planned economy

Economic Nonsense: 42. A planned economy is more rational than an unplanned one


Very few people advocate an unplanned economy.  At a simple level people might suppose that having intelligent and informed people direct the economy is better than having it proceed by blind chance.  But this is not the choice.  The choice is between an economy in which millions of individual decisions made daily interact with each other to produce an overall order, and an economy whose overall order is sought by a few people gathered around a table trying to direct it.  In other words the choice is not between planning and chaos, but between an order produced by the few and an order produced by the many.  It is between planning done by a few at the centre, and planning done by many at the periphery.

When a person makes an economic choice, to buy or not buy, to stay in a job or to change employment, it is not necessary for the information about that choice to be collected and relayed to a directing authority.  The choice itself impacts upon the economy sending information through it that causes it to change and respond.  In a centrally planed economy the information has to be relayed to the centre so that those in charge can add it to other inputs and decide how to respond to it.  That process takes time, and much of the information is outdated or submerged into a fog of other data before it can reach the centre and be acted upon.  In a spontaneous, interactive economy, its effect is immediate.

Much as the directing authority might try to ascertain the circumstances of individual economic participants, they cannot hope to have more knowledge of them than the individual concerned.  The market economy thus has more information at its disposal, and it can act more rapidly, responding to imbalances and redressing them.  This means that the centrally planned economy is by no means more rational than the spontaneous one.  It is true that the billions of transactions that have input into a market economy might be too large for an individual mind to encompass, but that makes it complex rather than irrational.