical care to the advocates of"smart growth." In the end, it is
still central economic planning and, not surprisingly, it does not work any
better here than it did in the U.S.S.R.</font>
<p class="MsoBodyText"><span class="804535013-16122003"><font face="Verdana">_____________________________</font></span>
<p class="MsoBodyText"><font face="Verdana">William Anderson, an adjunct
scholar of the Mises Institute, teaches economics at Frostburg State
University. Send him </font><font face="Verdana" color="#000080">MAIL</font><font face="Verdana">.
See his Mises.org </font><font face="Verdana" color="#000080">Articles
Archive</font><font face="Verdana">.
</font></font>
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diesen Artikel könnte man auch als Fallstudie heranziehen.
Die überwiegende Mehrzahl hier im Forum (unterstelle ich mal) hat noch nicht begriffen, dass es bei dottores Machttheorie grundsätzlich um diesen Sachverhalt geht.
GrĂĽsse
Ricardo
><div>
> <font face="Verdana" size="1" color="#002864">http://www.mises.org/fullstory.asp?control=1390</font>
></div>
><div>
>
></div>
><div>
> <font size="2"><font face="Verdana" color="#002864" size="5"><strong>Energy Bills and Central Planning</strong></font>
> </div>
>
>
> <p class="MsoBodyText"><font face="Verdana" size="4">by William L. Anderson</font>
> <p class="MsoBodyText"><font face="Verdana">[December 16, 2003]</font>
> <p class="MsoBodyText"><font face="Verdana"><img alt src="http://www.mises.org/images3/energy.gif" align="right" border="0" width="241" height="167">In
> the aftermath of the U.S. Senate's failure to pass an"energy bill"
> for the coming year, the usual punditry has befallen us. From the demands that
> the bill goes in the"wrong direction" because it does not emphasize
>"alternative" energy sources, as well as increase the subsidies for
> mass transit to the Washington
> Post's demands that Congress impose a tax in order to pay the"true
> costs" of fossil fuels, the"experts" insist that the
> government must direct the production and use of energy.</font>
> <p class="MsoBodyText"><font face="Verdana">While the United States does not
> have a central planning agency like the former U.S.S.R.'s Gosplan, in effect,
> we still have central planning all the same, at least when it comes to the
> energy industry?not to mention most other areas of business as well. Whether
> or not it comes in the form of a central agency, like in the U.S.S.R., or a
> combination of the three branches of the U.S. Government, centralized economic
> planning always creates chaos, inefficiency, and, ultimately, economic
> hardship. One would like to think that the policymakers of this country
> learned something from the energy debacles of the 1970s, but from the latest
> monstrosity of an energy bill, it is obvious that Washington's political
> classes have learned nothing except how to manipulate the economy in order to
> wield power over others. (And that is something they have learned very
> well.)</font>
> <p class="MsoBodyText"><font face="Verdana">The Post labeled the recent
>"energy" bill"as a piece of legislation stuffed with more
> goodies than a Thanksgiving turkey." The assessment, while true, does not
> address the real issue of why there should be any"energy"
> legislation at all. (The Post editorialists justify energy legislation
> because of U.S."dependence" upon"foreign oil," a </font><font face="Verdana">subject
> with which I dealt</font><font face="Verdana"> in an earlier article on
> this page. Furthermore, they call for a series of laws to deal with energy
> issues, not just one"comprehensive" bill.) Nevertheless, one needs
> to deal with the particulars of legislation, not to hope for an"improved"
> version in the future, but rather to point out why such legislation always is
> going to be an exercise in absurdity.</font>
> <p class="MsoBodyText"><font face="Verdana">In its earlier and heady days,
> socialism was supposed to substitute"rational policies" for the
> supposed chaos of the market. Instead of having individuals competing with
> each other to produce and sell goods in the market, socialism instead would
> create a process by which planners could rationally determine the needs of
> individuals in society, then direct production and distribution toward those
> ends. Moreover, because planning was to be placed in the hands of economic
>"experts," there would be no need to deal with the interference from
> politicians and the special interests that they represent.</font>
> <p class="MsoBodyText"><font face="Verdana">On the other hand, the modern
> legislative process when applied to energy matters means that members of
> Congress (or any legislative body, for that matter) are going to favor their
> most important constituents, which supposedly is the polar opposite of
>"rational" socialist planning. To think otherwise would be naĂŻve.
> This means that one should not be shocked, for example, when a member of
> Congress from Iowa or Kansas demands subsidies for corn-based ethanol, or when
> a Congressman from Texas wants new tax breaks for oil companies. (Former Sen.
> Bob Dole of Kansas often referred to himself proudly as"Senator
> Ethanol.")</font>
> <p class="MsoBodyText"><font face="Verdana">Such obvious pandering to"special
> interests" is easy to condemn, yet such attempts to benefit the business
> constituents of certain members of Congress is no less outrageous than what
> the"public interest" groups are demanding. For the most part, what
> we hear from such groups as Public Citizen (Ralph Nader) and the various
> environmental organizations is that the government must force automakers to
> build fleets of vehicles that meet higher mileage standards.</font>
> <p class="MsoBodyText"><font face="Verdana">Despite the rhetoric that the
> pundits repeat ad nauseum, economically speaking there is no
> difference between Nader's demands for increasing mileage standards versus
> Sen. Tom Harkin's call for subsidies for corn growers in his state of Iowa.
> While Nader's words are treated as high-minded and far-sighted on the
> editorial pages of the Washington Post and the New York Times
> (and Harkin's demands are regarded as political pandering), in truth both are
> nothing more than a call for central economic planning, and both ultimately
> create more problems than they supposedly"solve."</font>
> <p class="MsoBodyText"><font face="Verdana">As noted earlier, socialist
> central planning supposedly involves rational individuals who do not have
> vested interests in their decisions determining what is best for an economy.
> Special interest based legislation, on the other hand, panders to moneyed
> interests or those groups that can"get out the vote." Moreover, it
> is easy to see that the latter is going to create many problems, something
> that numerous writers have handled in these pages over the past few years.</font>
> <p class="MsoBodyText"><font face="Verdana">Yet, both socialist planning and
>"special interest" legislation are simply two sides of the same coin,
> as they are attempts to turn the economy in a different direction than what
> would be the case if individuals were freely permitted to make economic
> choices unencumbered by governmental authorities. Let us look first at the
> effects of ethanol legislation.</font>
> <p class="MsoBodyText"><font face="Verdana">The government has required that
> in some localities, ethanol, a corn-based alcohol, must be mixed with gasoline.
> The official rationale behind this policy is that alcohol burns more cleanly
> than pure gasoline, which supposedly means less air pollution. The follow-up
> rationale is that the use of homegrown ethanol requires the purchase of less
> oil from overseas?and supports the economy at home. Both are dubious at
> best.</font>
> <p class="MsoBodyText"><font face="Verdana">As </font><font face="Verdana">Ronald
> Bailey</font><font face="Verdana"> recently wrote, the alleged
> environmental benefits from ethanol are about nil, and when one factors in a
> number of other factors, it is clear that the subsidy for this product is not
> about saving the earth (or even saving Americans from the supposedly-rapacious
> OPEC cartel). When it comes to easing pressure to purchase oil from abroad,
> Bailey notes that the energy used to distill a gallon of ethanol is greater
> than the energy ethanol creates. That mean Americans must run an energy deficit
> in order to make ethanol, and that fuel must come from somewhere, including
> OPEC nations. (Again, let me emphasize that I am not agreeing with the
> argument that there needs to be less oil imported in this country. I am just
> saying that ethanol clearly does not help us to achieve that particular policy
> directive.)</font>
> <p class="MsoBodyText"><font face="Verdana">No doubt, the farmers who are paid
> higher-than-market prices for their corn believe that the ethanol program is
> worthwhile. Furthermore, executives at Archer-Daniels-Midland, which is a
> major producer of ethanol (and a major advertiser on the Sunday morning news
> shows), are always willing to justify this program to critics.</font>
> <p class="MsoBodyText"><font face="Verdana">Yet, the real economic issue here
> is not what the ethanol policy does or does not achieve, but rather what would
> be the state of affairs in the ethanol program's absence. If midwestern
> farmers did not have subsidized producers of ethanol purchasing their corn (which
> is also subsidized), they would have to find other markets. As Bailey notes in
> his article, one of the outcomes of the ethanol program is that cattle
> ranchers must pay more for corn, which ultimately has an effect upon beef
> prices that consumers pay.</font>
> <p class="MsoBodyText"><font face="Verdana">Keep in mind that no one is
> prohibited from producing free market ethanol. However, without the
> directives of the Environmental Protection Agency forcing fuel producers to
> mix ethanol with gasoline to achieve alleged clean air effects, no oil company
> would want to deal with the stuff. (Because ethanol easily separates from
> gasoline, the mixture cannot be transported by pipeline, which means that it
> must be blended with gasoline as close to the final use as possible. Thus, the
> blending process is expensive and troublesome.)</font>
> <p class="MsoBodyText"><font face="Verdana">When clean air laws demanded major
> changes in gasoline reformulation in the spring of 2000, there was chaos in
> many cities, as disruption in the distribution of gasoline caused prices to
> spike above $2 a gallon. While consumers and politicians (naturally) blamed
> oil companies, the real story was much more insidious. Taxpayers (and
> consumers) paid taxes (and higher prices) to subsidize the corn which, in
> turn, was made into ethanol (also subsidized). The process of adding
> tax-funded ethanol in huge quantities disrupted the smooth flow of fuel, which
> meant price spikes?and most likely did not clear the air one whit. In other
> words, Congress forced American taxpayers and consumers to pay large sums of
> money for a product that in a free market they would not purchase.</font>
> <p class="MsoBodyText"><font face="Verdana">Whenever the government has tried
> to control the oil markets, whether in the 1970s or in recent years, the
> result has always been chaos. From the gas lines almost 30 years ago to the
> wild price spikes in the spring of 2000 and 2001, the government has turned
> the orderly setting of the free market to the free-for-all that characterized
> the gasoline markets during those crisis periods.</font>
> <p class="MsoBodyText"><font face="Verdana">The early supporters of outright
> central planning believed that economic planners would replace what they saw
> as the disorderly free market with a"rational" plan that would
> coordinate producers, sellers and consumers. And as anyone familiar with the
> results of central planning knows, what emerged was not the picture of order,
> but rather the poster child of disorder. From individuals standing in long
> lines just to purchase basic items to the horrendous quality of goods, the
> economies of the communist countries were the best empirical refutation of
> socialism.</font>
> <p class="MsoBodyText"><font face="Verdana">While price and allocation
> controls in the United States turned oil markets here into Soviet-style
> disorder that imposed huge costs upon motorists, one should remember that the
> other government policies on energy also are very costly and ultimately lower
> our standard of living. The ethanol subsidy and the gasoline mileage standards
> by themselves do not force people to wait in long lines, but they do limit
> consumer choices. They force producers of goods?in this case, automobile
> manufacturers?to make cars that people really do not want to purchase, and
> they make individuals purchase lower-performance fuel that they would reject
> otherwise.</font>
> <p class="MsoBodyText"><font face="Verdana">(Keep in mind that if car buyers
> in this country wanted the highest-mileage vehicles, there would be no demand
> for sport utility vehicles and other low-gas-mileage automobiles. Thus, the
> demands by some for Congress to order an increase in automobile gas mileage
> standards is nothing more than an attempt to circumvent the desires of
> consumers. The irony here is that Ralph Nader, one of the loudest voices for
> high-mileage standards, is called a"consumer advocate" by the U.S.
> media.)</font>
> <p class="MsoBodyText"><font face="Verdana">No, there are no economic agencies
> in this country like Gosplan, but the U.S. Government, as well as many state
> and local governments, engage in central economic planning all the same. While
> this article deals only with some energy issues, there are many other examples
> of planners at work, from those who write and enforce government rules on
> medical care to the advocates of"smart growth." In the end, it is
> still central economic planning and, not surprisingly, it does not work any
> better here than it did in the U.S.S.R.</font>
> <p class="MsoBodyText"><span class="804535013-16122003"><font face="Verdana">_____________________________</font></span>
> <p class="MsoBodyText"><font face="Verdana">William Anderson, an adjunct
> scholar of the Mises Institute, teaches economics at Frostburg State
> University. Send him </font><font face="Verdana" color="#000080">MAIL</font><font face="Verdana">.
> See his Mises.org </font><font face="Verdana" color="#000080">Articles
> Archive</font><font face="Verdana">.
> </font></font>
|
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und hier nochmal die von vielen unterschätzte Bedeutung (in Bezug auf die Machttheorie) der Preise; unten dann der Link zu Hayeks Original:
<div>
<font face="Verdana" size="2" color="#002864">Information, Prices, and Socialism`s Flaws</font>
>></div>
Information, Prices, and Socialism's Flaws
Morgan Rose*
May 13, 2002
Prices are arguably the most fundamental variables in economics. They enter into virtually every economic analysis, and predictions about their values are made in all manner of economic research, from highly esoteric theoretic models to street-level forecasting of business trends. Each day, we all make scores of decisions in which one of the very first questions we ask is,"How much does that cost?"
Prices have this central place in economics because prices contain information, and as we saw in the last Teacher's Corner, information is a crucial input in the decision-making process. In this column, we will raise two points about how prices convey information. Because they reflect choices made by suppliers and demanders, market prices tell us a lot?although not everything?about the preferences of those suppliers and demanders. Then, we will examine the role that the connections among information, prices, and decision-making played in the debate over socialism versus capitalism, or centralized versus decentralized economic planning.
Prices Convey Relative Information
Notice that I have been referring to prices, not a price. This is deliberate. Even though prices do convey a great deal of information, a single price by itself is virtually useless. A price is only informative if there are other prices against which you can compare it, because prices are a source of relative, not absolute, information about different goods and services.
Suppose that I tell you that in the fictional country of Allred, the price of a pound of sugar is fifteen Allredian dollars. Does that tell you anything? Can you draw any conclusions about whether you think sugar is cheap or expensive? No, not unless I give you information about the prices of other goods and services, including wages. For instance, if I also told you that the average Allredian worker makes one hundred Allredian dollars a year, then a price of fifteen Allredian dollars for a pound of sugar conveys that sugar is pretty expensive in Allred and probably very few people by sugar often. If, on the other hand, the average salary is ten million Allredian dollars, then sugar seems fairly cheap and accessible.
With just that one additional price?the price of one year's worth of an average Allredian's labor?the information conveyed by the price of sugar increases. Now you can grasp the purchasing power of an Allredian relative to the purchasing power he must give up to get a pound of sugar. If you were to learn more prices, you could make more comparisons and understand more about the economic environment in which Allredians make their decisions.
Prices Convey Relevant Information
Prices not only convey information about goods and services, they also condense that information so that it is more useful to decision-makers. Imagine that there is a baker in Allred named Tom, who likes cake and pie recipes that use a lot of sugar.1 The price of sugar is therefore important to Tom. Now let's suppose that for some reason, a reason unknown to Tom, either the supply of sugar in Allred drops, or new sources of demand for sugar arise. Maybe a hurricane wipes out most of Allred's sugar crop, or as part of a sudden fad, Allredian children all open lemonade stands and use sugar to make their lemonade?the reason does not matter. (As we will see, the fact that it does not matter is really quite important.)
Basic supply and demand analysis tells us that in any of these situations, the price of sugar will rise. When it rises, Tom the baker is informed that sugar has become more scarce than it used to be. Tom will then adjust his behavior, maybe by baking fewer pies and cakes or using recipes requiring less sugar. The change in price does not inform him as to why sugar is more scarce, but Tom doesn't have to know why in order to make the necessary adjustments. He doesn't want to spend time learning about weather patterns or what Allredian children are doing, because those details are not relevant to his decisions about what to bake and how. All that is important to him in this scenario is whether sugar has become more or less scarce, and the price of sugar tells him that without any extraneous clutter through which Tom must sift.
The Austrian economist F. A. Hayek, whose views on information in regard to centralized planning will be discussed below, emphasized the importance of how prices convey only the most relevant information to interested parties. He described this aspect of the price system in a 1945 article,"The Use of Knowledge in Society":
"The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated from, by a kind of symbol, only the most essential information is passed on, and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement."2
These characteristics of prices, that they convey information necessary to make relative comparisons among goods and services, and that they do so while conveying only the information relevant to making those comparisons, have led many economists to prefer decentralized market transactions over centralized planning. There are two closely related arguments behind this stance. The first states that information conveyed by market prices is necessary to determine how best to use scarce resources in production. The second states that a centralized planner can never acquire all of the information that is in the hands of decentralized economic actors, and that prices allow that information to be harnessed by individual decision-makers.
Prices and Economic Calculation
In Part II, Chapter 6 of Socialism (1981, first pub. 1922), Austrian economist Ludwig von Mises concentrated his critique of centralized planning on how a system so organized can determine how best to produce what it wants. In a society in which economic decision-making is decentralized, producers can examine the prices of all of the inputs relevant to their production processes, then choose the input mix that produces the output at the lowest cost. In this way, market prices allow producers to respond to consumer preferences and put resources to their best use. As Mises described in paragraph 37, once the decision of what to produce has been made,
there still remains the problem of ascertaining how the existing means of production can be used most effectively to produce these goods in question. In order to solve this problem it is necessary that there should be economic calculation. And economic calculation can only take place by means of money prices established in the market for production goods in a society resting on private property in the means of production.
Private ownership, according to Mises, is essential for market forces to determine the prices for production inputs that will lead to those inputs' most productive use. Individuals pursuing their own self-interest generate something that is in the interest of the entire society, a system of prices that accurately reflects the relative usefulness of the society's resources in satisfying the society's desires. From paragraph 27,
Without the striving of the entrepreneurs (including the shareholders) for profit, of the landlords for rent, of the capitalists for interest and the labourers for wages, the successful functioning of the whole mechanism is not to be thought of. It is only the prospect of profit which directs production into those channels in which the demands of the consumer are best satisfied at least cost. If the prospect of profit disappears the mechanism of the market loses its mainspring, for it is only this prospect which sets it in motion and maintains it in operation. The market is thus the focal point of the capitalist order of society; it is the essence of Capitalism. Only under Capitalism, therefore, is it possible; it cannot be"artificially" imitated under Socialism.
Therefore, according to Mises, where the means of production are out of the hands of individuals and production decisions are made not with an eye on profits but by central planners with authority to use publicly owned resources as they see fit, there will be no market prices to serve as an"invisible hand," guiding production to the best interests of society. Regardless of the central planners' best intentions, they will be unable to do as well as private producers that have access to market prices because the planners will lack the information that market prices convey. Mises summed up this argument in paragraph 211 of the Epilogue of Socialism.
The fundamental objection advanced against the practicability of socialism refers to the impossibility of economic calculation. It has been demonstrated in an irrefutable way that a socialist commonwealth would not be in a position to apply economic calculation. Where there are no market prices for the factors of production because they are neither bought nor sold, it is impossible to resort to calculation in planning future action and in determining the result of past action. A socialist management of production would simply not know whether or not what it plans and executes is the most appropriate means to attain the ends sought. It will operate in the dark, as it were. It will squander the scarce factors of production both material and human (labour). Chaos and poverty for all will unavoidably result.
To describe the fact that individuals acting in pursuit of their own self-interest in market transactions inadvertently act in the interest of society, in Book IV, Chapter 2, paragraph 9 of the An Inquiry into the Nature and Causes of the Wealth of Nations (1904, first pub. 1776) Adam Smith famously wrote that such individuals act as though"led by an invisible hand to promote an end which was no part of his intention."
Information of Time and Place
Hayek, a student of Mises at the University of Vienna in the early 1920s, took up a related point about limitations on the amount of information that central planners can acquire. Hayek's emphasis, however, was less on the manner in which information is conveyed, and more on the amount and types of information it is possible to convey.
For more on these authors, see the biographies of Mises and Hayek in the Concise Encyclopedia of Economics.
Hayek began his 1945 paper,"The Use of Knowledge in Society," by characterizing the problem of constructing a rational economic order of the sort advocated by socialists as largely one of information aggregation:
On certain familiar assumptions the answer is simple enough. If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic.... The peculiar character of the problem of a rational economic order is determined by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.3
The crucial puzzle to be solved in establishing an economic system, then, is how to make the best use of information that is initially spread out among diverse individuals. Should a society try to convey all of that information to a centralized planning body, which could then assimilate it all such that the planners could make the optimal decisions for the entire society, or should individuals make the best decisions they can for their own self-interest using their own personal bits of information?
Hayek argued that the type of society that is able to more fully use all of the existing knowledge is the one that would lead to better outcomes. Further, he argued that there is one important classification of information that cannot be used by a central planner, information that Hayek termed"the knowledge of the particular circumstances of time and place." This is the sort of information that can only be acquired with experience and intimate contact with a specialized industry or locale. According to Hayek, this is
knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form. The statistics which such a central authority would have to use would have to be arrived at precisely by abstracting from minor differences between the things, by lumping together, as resources of one kind, items which differ as regards to location, quality, and other particulars, in a way which may be very significant for the specific decision.4
The importance of decentralized information, and the difficulty of conveying certain kinds of it to others, had been commented upon by others before Hayek did so in 1945. Nearly a century before Hayek, English economist John Stuart Mill noted in Principles of Political Economy (1909, first pub. 1848) that no government can attain all of the information known by its constituents.
It must be remembered, besides, that even if a government were superior in intelligence to any single individual in the nation, it must be inferior to all the individuals of the nation taken together. It can neither possess in itself, nor enlist in its service, more than a portion of the acquirements and capacities which the country contains, applicable to any given purpose.
Other economists provided examples of knowledge of time and place as described by Hayek. One of the more important forms of particularized knowledge does not concern the physical characteristics of inputs or local vagaries of supply and demand, but instead relates to the abilities, temperaments, and financial situations of the other people with whom an individual may consider transacting. Frank H. Knight, in Part III, Chapter 9, paragraph 37 of Risk, Uncertainty, and Profit (1921) wrote that
men form judgments of other men on the basis of watching their performances over a period of time, and in addition form impressions having some claim to validity from mere personal appearance, conversation, etc.... It is the most difficult to discuss scientifically of all the data connected with the practical bearings of knowledge and uncertainty.
In Chapter 11, paragraph 2 of Lombard Street: A Description of the Money Market (1915, first pub. 1873), Walter Bagehot described the particular knowledge about other market participants held by securities traders called bill-brokers:
The relative credit of different merchants is a great 'tradition'; it is a large mass of most valuable knowledge which has never been described in books and is probably incapable of being so described. The subject matter of it, too, is shifting and changing daily; an accurate representation of the trustworthiness of houses at the beginning of a year might easily be a most fatal representation at the end of it.... No one can be a good bill-broker who has not learnt the great mercantile tradition of what is called 'the standing of parties" and who does not watch personally and incessantly the inevitable changes which from hour to hour impair the truth of that tradition.
Given the amount of important information about time and place that is outside of the reach of central planners, Hayek asserted that"the central planner will have to find some way or other in which the decisions depending on them can be left to the 'man on the spot,'" in other words, decentralize the decision-making.
Decentralizing the decision-making authority allows information on the particulars of time and place to be more fully utilized, but what about other types of information, information that is beyond most individuals? Many individual producers may not have direct access to information on scientific advances, broad trends in demand or supply of goods and resources, or other distant but economically significant events. If there is no way for the man on the spot to make use of this sort of information, which would be available to a central planner, then there may be no advantage in decentralizing decision-making authority.
This is where the ways in which prices convey information enter the picture. Hayek wrote that"Fundamentally, in a system where the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people." Returning to the example of Tom the baker and the sudden increased scarcity of sugar in Allred, we noted that Tom did not need to know what caused the increased scarcity. In fact, very few people having anything to do with sugar need to know what happened. In Hayek's words,
If only some of them know directly of the new demand, and switch resources over to it, and if the people who are aware of the new gap thus created in turn fill it from still other sources, the effect will rapidly spread throughout the whole economic system.... The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all.
Tom does not need to go out of his way to find information about the sudden increased scarcity of sugar, and he does not need to receive information gathered and organized by any centralized functionary. Everything that he needs to know is presented to him in the market prices he observes.
A broader discussion of Hayek's writings as they relate to the organization of society can be found in"The Tradition of Spontaneous Order" by Norman Barry. See in paticular Barry's section on Hayek and knowledge.
Because of the remarkable way in which market prices facilitate communication without conscious effort, it is possible for dispersed individuals to share relevant information among each other. This is so even though it is impossible for a centralized planner to learn the particular information of time and place that dispersed individuals possess. Information is more fully utilized when decision-making is decentralized, and so Hayek concluded that better outcomes are possible where decision-making authority is decentralized rather than in the hands of central planners, a resounding blow to the intellectual support for socialism over capitalism.
Conclusion
The connections between prices and information are fundamental to understanding what a remarkable allocative tool the market is, and how vital market transactions are to using resources effectively. Not only is it impossible for a central planner to successfully aggregate to itself the information accumulated and disseminated by countless individual market transactions, but in attempting to replace the market a central planner eliminates the market prices it needs in order to make decisions effectively.
Notes:
1 The following example draws heavily from one used by F. A. Hayek on page 526 of"The Use of Knowledge in Society," The American Economic Review, Volume XXXV (September 1945).
2 Ibid., pp.526-527.
3 Ibid., pp.519.
4 Ibid., pp.524.
<ul> ~ Hayek: The Use of Knowledge in Society</ul>
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