…from Randy Holcombe’s 2023 “Political Economy Intact” paper, page 30, Chapter 2 The legacy of Richard E. Wagner (Peter J. Botke and Christopher J. Coyne, eds., 2023)
Markets allow people to coordinate their activities to make use of the knowledge of others without having that knowledge themselves.
DBX: This statement is very simple and straightforward. This saying also conveys a deep truth.
This truth, alas, is ignored, or underappreciated, by almost all but a handful of economists and classical liberals. However, one look at everyday reality in modernity makes this truth impossible to deny.
Consider, for example, the device on which you are now reading my words. Even if you are a famous computer scientist or a genius software engineer, you don’t know how to work most of the parts of your device. You don’t know how to make the glass that is the screen, the plastic or metal that makes the cover, the tiny lens of the little camera inside the device, the electricity that generates and the transmission processes without that device would be useless. . However, there are many different things to each of these. Because each of those few individuals has the specialized knowledge necessary to produce it, none of those individuals—or you—have anything close to the knowledge needed to produce the entire device.
Millions of individuals, each with their own unique expertise, must coordinate their effective efforts if the end results are to be meaningful – to be valuable. This combination is each driven by market signals – that is, output prices, input prices, asset prices, and profits and losses.
Industrial policy advocates seek to censor or ignore the knowledge that is transmitted in the market. But the only ‘knowledge’ they have to replace what they censor or ignore comes from their personal choices and preferences. Industrial policy advocates simply Guess If they can predict some economic outcome, the government can directly allocate resources to achieve that outcome. And do it in ways that improve the well-being of ordinary people. Special intended effects, depending on what they are; can Being accessible. what is is not Achievable, with a pure and highly unlikely chance, the achievement of these outcomes is achieved in ways that do not cost too much—that is, improving the well-being of ordinary people.
