Friday, March 4, 2011

The Fatal Conceit

As a reminder, the Fatal Conceit is the idea that "man is able to shape the world around him according to his wishes."

Hayek argued passionately against this idea.  This was his primary argument against socialism, that in order to have any chance of functioning, a socialist government has to centrally plan the economy.  Hayek's Theory of Prices, along with founding modern microeconomic thought, is based on the fact that prices are based on differences in known information and the different evaluations of value of goods based on this information difference.  In other words, no two people have the same evaluation of the worth of any one good.  For example, while I might value a canoe at $20, my friend Bob might value that same canoe at $0 as he has no desire to own said object.  Bob would only take the canoe if it were being offered for free.

While I will dedicate a blog posting to this topic in the future, Spontaneous Order is the final result of an economy based entirely on voluntary transactions.  In short, without any central planning of any kind, an orderly economy will just develop.  That is the power of the free market.

Because no one could know everything about everything, from all that was in the past to every single effect of any one action, the economy cannot be centrally planned.  For example, if I buy a car for $30,000 tomorrow, the business gets, say, $25,000 in revenue while the salesman gets a nice $5,000 commission.  The business has to pay for the cost of the automobile and the costs for doing business, leaving about $5,000 left in profit.  The salesman could spend his $5.000 on, among other things, as a down payment for a starter home or on loose women and drugs.  The business could use its $5,000, among other things, to reinvest in the business or on those $1 vending machines 5,000 times.  While someone may have an idea of what someone might do following their action, they cannot foresee every single possible effect of said action.  It would be a nearly endless stream of capital exchanging hands for this or that good until the money is simply put in the bank.  And even then, there's interest earned over time and what the person or group use the interest to buy.  And because everyone does not know everything about the past, people will automatically have differing views on the value of any one good, even ignoring that people can have different ideas for use of and varying levels of need for said good.

In conclusion, just let the free market function and prices will stabilize at an efficiency that far outstrips any alternative.

And that's the Fatal Conceit.

Thursday, March 3, 2011

Friendship Must Always Trump Politics

When it comes to format, the next few posts will mostly be on Hayek and mapping out my economic outlook, especially as it applies to government.

I may refer to my best friend many times in this blog.  He will be referred to as Bob* for reasons explained below.  He's a hardcore Chomskyte (a term I may have just invented,) but I saw an article today that perfectly encapsulates our friendship:

Expect a post on Friday, which is technically today by the time this will be up.

*Some names have been changed to protect the innocent.