Doing some reading on markets and planning. This one was excellent: why Hayek's challenge doesn't lead inevitably to laissez-faire.

https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.31.3.215

Hayek made a huge contribution to the study of markets by seeing them as systems of information. Through various signals, markets let agents (us, firms, workers, founders, etc) find out info and act on it.

It's an early challenge to what Paul Romer called "mathiness" in econ.

Hayek's problem with the mathematical general equilibrium model was that it didn't account for behaviours we see all the time: advertising, reputation-building, Walmart-style price cutting, and so on. To understand this, we need to see these agents as actors with information.

Hayek's idea of equilibrium was different: it exists when agents are able to carry out plans without interfering with each other.

Like Hayek, this paper asks what we see in disequilibrium. Why can a few agents sometimes topple markets through rushes or volatility, for example?

People's information is limited. In these situations, people's limited information may make their behaviour rational, but the overall effect is chaotic.

The challenge: firms often find it a rational strategy to quash chaos and uncertainty. They vertically integrate, expand, strategize.

In a sense, every firm is a 5 Year Plan -- a set of economic actions, centrally determined by the rational assessment of data.

The value of a market is that is disciplines the planning ability of a firm. As Hayek saw, it also gives them access to information like price signals.

But despite this, most firms dislike reliance on markets. Coase and Hayek themselves debated the implications back in the day:

Since they are driven by the profit motive, there are limits to what firms will invest in the planning process. But the important aspect is that all advantages are gained from that process.

The failure of many 20th century attempts at state planning involved seeing markets as undesirable competitors, and over-reaching policies which ran into the calculation problem.

But other forms of industrial planning have in fact been successful: the American System, Germany's tight private-public research and training strategies, post-WWII reconstruction in Japan and Europe, and recently China's use of SEZs and other market mechanisms.

The key distinction here seems to be a) whether markets are properly used as tools for feedback and b) whether the planner pays careful attention to whether their efforts are rational and whether the payoff is worth the costs of planning.

Whether the planner is a state or a firm seems less important than how the process is informed. Responsible and disciplined institutions will plan effectively, while decaying or badly designed ones will not.

Of course, the interesting question is under what conditions the planning process could surpass the profit motive.

My personal suspicion is that you can't fully do that unless you get to some kind of post-scarcity, or least huge levels of abundance.

But even now, companies like Amazon are getting big enough that they can defy the need for near-term profitability. Large states have similar freedom.

Perhaps that gives us hints of what such freedoms would allow humans to pursue on a larger scale.