A Model of Total Factor Productivity Built on Hayek’s View of Knowledge: What Really Went Wrong with Socialist Planned Economies?
AbstractBecause Hayek’s view goes beyond the Walrasian framework, his descriptive arguments on socialist planned economies are prone to be misunderstood. This paper clarifies Hayek’s arguments by using them as a basis to construct a model of total factor productivity. The model shows that productivity depends substantially on the intelligence of ordinary workers. The model indicates that the essential reason for the reduced productivity of a socialist economy is that, even though human beings are imperfect and do not know everything about the universe, they are able to utilize their intelligence to innovate. Decentralized market economies are far more productive than socialist economies because they intrinsically can fully utilize human beings’ intelligence, but socialist planned economies cannot, in large part because of the imagined perfect central planning bureau that does not exist.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 29107.
Date of creation: 26 Feb 2011
Date of revision:
Hayek; Market economy; Socialist planned economy; Total factor productivity; Innovation; Experience curve effect; China;
Find related papers by JEL classification:
- P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- P10 - Economic Systems - - Capitalist Systems - - - General
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-05 (All new papers)
- NEP-EFF-2011-03-05 (Efficiency & Productivity)
- NEP-HPE-2011-03-05 (History & Philosophy of Economics)
- NEP-TRA-2011-03-05 (Transition Economics)
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