A Model of Total Factor Productivity Built on Hayek’s View of Knowledge: What Really Went Wrong with Socialist Planned Economies?

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

Abstract: Because 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.

Keywords: Hayek; Market economy; Socialist planned economy; Total factor productivity; Innovation; Experience curve effect; China (search for similar items in EconPapers)
JEL-codes: D24 J24 O31 P10 P20 (search for similar items in EconPapers)
Date: 2011-02-26
New Economics Papers: this item is included in nep-eff, nep-hpe and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:29107

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