With the Best of Intentions

Hayek‘s great insight:

There is, in society, a “knowledge problem”: Economic life requires the coordination of individual planning. The relevant knowledge for economic planning is dispersed rather than concentrated in society. If this makes coordination challenging enough in a market system, it also makes coordination a virtual impossibility under central planning: The planner can never secure and process all the necessary information to provide detailed guidance to any given development in society.

(All quotes are from Alberto Mingardi’s excellent article).

Hayek pointed out that theories centered on the notion of “social justice” try to resemble, at the level of the “great society,” the nature of smaller groups. In the smaller groups in which human beings lived for most of our history, people were compensated and advanced in society due to some shared vision of merit and worthiness.

But…

Market institutions are anonymous and blind. Imposing upon them any preordained scheme of merit and reward will just make coordination between individuals—and, thus, wealth creation—more difficult.

You can see the problem. Our sense of fairness and caring strongly urges us to impose “schemes  of merit and reward” which only serve to make us all worse off. Hurting people, even when motivated by fairness and compassion, is still hurting people. But our moral urges are strong and our analytic abilities are weak, so we continue to damage ourselves and will continue to do so – with the best of intentions.

Professor of Economic Science at LSE 1931-1950...

Professor of Economic Science at LSE 1931-1950, won Nobel prize for Economic Sciences in 1974. IMAGELIBRARY/1027 Persistent URL: archives.lse.ac.uk/dserve.exe?dsqServer=lib-4.lse.ac.uk&a... (Photo credit: Wikipedia)

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