It has become something of a cliché that when we look at the label of almost anything it says, “Made in China.” In fact, this is an exaggeration. According to U.S. government trade statistics, only about 20 percent of imports into America come from China. The other 80 percent are bought from many other places in the world. Our two largest trading partners, combined, are Canada and Mexico.
But, nonetheless, China is 10,000 miles away from the United States. There are people in hundreds if not thousands of factories in China making goods that in whole or in part will be shipped over and sold to buyers in the U.S. The owners and the workers in those factories know nothing about you or me as distinct individuals, or virtually any of the multitudes of others to whom their produced products will be finally sold in the United States. Nor do hardly any of us who, in turn, participate in the manufacture of goods here in America that may be among those sold to China know anything about the particular people and businesses in China who want to buy would we may have for sale.
(a) How, then, do the actions of all those making goods, respectively, in the United States and China know what it is what the consumers in the other country will want to buy and pay for? In the Power-Point, Market Demand and Supply, it is explained that economist, Friedrich A. Hayek, emphasized that there is a division of knowledge that inescapably accompanies the division of labor. Hayek explained that it is not only the fact that the butcher, the baker, and the candlestick maker, or specializing in the manufacture of product different from the others knows how to do things that those other do not know how to do. That is certainly true. But, Hayek emphasized that there are different types of knowledge, each with its own characteristics and qualities. And that each and everyone one of us possesses in our minds all three of the types of knowledge, between which he distinguishes.
If all the knowledge in society, in the world economy now, is to be effectively drawn upon and applied to serve the consumer and producer wants and desires of all the people around the globe there needs to be some institutional mechanism for bringing all that knowledge together in some useable coordinated manner. In the global marketplace, Hayek explained, this is successfully done through the worldwide competitive price system.
What did Hayek mean by those different types of knowledge? What are they and how do they differ from each other, even though each of us have all three types of knowledge in our individual minds, though the content and qualities of that knowledge are different from that in the minds of each of us else in various ways?
How does Hayek explain how the price system successfully coordinates all of that knowledge so we may all, potentially, benefit from all the things that others know that we, personally, may know nothing about?
(b) Socialism, as an economic system, has traditionally meant government ownership and/or control of the means of production, and government central planning of all the economic activities of the society; that is, the government deciding and directing what gets produced, how and where it gets produced, in what quantities and qualities, and to whom the resulting output will be distributed in society.
Using Hayek’s ideas, what might be the difficulties and problems with successfully implementing a socialist economic system that would “deliver the goods” better or at least equally as effectively as a functioning competitive market economy?
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