A free market economist, and an academic no less, shows how the best lessons on how economics works frequently are learned outside the academy, and references two economists not given enough class time in most academies. Adam Smith himself noted that humanity has “a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.”
“Skating on the floor of the roller rink is an example of what Friedrich Hayek called spontaneous order,” George Mason University economist Daniel B. Klein points out in his book, Knowledge and Coordination: A Liberal Interpretation. “The process is beneficial and orderly, but it is also spontaneous.”
“No one plans or directs the overall order. Decision making is left to the individual skater. It is decentralized.”
“The contrast is centralized decision making. Again, intuition tells us that the only way the complex social good can be achieved is by central planning. Yet, Hayek tells us that sometimes another way it can work is ‘decentral’ planning. He tells us, in fact, that, often, decentral planning is the only way it can work.”
“Suppose the social good on the floor of the roller rink were entrusted to central planning. The rink owner appoints a really smart, really nice guy to look out for the social good. He hires a man with the reputation of a saint, and with two PhDs from Yale, one in civil engineering and one in ethics. This smart saint stands in the organ booth, holds a bullhorn up to his mouth and calls out directions: ‘You in the blue jacket, speed up and veer to the left.’ ‘You in the black overalls, I want you to slow down and move toward the inside.’ And so on.”
“The results would be terrible. The smart saint could not come close to achieving the brisk dynamic order that spontaneous skating achieves. The main reason he could not is that he lacks knowledge of individual conditions. Using his Yale learning, he looks closely and does his best, but he has 100 skaters to watch, and the conditions of each are changing moment by moment. The planner’s college knowledge is useless in informing him of the particular conditions of your situation. The planner tries to apply engineering principles, but each skater has principles of motion all his own: Do I feel like going faster? Am I losing my balance? Can I handle this turn? Do I have to go to the bathroom? Am I content to follow the planner’s directions.”
“Your local conditions—your opportunities, constraints and aspirations—are best known to you. No one else comes close. College knowledge is no substitute for what Hayek called local knowledge.” One way to test this theory would be to ask a high ranking Department of Motor Vehicles official to do some volunteer work in a skating rink. On second thought…
Malcolm A. Kline is the Executive Director of Accuracy in Academia.
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