One of the main things that Hayek pointed out is that the price system is, in fact, the best "calculator" that we have for the efficient allocation of resources. Out of innumerable individual negotiations and transactions, the price system works up a rough estimate of consumer preferences and how they match with current resources. It signals which things might be in short supply, and represent opportunities for profit- seekers, and which things might be in a glut, and worth disinvesting in. Similarly, capital instruments, such as shares and bonds, contain important information in their prices. Anyway, distortions in the pricing system lead to ever greater inefficiency in the economy, and thus the waste of resources. Even granting that the government makes legitimate spending decisions, for example, in providing for defense, the more it uses instruments like subsidy, the tax code, and regulation to control elements of the economy, the more it distorts the pricing system and leads to inefficiency, such as recession and inflation.
Ultimately, Hayek's insight is epistemic. One has only to refer to the phenomena of specialization and delegation. As knowledge and technical expertise increase, no one is able to encompass the whole. Even in areas like law, medicine, and engineering, it is necessary for specialists to give their attention to the body of knowledge and technique that will arise under the general rubric, but constitute enormous areas of discrete study. Although it is possible for specialists to communicate with "generalists" to some extent, for the most part their relation to others not expert in their specialty is little better than their relationship with laymen, who can only understand in the most general terms.
Similarly, as organizations become larger and more sprawling, it is increasing necessary to delegate authority to individuals, teams, or committees who are in a position to study, analyze, and decide the specific problems that arise in the course of operating a large enterprise. For example, in a legislative body, the accumulation of documentary evidence and testimony is handled by sub- committee, with ample staff support, and reviewed with the objective of reporting out recommendations which, in the ordinary course of things, will be accepted with few amendments by the larger committee, which will then pass on the recommendations to the body as a whole. In the total scheme of things, it is standard that those delegated to actually study the question will have their recommendations followed. Similarly, management theory increasingly deplores attempts at top- down management, and recommends the general setting of policy, including coordinating sectors and setting goals, while leaving individuals and teams alone, for the most part, supporting them in devising the best ways to get things done.
In both of these ways, one can see that the limitations of knowledge and requirements of parceling out responsibilities lead to decentralization of decision- making as a more efficient means of conducting business than the highly centralized model.
Agree or disagree, the idea that a loosely regulated market is perfectly respectable. |
