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Thursday, December 20, 2012

Collectivist Economic Planning by F. A. HAYEK A WORLD OF COMPETING MONOPOLIES


We may best discuss this question when we come to deal with the schemes in detail. Before we can do that, however, it is necessary to show why, if competition is to function satisfactorily, it will be necessary to go all the way and not to stop at a partial reintroduction of competition. The case which we have therefore to consider next is that of completely integrated industries standing under a central direction but competing with other industries for the custom of the consumer and for the factors of production. This case is of some importance beyond the problems of socialism which we are here chiefly concerned with, since it is by means of creating such monopolies for particular products that those who advocate planning within the framework of capitalism hope to “rationalize” the so-called chaos of free competition. This raises the general problem, whether it is ever in the general interest to plan or rationalize individual industries where this is only possible through the creation of a monopoly, or whether, on the contrary, we must not assume that this will lead to an uneconomic use of resources and that the supposed economies are really diseconomies from the point of view of society.
The theoretical argument which shows that under conditions of widespread monopoly there is no determinate equilibrium position and that in consequence under such conditions there is no reason to assume that resources would be used to best advantage, is now fairly well accepted. It is perhaps not inappropriate to open the discussion of what this would mean in practice by a quotation from the work of the great scholar who has been mainly responsible for establishing it.
It has been proposed as an economic ideal [wrote the late F. Y. Edgeworth1] that every branch of trade and industry should be formed into a separate union. The picture has some attractions. Nor is it at first sight morally repulsive; since, where all are monopolists, no one will be the victim of monopoly. But an attentive consideration will disclose an incident very prejudicial to industry—instability in the value of all those articles the demand for which is influenced by the prices of other articles, a class which is probably very extensive,
Among those who would suffer by the new regime there would be one class which particularly interests readers of this Journal, namely abstract economists, who would be deprived of their occupation, the investigation of the conditions which determine value. There would survive only the empirical school, flourishing in the chaos congenial to their mentality.
Now the mere fact that the abstract economists would be deprived of their occupation would probably be only a matter of gratification to most advocates of planning if it were not that at the same time the order which they study would also cease to exist. The instability of values, of which Edgeworth speaks, or the indeterminateness of equilibrium, as the same fact can be described in more general terms, is by no means a possibility only to disturb theoretical economists. It means in effect that in such a system there will be no tendency to use the available factors to the greatest advantage, to combine them in every industry in such a way that the contribution which every factor makes is not appreciably smaller than that which it might have made if used elsewhere. The actual tendency prevailing would be to adjust output in such a way, not that the greatest return is obtained from every kind of available resources, but so that the difference between the value of factors which can be used elsewhere and the value of the product is maximized. This concentration on maximum monopoly profits rather than on making the best use of the available factors is the necessary consequence of making the right to produce a good itself a “scarce factor of production.” In a world of such monopolies this may not have the effect of reducing production all around in the sense that some of the factors of production will remain unemployed, but it will certainly have the effect of reducing output by bringing about an uneconomic distribution of factors between industries. This will remain true even if the instability feared by Edgeworth should prove to be of a minor order. The equilibrium that would be reached would be one in which the best use would have been made only of one scarce factor: the possibility of exploiting consumers.

Collectivist Economic Planning

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