Don Lavoie Fellowship Discussion: Module 2
'National Economic Planning: What is Left?' by Don Lavoie
Socialism, Marxism, and Economic Coordination
Welcome to the second module of the Don Lavoie Fellowship discussion portal. In this module's discussions you will be joined by Dr. Bryan Cheang and Dr. Peter Jacobsen who will help lead the discussion, pose additional questions and comments.
As you are reading the assigned chapters of Don Lavoie's book, National Economic Planning: What Is Left? please view the video we created for you below featuring Dr. Christopher Coyne. In the video, Dr. Coyne provides a summary of the main themes in the book.
Next, watch this video to learn more about Don Lavoie's books, Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered (Cambridge University Press, 1985) and National Economic Planning: What Is Left? (Cato Institute, 1985) which became important contributions in changing the way of thinking about socialism and central planning. Finally, to round up this week's additional materials, please watch the video clip of Don Lavoie's lecture on the original goal of Marxism. As you explore the subject of socialism, you may also indulge and listen to this episode of the Podcast in which Dr. Rosolino Candela interviews Professor Peter Boettke on his recent book discussing the case of Poland's transition to and from socialism.
In his academic work, Lavoie argues that the knowledge problem underlies the economic calculation problem. Please consider the following discussion questions.
Question: Why is the problem of economic calculation (even under non-comprehensive planning) fundamentally not a problem of marshaling incentives to gather all the necessary information?
Aashish Reddy: If we are to satisfy the diverse wants of most or all people in a society, somebody will have to produce the goods which satiate those wants. This must be done using scarce capital resources, and so the challenge is to allocate these resources efficiently. This means we must face the fundamental issue of how to allocate resources in the face of dispersed and tacit knowledge, which no central planner can fully access or synthesize.
Incentives may help with information gathering, but they cannot overcome the fact that much of the knowledge relevant to economic decision-making is local, contextual, and often inexpressible. Prices, emerging through decentralized market interactions, are the primary mechanism for communicating this dispersed knowledge in a usable form. In a planned economy, even with non-comprehensive planning, the central authority lacks the spontaneous, adaptive process that market prices provide. Therefore, the issue is not merely about marshalling incentives but about the inherent epistemological limitations of any system attempting to centralize decision-making for complex economic phenomena.
Question: Is central planning inevitable? Lavoie offers a thorough critique on planning. Yet, planning was enormously popular about intellectuals when he wrote and continues (perhaps under other labels and guises) to attract a great many theorists and activists today. What is attractive about planning? What problems are people hoping to solve with greater central direction of economic affairs? Is there any form of planning that seems empirically defensible?
Aashish Reddy: Central planning is not inevitable, and I struggle to even steelman the case that it is. While it has appealed to many intellectuals—some of whom should certainly know better—the majority of these instances occurred prior to the conclusive failures of planning attempts in places like the Soviet Union. The appeal to intellectuals stems from an excessive faith in the powers of human reason, but it is certainly possible to persuade them of the limitations on such powers. Lavoie and Hayek sometimes suggest that this is difficult because intellectuals take too much pride in their own reasoning faculties. However, even in reading and understanding the points made by Hayek, Polanyi, and others, one can feel a similar sense of pride for recognizing these limitations (cf. the pride people feel after reading Thinking, Fast and Slow). In the worst case, the empirical failures of planning attempts will prevent them from being tried again. At best, it is possible to convince the intelligentsia of the theoretical argument that planning is impossible for epistemological reasons.
The Knowledge Problem and the Power Problem
Listen to Dr. Chamlee-Wright talk about her time as a student at George Mason University, her work with her mentor Don Lavoie, her research on the role of culture in Austrian economics and post-disaster recovery, and her use of field-work in understanding the social world. Additionally, read this piece by Dr. Virgil Storr who reflects on his experiences with Don Lavoie as a mentor and provides further podcast and reading recommendations.
Question: Is there a distinction between information and knowledge? If so, how would you characterize it?
Aashish Reddy: Yes. Information can exist outside of minds; it is raw data, something that can be recorded or transmitted without the need for interpretation by a human. It is static and, on its own, lacks meaning or context.
Knowledge, however, is necessarily a feature of human minds. It is not merely information stored within a brain but is embedded within a network of beliefs that an individual holds. This network gives knowledge its character—it’s shaped by a person’s experiences, background, and understanding of the world. Furthermore, knowledge is not always explicit. A belief, and thus knowledge, can exist as a disposition to act or react in certain ways, without needing to be consciously articulated. In this sense, knowledge can be tacit and inarticulate, existing as a kind of practical understanding that is inseparable from the individual and their particular context.
Therefore, while information can be transmitted or codified, knowledge often remains personal and embedded in human activity, much like how skills are developed and honed over time. This fundamental difference means that no matter how much information is gathered or shared, it cannot substitute for the practical and context-specific nature of knowledge.
Question: Is the 'power problem’ associated with government planning a cause of the knowledge problem or its consequence?
Aashish Reddy: Contrary to what I believe Lavoie and Hayek argue, I see the power problem as neither a cause nor a consequence of the knowledge problem. Even if the knowledge problem did not exist, a central planner would still hold excessive political power, which could be used to extract rents or favour friends and allies. In such a hypothetical world, the current debate would shift toward institutional designs for planning committees that might minimize these forms of corruption or favouritism.
The self-interested incentive for the planner to misuse power does not arise due to their inability to gather all the necessary knowledge. Rather, it exists independently, rooted in the nature of political power and human behavior. The knowledge problem, on the other hand, stems from epistemological limitations and the way market processes generate and disseminate the knowledge that individual actors can use. The market’s decentralized structure allows for the discovery and use of information in ways that centralized planning simply cannot replicate, but this epistemic limitation is separate from the power problem inherent in the concentration of authority.
Wraa Noor Haider: According to Lavoie, national economic planning involves, by its very nature, the concentration of significant political and economic power in a single agency. This concentration naturally leads to the abuse of power as political actors are driven by incentives, a point rightly emphasized by the public choice economists.
Even if morally upright individuals, like Gandhi, Jinnah or Mandela, with higher mental capacity and intelligence were “at the top”, they would still lack the info and knowledge about the intricate details “at the bottom” of the market to plan an economy efficaciously. The knowledge required for markets to reach equilibrium state is not available to any single agent or central authority. This dispersed and context-specific knowledge that only emerges through the exchange of property rights, central planners can’t fully access.
Resultantly, central planners will likely make decisions based on political knowledge rather than economic knowledge, which could generate the militarization of the economy.
I am more inclined towards @Aashish Reddy argument. In my view, the knowledge problem exists independently (even in the presence or absence of power problem), however it is exacerbated in the presence of a totalitarian problem.
The Radical Free Market Approach
Hope everyone found their online group discussions in Zoom educational and useful in understanding the concepts discussed in the book. This week we continue discussions of Lavoie's book National Economic Planning. To help you think about the questions below please watch the video via this link, in which Christopher Coyne addresses some of the questions commonly asked about the book.
Additionally, listen to this episode of the Hayek Program Podcast in which Dr. Peter Boettke and Dr. Virgil Storr reflect on Lavoie's legacy as an academic scholar, professor, and a mentor whose teachings were strongly rooted in the value of freedom.
Question: Lavoie argues that "the Left has retreated to the wrong line of defense" (p. 232). He says that leftists who dislike militarism, political oppression, and special privilege should embrace markets. Do you find his arguments convincing?
Aashish Reddy: I agree that the political Left underrate markets, and Lavoie's theoretical critique of planning is part of the reason for that. Nevertheless, I think the claim that they should embrace markets because they further their own stated ends is more tenuous.
I see the Left as being largely motivated by egalitarianism and concern for the least well-off. Regarding the former, it seems undeniably true that markets tend to create greater inequality. My disagreement with the Left here is that I don't see inequality as ipso facto a bad thing, but rather something that is only harmful under certain conditions. I am comfortable accepting some inequality in income and wealth in exchange for higher overall living standards, especially if that inequality doesn't directly translate to disparities in living conditions. For instance, while the richest people are much wealthier than I am, my mobile phone is nearly as good as theirs, if not just as good.
The Left is also motivated by concern for the least well-off in society. I take the view that, over the long run, the least well-off have generally become better off under liberal capitalism. However, I don’t fault those who argue that we should prioritize "taking care" of the least well-off in the short and medium term, given that market vicissitudes can make it difficult for them to make a living. Since material oppression is a far greater concern for the Left than coercion by the state (which typically affects the middle classes more), it makes sense that they would remain committed to policies like the welfare state. (On this point, I even share their concerns to some extent.)
As for militarization, the argument seems to be that the state’s power to extract resources enables it to engage in wars that may be unjust or detrimental to its citizens' interests. There seems to be a collective action problem between states here. Polities that find ways to produce and extract wealth for militarization purposes will be able to invade those that don’t. I hope that, over time, we can move away from this equilibrium. However, as things stand, it’s understandable why the Left might see a robust state as a necessary bulwark against external threats, especially in a world where rival states do engage in aggressive militarization. From this perspective, the Left’s resistance to dismantling state power in favour of pure market solutions aligns with their concerns about external coercion and national security.
Ultimately, if one assumes the values of the Left, there is often a case for some degree of market intervention. My usual argument against this is that their solutions involve trade-offs I am unwilling to make (i.e., a value difference); sometimes, that their values are impossible to realize (Lavoie sees that their values cannot be attained by their preferred means, and since they have the opposite effect, infers that they can be attained through embrace of markets); sometimes, however, I do accept their arguments.
Question: What lessons does Lavoie have for policymakers? And why is using models for planning policies problematic? How would you apply his argument to discourse and the issues of today?
Aashish Reddy: That the market process creates knowledge which is tacit and inarticulable, so that interventions will distort price signals and make it more difficult for individuals to coordinate their economic behaviour. This is an argument against comprehensive planning wholesale. It is not, by itself, an argument against any kind of market intervention; it is simply a negative aspect common to all interventions that must be considered when weighing costs and benefits. There is also a secondary point that the mere existence of institutions with the coercive power to interfere with the economic behaviour of individuals can lead to power problems and rent-seeking.
Ask a question, share further readings, etc.
Question: Post your discussion question using this thread.
Aashish Reddy: I accept the Hayek/Lavoie theoretical critique of why planning cannot work because it destroys the ability of the price to signal knowledge which is otherwise impossible to articulate and act on, thereby precluding the ability of individuals to coordinate their economic activity. But has there actually ever been a real world example of planning where it is clear that this knowledge problem is the primary reason that good outcomes failed to materialise? It seems like in the Soviet Union, Cuba, Venezuela, etc., the issue was predominantly one of rent-seeking managers; constant shortages of (say) bread surely signalled the knowledge that the planned price was being set too low!
Question: If you would like to share some further readings on the themes covered in the book, please use this thread.
Aashish Reddy:
Bitcoin is Venice: Essays on the Past and Future of Capitalism, by Allen Farrington & Sacha Meyers
Hayek on Liberty, by John Gray
The Sovereign Individual: Mastering the Transition to the Information Age, by James Dale Davidson & Lord William Rees-Mogg
Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals, by Tyler Cowen
Question: What surprised you in this book?
Aashish Reddy: I was surprised by how much discussion of the philosophy of science and epistemology was present in the book in order to advance the argument; as a (Maths and) Philosophy student, this was a pleasant surprise indeed. There was even a whole appendix addressing some questions I had in respect of the philosophical argument raised in the book, especially the point about how the claims made by Hayek/Polanyi relate to the Popper's philosophy of science.