Neoclassical Theory is Just the “Liberal” and Mathematical Version of the Intellectual Mistake of Central Planning

According to the Austrian vision, a dynamic equilibrium, in which human actions try to coordinate in order to accomplish the plans, is possible to be reached only if actions are free. This doesn’t mean that all the plans will be reached and we can obtain a static and perfect equilibrium like in the neoclassical theory. But, in a free society the people are free to learn from their mistakes, so they are free to amend their plans and expectations, according to what they learn from the mistakes and from the interaction with other people.

According to the socialist view, instead, it is possible for a central planner to collect all data in order to produce a perfect economic calculation. In this way, it is the central authority that supplies the information to the actors in terms of prices, goods to be produced, quantities, etc… These idea became so common during the 1920s and 30s, that a certain degree of central planning was widely accepted outside from the Marxist environment. Keynes is the most important example, while the neoclassical theory is the “liberal” and mathematical version of this intellectual mistake.

For more than half a century, the belief that deliberate regulation of all social affairs must necessarily be more successful than the apparent haphazard interplay of independent individuals has continuously gained ground until to-day there is hardly a political group anywhere in the world which does not want central direction of most human activities in the service of one aim or another. (Hayek, 1935a, p. 1).

—Carmelo Ferlito, “Bruno Leoni and the Socialist Economic Calculation Debate,” Procesos de Mercado: Revista Europea de Economía Política 10, no. 1 (Spring 2013): 38-39.