21st Century Schizoid Boy

Stats from the Mayo Clinic:

• 1 Pound of Fat ~= 3,500 calories

Milan

This “apéritif” concept (happy hour, but with a lot of all-you-can-eat finger foods for free) needs to be brought over to the U.S….

Doors for monsters!

The Duomo:

Venice

The West during [the period 1830 to 1900] is perceived as a place of great chaos, with little respect for property or life. Histories describe the era and area as characterized by gunfights, horse-thievery, and general disrespect for basic human rights. The taste for the dramatic in literature and other entertainment forms has led to concentration on the seeming disparity between the westerners’ desire for order and the prevailing disorder.

Our research indicates that this was not the case; property rights were protected and civil order prevailed. Private agencies provided the necessary basis for an orderly society in which property was protected and conflicts were resolved. These agencies often did not qualify as governments because they did not have a legal monopoly on “keeping order.” They soon discovered that “warfare” was a costly way of resolving disputes and lower cost methods of settlement (arbitration, courts, etc.) resulted. In summary, this paper argues that a characterization of the American West as chaotic would appear to be incorrect.

In his book, Frontier Violence: Another Look, W. Eugene Hollon stated that the he believed “that the Western frontier was a far more civilized, more peaceful, and safer place than American society is today.” The legend of the “wild, wild West” lives on despite Robert Dykstra’s finding that in five of the major cattle towns (Abilene, Ellsworth, Wichita, Dodge City, and Caldwell) for the years from 1870 to 1885, only 45 homicides were reported-an average of 1.5 per cattle-trading season. In Abilene, supposedly one of the wildest of the cow towns, “nobody was killed in 1869 or 1870. In fact, nobody was killed until the advent of officers of the law, employed to prevent killings.” Only two towns, Ellsworth in 1873 and Dodge City in 1876, ever had five killings in any one year. Frank Prassel states in his book subtitled “A Legacy of Law and Order,” that “if any conclusion can be drawn from recent crime statistics, it must be that this last frontier left no significant heritage of offenses against the person, relative to other sections of the country.”

To understand how law and order were provided in the American West, we now turn to four examples of institutions which approximated anarcho-capitalism. These case studies of land claims clubs, cattlemens’ associations, mining camps, and wagon trains provide support for the hypotheses presented above and suggest that private rights were enforced and that chaos did not reign.

…

From the above descriptions of the experience of the American West, several conclusions… appear:

1. The West, although often dependent upon market peace keeping agencies, was, for the most part, orderly.
2. Different standards of justice did prevail and various preferences for rules were expressed through the market place.
3. Competition in defending and adjudicating rights does have beneficial effects. Market agencies provided useful ways of measuring the efficiency of government alternatives. The fact that government’s monopoly on coercion was not taken as seriously as at present meant that when that monopoly was poorly used market alternatives arose. Even when these market alternatives did become “governments” in the sense of having a virtual monopoly on coercion, the fact that such firms were usually quite small provided significant checks on their behavior. Clients could leave or originate protective agencies on their own. Without formal legal sanctions, the private agencies did face a “market test” and the rate of survival of such agencies was much less than under government.

In conclusion, it appears in the absence of formal government, that the western frontier was not as wild as legend would have us believe. The market did provide protection and arbitration agencies that functioned very effectively, either as a complete replacement for formal government or as a supplement to that government. However, the same desire for power that creates problems in government also seemed to create difficulties at times in the West. All was not peaceful. Especially when Schelling points were lacking, disorder and chaos resulted, lending support to Buchanan’s contention that agreement on initial rights is important to anarcho-capitalism. When this agreement existed, however, we have presented evidence that anarcho-capitalism was viable on the frontier.

An American Experiment in Anarcho-Capitalism: The Not So Wild, Wild West, Terry L. Anderson and P. J. Hill, Department of Economics, Montana State University, The Journal of Libertarian Studies, 1977, http://mises.org/journals/jls/3_1/3_1_2.pdf.

I propose first a revision of the prevailing view of traditional hereditary monarchies and provide instead an uncharacteristically favorable interpretation of monarchy and the monarchical experience. In short, monarchical government is reconstructed theoretically as privately-owned government, which in turn is explained as promoting future-orientedness and a concern for capital values and economic calculation by the government ruler. Second, equally unorthodox but by the same theoretical token, democracy and the democratic experience are cast in an untypically unfavorable light. Democratic government is reconstructed as publicly-owned government, which is explained as leading to present-orientedness and a disregard or neglect of capital values in government rulers, and the transition from monarchy to democracy is interpreted accordingly as a civilizational decline.

Despite the comparatively favorable portrait presented of monarchy, I am not a monarchist and the following is not a defense of monarchy. Instead, the position taken toward monarchy is this: If one must have a state, defined as an agency that exercises a compulsory territorial monopoly of ultimate decision-making (jurisdiction) and of taxation, then it is economically and ethically advantageous to choose monarchy over democracy. But this leaves the question open whether or not a state is necessary, i.e., if there exists an alternative to both, monarchy and democracy.

In complete contrast to the orthodox opinion on the matter, then, elementary social theory shows, and will be explained as showing, that no state can be justified, be it economically or ethically. Rather, every state, regardless of its constitution, is economically and ethically deficient. Thus, the choice between monarchy and democracy concerns a choice between two defective social orders. In fact, modern history provides ample illustration of the economic and ethical shortcomings of all states, whether monarchic or democratic.

Moreover, the same social theory demonstrates positively the possibility of an alternative social order free of the economic and ethical shortcomings of monarchy and democracy (as well as any other form of state). The term adopted here for a social system free of monopoly of taxation is “natural order.” Other names used elsewhere or by others to refer to the same thing include “ordered anarchy,” “private property anarchism,” “anarcho-capitalism,” “autogovernment,” “private law society,” and “pure capitalism”… where every scarce resource is owned privately, where every enterprise is funded by voluntarily paying customers or private donors, and where entry into every line of production, including that of justice, police, and defense services, is free (xix-xxi).

Throughout most of its history, mankind, insofar as it was subject to any government control at all, was under monarchical rule. There were exceptions: Athenian democracy, Rome during its republican era until 31 B.C., the republics of Venice, Florence, and Genoa during the Renaissance period, the Swiss cantons since 1291, the United Provinces from 1648 until 1673, and England under Cromwell from 1649 until 1660. Yet these were rare occurrences in a world dominated by monarchies. With the exception of Switzerland, they were short-lived phenomena… With the end of World War I, mankind truly left the monarchical age. In the course of one and a half centuries since the French Revolution, Europe, and in its wake the entire world, have undergone a fundamental transformation. Everywhere, monarchical rule and sovereign kings were replaced by democratic-republican rule and sovereign peoples.

During the monarchical age… the share of government revenue remained remarkably stable and low. Economic historian Carlo M. Cipolla concludes, “from the eleventh century onward all over Europe, it is difficult to imagine that, apart from particular times and places, the public power ever managed to draw more than 5 to 8 percent of national income.” And he then goes on to note that this portion was not systematically exceeded until the second half of the twentieth century.

Until the very end of the nineteenth century, government employment rarely exceeded 3 percent of the total labor force. Royal ministers and parliamentarians typically did not receive publicly funded salaries but were expected to support themselves out of their private incomes.

A similar pattern emerges from an inspection of inflation and data on the money supply. As hard as they tried, monarchical rulers did not succeed in establishing monopolies of pure fiat currencies… It was only under the conditions of democratic republicanism… that this feat was accomplished. From the beginning of the democratic-republican age–initially under a pseudo gold standard and at an accelerated pace since 1971 under a government paper money standard– a seemingly permanent secular tendency toward inflation and currency depreciation has existed. During the monarchical age with commodity money largely outside government control, the “level” of prices had generally fallen and the purchasing power of money increased, except during times of war or new gold discoveries.

In addition to taxation and inflation… monarchs also showed considerably more moderation and farsightedness than democratic-republican caretakers [in regards to debt]. Throughout the monarchical age, government debts were essentially war debts. While the total debt thereby tended to increase over time, during peacetime at least monarchs characteristically reduced their debts… In striking contrast, since the onset of the democratic-republican age British debt has only increased, in war and in peace. Likewise, U.S. government debt has increased through war and peace.

Finally, the same tendency toward increased exploitation and present-orientation emerges upon examination of government legislation and regulation. During the monarchical age… the king and his parliament were held to be under the law. They applied preexisting law as judge or jury. They did not make law… Under democracy, with the exercise of power shrouded in anonymity, presidents and parliaments quickly came to rise above the law. They became not only judge but legislator, the creators of “new” law.

The phenomenon of social time preference is somewhere more elusive than that of expropriation and exploitation, and it is more complicated to identify suitable indicators of present-orientation. But all of them point in the same direction… The most direct indicator of social time preference is the rate of interest… A tendency toward falling interest rates characterizes mankind’s suprasecular trend of development. Minimum interest rates on ‘normal safe loans’ were around 16 percent at the beginning of Greek financial history in the sixth century B.C., and fell to 6 percent during the Hellenistic period. In Rome, minimum interest rates fell from more than 8 percent during the earliest period of the Republic to 4 percent during the first century of the Empire… This trend was by no means smooth… With this historical backdrop… it should be expected that twentieth-century interest rates would be still lower than nineteenth-century rates… this is not so… If real incomes are higher but interest rates are not lower, then the ceteris paribus clause can no longer be assumed true. Rather, the social time preference schedule must have shifted upward. That is, the character of the population must have changed. People on the average must have lost in moral and intellectual strength and become more present-oriented.

The degree of urbanization began to increase dramatically from about 1800 onward. A period of rising crime rates during the early nineteenth century can be attributed to this initial spurt of urbanization. Yet after a period of adjustment to the new phenomenon of urbanization, from the mid-nineteenth century onward, the countervailing tendency toward falling crime rates took hold again, despite the fact that the process of rapid urbanization continued for about another hundred years. And when crime rates began to move systematically upward, from the mid-twentieth century onward, the process of increasing urbanization had actually come to a halt. It thus appears that the phenomenon of rising crime rates cannot be explained other than… by a rising degree of social time preference, an increasing loss of individual responsibility, intellectually and morally, and a diminished respect for all law– moral relativism– stimulated by an unabated flood of legislation.

For decades… real incomes have stagnated or even fallen (50-70).

In the U.S. between 1960 and 1990 the murder rate doubled, rape rates quadrupled, the robbery rate increased five-fold, and the likelihood of becoming the victim of an aggravated assault increased by 700 percent (102).

Until the end of World War I, the overwhelming majority of the public in Europe accepted monarchical rule as legitimate (Etienne de la Boetie, The Politics of Obedience; David Hume, Essays: Moral, Political, and Literary) (70).

Democracy: The God that Failed: The Economics and Politics of Monarchy, Democracy, and Natural Order, Hans-Hermann Hoppe, July 30, 2001, http://www.amazon.com/Democracy-Economics-Politics-Monarchy-Natural/dp/0765808684.

A fundamental change in the relationship between the state, natural elites, and intellectuals only occurred with the transition from monarchical to democratic rule. It was the inflated price of justice and the perversions of ancient law by kings as monopolistic judges and peacekeepers that motivated the historical opposition against monarchy. But confusion as to the causes of this phenomenon prevailed. There were those who recognized correctly that the problem was with monopoly, not with elites or nobility. However, they were far outnumbered by those who erroneously blamed the elitist character of the ruler for the problem, and who advocated maintaining the monopoly of law and law enforcement and merely replacing the king and the highly visible royal pomp with the “people” and the presumed decency of the “common man.” Hence the historic success of democracy.

How ironic that monarchism was destroyed by the same social forces that kings had first stimulated and enlisted when they began to exclude competing natural authorities from acting as judges: the envy of the common men against their betters, and the desire of the intellectuals for their allegedly deserved place in society. When the king’s promises of better and cheaper justice turned out to be empty, intellectuals turned the egalitarian sentiments the kings had previously courted against the monarchical rulers themselves. Accordingly, it appeared logical that kings, too, should be brought down and that the egalitarian policies, which monarchs had initiated, should be carried through to their ultimate conclusion: the monopolistic control of the judiciary by the common man. To the intellectuals, this meant by them, as the people’s spokesmen.

http://mises.org/etexts/intellectuals.pdf

It has been known for decades that the Nazis used Hollerith equipment and that IBM’s German subsidiary during the 1930s — Deutsche Hollerith Maschinen GmbH (Dehomag) — supplied Hollerith equipment. As with hundreds of foreign-owned companies that did business in Germany at that time, Dehomag came under the control of Nazi authorities prior to and during World War II. It is also widely known that Thomas J. Watson, Sr., received and subsequently repudiated and returned a medal presented to him by the German government for his role in global economic relations. These well-known facts appear to be the primary underpinning for these recent allegations.

IBM does not have much information about this period or the operations of Dehomag. Most documents were destroyed or lost during the war. The documents that did exist were placed in the public domain some time ago to assist research and historical scholarship. The records were transferred from the company’s New York and German operations to New York University and Hohenheim University in Stuttgart, Germany — two highly respected institutions with the appropriate credentials to be custodians of these records. Independent academic experts at these universities now supervise access to the documents by researchers and historians.

The lawsuit appears largely to be based on the claims contained in the book. Based on everything the company has seen to date, there appear to be no new facts or findings that bear on this important issue and period… The lawsuit has been dismissed.

IBM Statement on Nazi-era Book and Lawsuit, February 14, 2001, http://www-03.ibm.com/press/us/en/pressrelease/1388.wss.

In his much anticipated new book, “I.B.M. and the Holocaust,” Edwin Black makes a copiously documented case for the utter amorality of the profit motive and its indifference to consequences.

“Jews could not hide from millions of punch cards thudding through Hollerith machines, comparing names across generations, address changes across regions, family trees and personal data across unending registries,” Mr. Black writes. Even as war approached, Watson, in Mr. Black’s account, fought to keep I.B.M. in the Reich. “As a result, millions of cards, millions of lives and millions of dollars would now intersect at the whirring stations of Hitler’s Holleriths.”

But such vaunted language — cards, lives and dollars fatally intersecting — threatens to obliterate the moral distinction between the sellers of rope and those who use rope to hang people. In the generalized outbreak of evil from 1933 to 1945, it is the Nazis, of course, who belong at the top of the heap of evildoers. Below them were the fascist collaborators, the militias, and the camp guards who did their bidding; and then there were the companies, like I. G. Farben and Daimler-Benz, who used slave labor made available by the concentration camps. I.B.M. and Watson were far from heroic, but they do not seem to have been so unusually unheroic as to justify making them a special case.

Mr. Black, in his fervor to find I.B.M. culpable, weighs only punch cards in this particular balance. Of course, he is right that it would have been better had I.B.M. not sold them to Hitler. It would have been better had many things been done differently by many people. Mr. Black’s case is long and heavily documented, and yet he does not demonstrate that I.B.M. bears some unique or decisive responsibility for the evil that was done.

‘I.B.M. and the Holocaust’: Assessing the Culpability, Richard Bernstein, The New York Times, March 7, 2001, http://www.nytimes.com/2001/03/07/arts/07BERN.html.

When World War II began, all IBM facilities were placed at the disposal of the U.S. government. IBM’s product line expanded to include bombsights, rifles and engine parts – in all, more than three dozen major ordnance items. Thomas Watson, Sr., set a nominal one percent profit on those products and used the money to establish a fund for widows and orphans of IBM war casualties.

The war years also marked IBM’s first steps toward computing. The Automatic Sequence Controlled Calculator, also called the Mark I, was completed in 1944 after six years of development with Harvard University. It was the first machine that could execute long computations automatically.

IBM Archives: 1940s, http://www-03.ibm.com/ibm/history/history/decade_1940.html.

The intersection of governments and corporations has and always will create murkiness for culpability. The modern day equivalent is Cisco purportedly “marketing its routers to China specifically as a tool of repression” for China’s “Great Firewall” (wired.com). But is this a problem of greed or are the evil governments the problem? Does gravity cause plane crashes?

Statistics from the U.S. Small Business Administration [sba.gov]:

A small business [is] an independent business having fewer than 500 employees.

Small businesses employ just over half of U.S. workers. Of 119.9 million nonfarm private sector workers in 2006, small firms with fewer than 500 workers employed 60.2 million and large firms employed 59.7 million. Firms with fewer than 20 employees employed 21.6 million. Small firms’ share of part-time workers (21 percent) is similar to large firms’ share (18 percent).

Pay 44 percent of total U.S. private payroll.

Create more than half of the nonfarm private gross domestic product (GDP).

Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).

Very small firms with fewer than 20 employees annually spend 45 percent more per employee than larger firms to comply with federal regulations. These very small firms spend four and a half times as much per employee to comply with environmental regulations and 67 percent more per employee on tax compliance than their larger counterparts.

Firms with fewer than 500 employees accounted for 64 percent (or 14.5 million) of the 22.5 million net new jobs (gains minus losses) between 1993 and the third quarter of 2008.

In 2008, there were 29.6 million businesses in the United States, according to Office of Advocacy estimates. Census data show that there were 6.0 million firms with employees in 2006 and 21.7 million without employees in 2007 (the latest available data). Small firms with fewer than 500 employees represent 99.9 percent of the 29.6 million businesses (including both employers and nonemployers), as the most recent data show there were about 18,000 large businesses in 2006.

In 2007, the overall rate of self-employment (unincorporated and incorporated) was 10 percent.

Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.

Food for thought:

Suppose there were food insurance. Rather than everyone paying for food with their own money, people would pay a certain fee to their insurance company every month, and in return the insurance company would pay for all of its clients’ groceries.

The rest: http://mises.org/daily/4549

Closely related to the problems of economic calculation:

Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because (s)he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him/her or are made with his/her active co-operation. We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks of life is knowledge of people, of local conditions, and of special circumstances. To know of and put to use a machine not fully employed, or somebody’s skill which could be better utilized, or to be aware of a surplus stock which can be drawn upon during an interruption of supplies, is socially quite as useful as the knowledge of better alternative techniques. The shipper who earns his living from using otherwise empty or half-filled journeys of tramp-steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the arbitrageur who gains from local differences of commodity prices– are all performing eminently useful functions based on special knowledge of circumstances of the fleeting moment not known to others.

It is a curious fact that this sort of knowledge should today be generally regarded with a kind of contempt and that anyone who by such knowledge gains an advantage over somebody better equipped with theoretical or technical knowledge is thought to have acted almost disreputably. To gain an advantage from better knowledge of facilities of communication or transport is sometimes regarded as almost dishonest, although it is quite as important that society make use of the best opportunities in this respect as in using the latest scientific discoveries. This prejudice has in a considerable measure affected the attitude toward commerce in general compared with that toward production. The common idea now seems to be that all such knowledge should as a matter of course be readily at the command of everybody, and the reproach of irrationality leveled against the existing economic order is frequently based on the fact that it is not so available. This view disregards the fact that the method by which such knowledge can be made as widely available as possible is precisely the problem to which we have to find an answer.

If it is fashionable today to minimize the importance of the knowledge of the particular circumstances of time and place, this is closely connected with the smaller importance which is now attached to change as such. Indeed, there are few points on which the assumptions made (usually only implicitly) by the “planners” differ from those of their opponents as much as with regard to the significance and frequency of changes which will make substantial alterations of production plans necessary. Of course, if detailed economic plans could be laid down for fairly long periods in advance and then closely adhered to, so that no further economic decisions of importance would be required, the task of drawing up a comprehensive plan governing all economic activity would be much less formidable.

It is, perhaps, worth stressing that economic problems arise always and only in consequence of change. As long as things continue as before, or at least as they were expected to, there arise no new problems requiring a decision, no need to form a new plan. The belief that changes, or at least, day adjustments have become less important in modern times implies the contention that economic problems also have become less important. This belief in the decreasing importance of change is, for that reason, usually held by the same people who argue that the importance of economic considerations has been driven into the background by the growing importance of technological knowledge.

Is it true that, with the elaborate apparatus of modern production, economic decisions are required only at long intervals, as when a new factory is to be erected or a new process to be introduced? Is it true that, once a plant has been built, the rest is all more or less mechanical, determined by the character of the plant, and leaving little to be changed in adapting to the ever changing circumstances of the moment?

One reason why economists are increasingly apt to forget about the constant small changes which make up the whole economic picture is probably their growing preoccupation with statistical aggregates, which show a very much greater stability than the movements of the detail. The comparative stability of the aggregates cannot, however, be accounted for–as the statisticians occasionally seem to be inclined to do–by the “law of large numbers” or the mutual compensation of random changes. The number of elements with which we have to deal is not large enough for such accidental forces to produce stability. The continuous flow of goods and services is maintained by constant deliberate adjustments, by new dispositions made every day in the light of circumstances not known the day before, by B stepping in at once when A fails to deliver. Even the large and highly mechanized plant keeps going largely because of an environment upon which it can draw for all sorts of unexpected needs: tiles for its roof, stationery or its forms, and all the thousand and one kinds of equipment in which it cannot be self-contained and which the plans for the operation of the plant require to be readily available in the market.

This is, perhaps, also the point where I should briefly mention the fact that the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form. The statistics which such a central authority would have to use would have to be arrived at precisely by abstracting from minor differences between the things, by lumping together, as resources of one kind, items which differ as regards location, quality, and other particulars, in a way which may be very significant for the specific decision. It follows from this that central planning based on statistical information by its nature cannot take direct account of these circumstances of time and place and that the central planner will have to find some way or other in which the decisions depending on them can be left to the “man on the spot.”

It is in this connection that what I have called the “economic calculus” (or the Pure Logic of Choice) helps us, at least by analogy, to see how this problem can be solved, and in fact is being solved, by the price system. Even the single controlling mind, in possession of all the data for some small, self-contained economic system, would not– every time some small adjustment in the allocation of resources had to be made–go explicitly through all the relations between ends and means which might possibly be affected. It is indeed the great contribution of the Pure Logic of Choice that it has demonstrated conclusively that even such a single mind could solve this kind of problem only by constructing and constantly using rates of equivalence (or “values,” or “marginal rates of substitution”), that is, by attaching to each kind of scarce resource a numerical index which cannot be derived from any property possessed by that particular thing, but which reflects, or in which is condensed, its significance in view of the whole means-end structure. In any small change he will have to consider only these quantitative indices (or “values”) in which all the relevant information is concentrated; and, by adjusting the quantities one by one, he can appropriately rearrange his dispositions without having to solve the whole puzzle ab initio or without needing at any stage to survey it at once in all its ramifications.

Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to co-ordinate the separate actions of different people in the same way as subjective values help the individual to co-ordinate the parts of his plan.

The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity–or rather that local prices are connected in a manner determined by the cost of transport, etc.–brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.

The most significant fact about [the 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 movement 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.

Of course, these adjustments are probably never “perfect” in the sense in which the economist conceives of them in his equilibrium analysis. But I fear that our theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made us somewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency. The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; that is, they move in the right direction. This is enough of a marvel even if, in a constantly changing world, not all will hit it off so perfectly that their profit rates will always be maintained at the same even or “normal” level.

I have deliberately used the word “marvel” to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind. Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do. But those who clamor for “conscious direction”–and who cannot believe that anything which has evolved without design (and even without our understanding it) should solve problems which we should not be able to solve consciously–should remember this: The problem is precisely how to extend the span of our utilization of resources beyond the span of the control of any one mind; and therefore, how to dispense with the need of conscious control, and how to provide inducements which will make the individuals do the desirable things without anyone having to tell them what to do.

The problem which we meet here is by no means peculiar to economics but arises in connection with nearly all truly social phenomena, with language and with most of our cultural inheritance, and constitutes really the central theoretical problem of all social science. As Alfred Whitehead has said in another connection, “It is a profoundly erroneous truism, repeated by all copy-books and by eminent people when they are making speeches, that we should cultivate the habit of thinking what we are doing. The precise opposite is the case.”

Civilization advances by extending the number of important operations which we can perform without thinking about them. This is of profound significance in the social field. We make constant use of formulas, symbols, and rules whose meaning we do not understand and through the use of which we avail ourselves of the assistance of knowledge which individually we do not possess. We have developed these practices and institutions by building upon habits and institutions which have proved successful in their own sphere and which have in turn become the foundation of the civilization we have built up.

The price system is just one of those formations which man has learned to use (though he is still very far from having learned to make the best use of it) after he had stumbled upon it without understanding it. Through it not only a division of labor but also a coordinated utilization of resources based on an equally divided knowledge has become possible.

It is in many ways fortunate that the dispute about the indispensability of the price system for any rational calculation in a complex society is now no longer conducted entirely between camps holding different political views. The thesis that without the price system we could not preserve a society based on such extensive division of labor as ours was greeted with a howl of derision when it was first advanced by Von Mises twenty-five years ago. Today the difficulties which some still find in accepting it are no longer mainly political, and this makes for an atmosphere much more conducive to reasonable discussion. When we find Leon Trotsky arguing that “economic accounting is unthinkable without market relations”; when Professor Oscar Lange promises Professor von Mises a statue in the marble halls of the future Central Planning Board; and when Professor Abba P. Lerner rediscovers Adam Smith and emphasizes that the essential utility of the price system consists in inducing the individual, while seeking his own interest, to do what is in the general interest, the differences can indeed no longer be ascribed to political prejudice. The remaining dissent seems clearly to be due to purely intellectual, and more particularly methodological, differences.

… There is something fundamentally wrong with an approach which habitually disregards an essential part of the phenomena with which we have to deal: the unavoidable imperfection of man’s knowledge and the consequent need for a process by which knowledge is constantly communicated and acquired. Any approach, such as that of much of mathematical economics with its simultaneous equations, which in effect starts from the assumption that people’s knowledge corresponds with the objective facts of the situation, systematically leaves out what is our main task to explain.

The Use of Knowledge in Society, Friedrich Hayek, the American Economic Review, XXXV, No. 4; September, 1945, 519-30, http://www.virtualschool.edu/mon/Economics/HayekUseOfKnowledge.html.