How Hayek’s Evolutionary Theory Disproves His Politics – Evonomics

Second, the market, as Hayek says, processes information and on that basis, determines, for example, the best way to organize production. But applying this logic shows that hierarchical economic planning may not be such a bad thing at least when combined with markets. The boundary of the firm – how big it will be – is determined by the answer to the question, should this component be produced inhouse or purchased? But this is also the boundary between organizing things according to the market or according to the hierarchical structure of command that has led capitalist firms to be termed (ironically) as ‘mini-planned economies.” The ‘verdict of the market’ in this case is that both markets and hierarchies have a place in the economy! DSW: That’s a great point, but it can be elaborated along very interesting lines! I’ve been delving into the business literature a lot lately, and “command and control” often doesn’t work at the firm level either. A single firm requires the same protections against disruptive self-serving behaviors that Ostrom demonstrated for common-pool resource groups with her core design principles. Also, for a single firm to adapt to change, it needs carefully orchestrated variation-and-selection processes rather than a centralized plan. However, your larger point is well taken: a firm remains a “mini-planned economy” even if not organized as command and control.

Source: How Hayek’s Evolutionary Theory Disproves His Politics – Evonomics

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