Information in the Market; J. Cobb

ergy Plan. The kind of information . that a government agency like the Energy Information Administration collects, however, is completely use less in a free market. There are two different theories of information. When we understand the differences between these theo ries, and the concepts of economics that rely upon one theory or the other, we are much better equipped to explain to friends, associates, and even politicians why the free market is the only way to solve things like an energy crisis. Information is absolutely critical for any kind of planning, both the so cialist idea of centralized national planning and the free-market method of decentralized entrepre neurial planning. Ludwig von Mises identified planning for the future as the main human quality that sets us 247 248 THE FREEMAN April apart from lower forms of life. Some animals prepare for the coming of winter, like squirrels by storing nuts, but only mankind plans for the fu ture by forgoing consumption today to create tools, capital goods, to enjoy greater wealth through higher pro ductivity later on.

Two Models There are two basic models of the economic process in most people's minds. One is the decentralized, incentive-led market where consum ers are the final judges of business performance, where bad decisions are punished by economic loss. The other is a centralized model, in which the economy is like one big company, headed by the President with the Congress serving as a Board of Directors. In a corporation, the managers need reliable information to choose what to produce and where to offer it for sale. A staff of statistical mar keting specialists and cost account ants, as well as computer models that can simulate different "what if" situations, are valuable tools for business planning. In this case, busi nessmen are trying to make the best decisions they can, but they know that most forecasting is just guess work. They can't control the con sumers' buying habits. If the buyers reject their products or services, heads may roll.

Although the corporate model of economic planning is helpful for businessmen, it is a logical fallacy to think about the larger economic sys tem as one big company. The task of everyone in the "extended order of human cooperation," to rise the term favored by Nobel-laureate F. A. Hayek, is to discover information and act upon it to meet the needs and economic demands of other people, most of whom cannot be identified in advance. This kind of information cannot be reduced to statistics and stored in a computer. It is often not known in advance. Only after the consumers have judged the businessmen's at tempts can anyone see who made a profit and who made a loss. Profits are informative and help the suc cessful business planners obtain more capital to expand their activ ity. Losses are also informative, and they diminish the supply of capital in the hands of poor business plan ners. Information about success and failure is the real, hard data in a free market economy. Investors monitor winners and losers very closely.

Even for the business planners, who can benefit by using computer models and statistics, the most im portant facts are the relative prices of the raw materials and labor they must buy before bringing a new product to market. Is it less costly to produce a product like shoes with computerized equipment and a few educated workers in the United 1985 INFORMATION IN THE MARKET 249 States, or by hiring hundreds of skilled handcraftsmen in Asia? The relative prices of capital and labor will determine the answer, and the prices can only be seen accurately in a free market. Market Price Information Essential to Business Planners If the business planners don't have free-market price information, their cost accountants can't tell them what to do. If they don't have accurate price information about the consum ers' other alternatives, their statis tical marketing specialists can't forecast sales and other "what if"

questions. Before computers can help anyone, they have to be fed facts and figures that can only come from a free, competitive market-from the choices and buying decisions of consumers. The reason why business planning is useful but "national planning" is worse than useless-it is destructive to progressis that when the gov ernment tries to take over planning, it wipes out the most important source of planning information, the relative prices of all the different products and services that permit computers and statistics to be of value to businessmen. This is the reason why govern ment statistics programs are such a waste of money. The Energy Infor mation Administration is useless to the producers of oil, gas, and elec tricity. It doesn't do anything for the consumer. It just creates jobs for a small number of well paid statisti cians and computer operators. If this were all, however, it would be as harmless as an old warehouse full of obsolete, military surplus tents.

Unfortunately, programs like the Energy Inforniation Administration are regarded by Congressmen and others who worry about the possi bility of another energy crisis as "es sential" for emergency planning and coping with any problem that may arise. The socialist theory of abolish ing the free market and replacing it with the corporate model whenever it seems expedient is alive and well in Washington. Like a time bomb, this false theory of information will someday destroy us unless those who see what is wrong with it speak out and dismantle it. ® (DEASON UBERTY The Function of Price PRICE has an important function to perform. It equates the wanting of things with the supplying of things. The two are in balance only at the free market price. Any other price, either higher or lower, causes a sur plus or a shortage. F. A. HARPER 1985 Summer Seminarsat FEE June 23-29 July 14-20 August 4-10 For twenty-two years our annual summer seminars have offered a thor ough introduction to the principles of limited government and the mar ket economy. Our sessionsattract lively and diverse groups of people including students, teachers, business proprietors and employees.

The week includes thirty-five hours of lecture and discussion, with ample time for participants to meet informally with both staff and dis tinguished guest lecturers. The Foundation, situated on a five-acre es tate in a quiet suburb near New York City, provides an ideal setting for a week of study and reflection. The charge for a seminar-tuition, supplies, room and boardis $400. Fellowships (including partial travel grants) are available. A de tailed seminar brochure will be sent on request. Pleaseaddress all requests for applications and further information to: Summer Seminars Foundation for Economic Education Irvington, New York 10533 (914) 591-7230 A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN Good News and Bad BEN WATTENBERG,as a political par tisan of the late Senator "Scoop" Jackson of the State of Washington, has been at odds with his political party for a good many years. A Free Trade Democrat, he thinks the spe cial interests and the collectivists of various stripes have laid their cuckoo eggs in a nest that is not rightfully their own. He blames the media, both print and electronic, for much of the sad state of affairs.