Which of the following best summarizes a basic difference between market economies in centrally planned economy?

Dr. Machan is Professor of Philosophy at Auburn University in Alabama.

In his critique of central planning, for its inability and inefficiency in allocating society’s resources, F. A. Hayek summarizes his reasons for preferring the price system to the planned economy:

The most significant fact about this [price] 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 form, 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 movements 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.[1]

For this reason Hayek holds that central planners could never allocate resources efficiently or coordinate society’s activities for the purposes which they wish to achieve. They would lack the price system, which carries the information throughout the economy that contains the record of individual market choices.

Hayek holds that the belief in the efficacy of planning betrays an unwarranted trust in human reason. When he finds reason inadequate to the task of centrally planning an economy, he appears to have in mind a particular conception of reason—Cartesian deliberative reasoning. But this is not what is meant when we refer to the reasoning faculty of individual human beings. It is by this reasoning faculty that individuals identify their needs, wants, values, and constraints within their individual contexts. And in Hayek’s criticism of central planning, or rather in his grounds for that criticism, he seems to agree that the faculty of mason is a means by which we identify our situations and guide ourselves within them. He seems also to be aware of this conception of reason when he refers to John Locke’s characterization. “By reason . . . I do not think is meant . . . here that faculty of the understanding which forms trains of thought and deduces proofs, but certain definite principles of action from which spring all virtues and whatever is necessary for the proper molding of morals.”[2]

Despite his awareness of this idea of mason, and despite the implicit recognition of its vital necessity for the efficient operation of an economic order, Hayek tends to demean mason in general and praises a kind of spontaneity that suggests the absence of rational choice in human behavior. He is committed to the operations of human action as a kind of irreducible factor in the economic life of a society, rather than a product of reasoning. And this seems to be because Hayek equates reasoning with deliberation or design. The two, however, are not the same.

Deliberation vs. Simple Intentional Conduct

Deliberation is a kind of reasoning that compares to double checking in calculation or accounting. This is the kind of reasoning stressed by Hobbes and Descartes, a sort of monitoring activity, overseeing what one has done before.

There can be reasoned conduct that is not deliberative, Simple intentional conduct, which comprises the bulk of what we do, is not accompanied by double checking or monitoring. For example, as we enter a room at night we reach to turn on the light and once this is accomplished we move on to do numerous other things, all rather “spontaneously,” i.e., non-deliberatively, with no explicit design. Yet this kind of conduct is neither nonrational nor ara-tional. It is the kind of reasoning that we need to learn in childhood, the kind that we’d better learn very well, to the point of its being almost automatic, lest we waste too much time on the ordinary details of our lives and cannot reserve the more deliberative thinking for more complex tasks such as analyzing markets and designing rocket boosters.

Still, in the final analysis, the discovery of the principles an individual must adhere to and the goals an individual should pursue requires use of the individual’s faculty of non-deliberative reason. It is just this sort of reasoning faculty that collective bodies of human beings do not as such possess. And when it comes to satisfying our needs, wants, desires, goals, purposes, and so on, we must rely on our reasoning faculty to obtain the particular information that we can gain only from the point of view of our own individual situations.

Despite the fact that Hayek is famous for stressing the importance of this kind of knowledge and the need to rely on it for purposes of obtaining an efficient economic system, he seems not to wish to credit human reason for being able to obtain it. The reason for this seems to be his equation between deliberative and non- deliberative reasoning.[3]

But something must be added to the Hayekian thesis because by itself it is not a sufficient criticism of central planning. As E. J. Mishan observes, the Hayekian critique

would be more compelling . . . if the declared aim of [e.g.] a Communist regime were that of simulating the free market in order to produce much the same assortment of goods. We should bear in mind, however, that the economic objectives of a Communist government include that of deliberately reducing the amounts of consumer goods which would have been produced in a market economy so as to release resources for a more rapid build-up of basic industries.[4]

Some have argued that Hayek can reply that he does not simply criticize the economic inefficiency of central planning as a matter of the satisfaction of individual demands but as a matter of any kind of successful planning, in other words, efficiently coordinated planning itself requires the knowledge that only the price system, backed by the judgments of particular circumstances carded out by individuals, can supply. And by its nature this can be done only by individuals who are aware of their own circumstances, including their budget constraints, the extent of their wealth, and so forth.

But all of this still leaves it open whether we ought to worry at all about fulfilling individual wants, needs, and so forth. Why not just plan by reference to the goals of the state?

Another objection to the type of rebuttal offered by Mishan is that even a fully effective dictatorial system requires knowledge of production costs and this is best communicated via a price system. But here again lurks the assumption that what is crucial is economic efficiency. Suppose that a system values discipline and this can be fostered through regimentation of work. Such a system, which may well have been the essence of the Egypt of the pyramids, would command production and not be concerned with cost. Cost of production is only important where producers have the right and inclination to demand payment for services. In convents and monasteries no such demand exists, and in a totalitarian system none is permitted.

In the last analysis, then, we must add to what Hayek teaches us something his criticism actually presupposes. This is that an economy ought to be fashioned to function (e.g., by way of a “constitution of liberty,” one Hayek himself supports) so as to satisfy individual preferences. But this is a controversial idea in political economy and philosophy. The scientism of rico-classical economics and the value-free stance of even the Austrian School tilts force-fully against it.

Yet, if ethical individualism is true, nothing is taken from the scientific character of economics. Assume that each person has the moral responsibility to be individually successful in life. Then each must have a determinate sphere of sovereignty or authority for action. That implies a system of private property. It also implies freedom of trade, since any regimentation would violate the moral sovereignty of the individual. If so, then collective planning is not only inefficient but morally reprehensible. It implies the undermining of the moral nature of individual human beings.

But why should this conflict with science? Once the system is granted from a moral point of view, the economist can ask, what can we expect of people within such a system? What can we predict of the institutions of that system, given that people ought to and very often will act prudently and economize? Virtually all the postulates of “economic man,” barring its imperialist extrapolation to a dominant posture in non-market spheres, will remain intact.

Some of the reasons for the present position may be summarized here, based on points discussed elsewhere.[5]

1.       The capacity for rationality must be exercised by individuals. There is no such thing as a collective cerebral cortex or collective reason. The initiation of the process of thought is necessarily an individual human project. Collectivism is a mistake in part because no collective capacities exist apart from those which individuals create through pooling their individual faculties and other resources.

2.       The truths which rationality can unearth for individuals are mostly about individuals and their individual traits, needs, opportunities, goals, and fortunes. And it is in terms of such information that the moral guidelines by which individuals should conduct themselves must be identified.

Here is where the Hayekian point about central state planning is brought home very clearly. We should add that any centrally planned system, even one conceived along democratic lines, aims largely to avoid the “anarchy” of the market and thus would construe efficiency along lines very different from mainstream economics.[6]

Preserving the Sovereignty of the Individual

The present account, in which individual purposes are deemed worthy of shielding from state intrusion on moral grounds, rejects central planning on grounds that such planning substitutes for individual sovereignty the will of the leader, leading group, or some politically active majority. Thus it supports the Hayek/Mises thesis on grounds that the understanding of efficiency along neo-classical economic lines is largely sound, since it is indeed individuals whose purposes ought to be served by economic systems, even when it is admitted that some of these purposes are objectionable now and then. But since it is individuals who ought to be setting their own goals and be held responsible for their having set the goals they chose, an economic system ought to adjust to this, and not try to adjust to some end-state conceived independently of the sovereign choices of individuals.

The individual’s plans are very different in kind from any sort of collective plan in part because individuals may face different sets of challenges in life and so, of course, may have different goals. (This, by the way, precludes the possibility of their uniformity, which is what collective planners must assume so as to be able to ignore the facts pertaining to individuals as individuals.)

3.       By collectivist strictures, as Marx puts it, “The human essence is the true collectivity of man.”[7] Accordingly, rational collective economic planning does not consider individual traits, goals, and talents as crucial. Only our common traits matter to collectivists. And if this were a warranted stance, it could be consis tent with the aim to centrally plan society’s economic affairs. This is because any ranking of preferences, wants, wishes—i.e., the allocation of resources—would be a matter of the unilateral decision of the central planning board, somewhat as this occurs in a monastery or kibbutz. Where conformity to the planner’s ranking of preferences can be secured—either by choice or via force—the price system (which communicates divergent needs, wants, wishes, goals, etc.) is not essential.

But the assumption of such global or society-wide collectivism is a drastic and devastating metaphysical and moral oversight. Individuality is essential to being human precisely because every person is a rational being—a concrete biological individual with the capacity for original, creative rationality. Both one’s concrete biological individuality and one’s capacity for rationality are necessary to being human. So when one considers the nature of a human polity—as Marx and Plato did—one must treat as vital what any person must be, namely, a human individual.[8]

Persons are not able to escape their humanity-they are human individuals. Treating them as isolated monads or atoms—an idea promptly seized upon and denounced by socialists—has to be rejected. And with this we must reject the impossibility of any degree of political-economic collective “planning,” the notion from Hayek that gives anarchists so much intellectual fuel. With respect to their equality as moral agents, individuals must be understood to share certain features which require a human social order to be constituted in certain ways—that is, it must rest on natural, individual, human rights to life, liberty, and property, and be protected in an integrated, principled manner.

Based on a clear understanding of our human nature, certain natural rights may be identified and a political order can be planned or designed. But the collective planning must be confined to the genuine concerns of the public at large, that is, to everyone’s few identical concerns.

Within this context, The Constitution of the United States may be seen as a suitable general plan or design. What is different in such a plan from those spoken of in connection with socialist planning is this: Socialists model their planning on the business firm or social club; they treat all property and persons as if they had a common purpose and were available for use in the realization of this purpose. Socialist planning, then, is regimentation, not bona fide economic planning, on the model of the business firm!

But a constitution only spells out certain prohibitions and procedural rules, not goals. It ‘does not specify the goals for society but makes goal-seeking possible to all members of society. If we can consider a constitution as a design, its purpose is to serve the innumerably varied purposes of individuals with equal respect for. everyone’s task of pursuing the best possible purpose that he or she has come to identify. And the rules in terms of which a constitution aims for this purpose are to make possible for everyone to practically follow through on his or her moral task. []

1.   F. A. Hayek, Individualism and Economic Order (Chicago: University of Chicago Press, 1948), pp. 86-7.

2.   John Locke, Essays on the Law of Natare, ed. W. von Leyden (Oxford: The Clarendon Press, 1954), p. 111.

3.   Of course, the requirement of this individual faculty of reason for an efficient economic system does not deny the utility of general principles of human conduct. Yet even the identification of such general principles, not to mention the decision to apply them in particular circumstances, is necessarily the task of individuals, albeit possibly the outcome of the work of many of them over time.

4.   E. J. Mishan, “Fact, Faith & Myth, Changing Concepts of the Free Market,” Encounter (November 1986), p. 66.

5.   See Tibor R. Machan, Human Rights and Human Liberties (Nelson-Hall, 1975), “The Classical Egoist Defense of Capitalism,” in T. R. Machan, ed., The Main Debate: Communism versus Capitalism (Random House, 1987), and “A Reconsideration of Natural Rights Theory,” American Philosophical Quarterly, Vol. 19 (January 1979), and The Moral Philosophy of lndividual Liberty (Stockholm, Sweden: AB Timbro, 1987).

6.   See Paul Craig Roberts and Matthew Stephenson, Marx’s Theory of Exchange, Alienation and Crisis (Hoover Press, 1973). The authors show that what Marxist central planners are most critical of in the market economy is the presence of free exchange, which then creates uncontrolled demand, in place of this Marx ad vocates a command economy, not because it will be more efficient, in the neo-classical economic sense, trot because it will lead to the production of what ought to be produced.

7.   Karl Marx, Selected Writings, ed. D. McLellan (Oxford University Press, 1977), p. 126.

8.   For a clear exposition of this point, see David L. Norton, Personal Destinies (Princeton: Princeton University Press, 1976).

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