1. Entrepreneurs have the best knowledge of their circumstance, and not the planners
When the government comes up with a plan to promote tomato farming in Kavre with a view to use the tomato produce to make ketchup and sell this local Kavre ketchup all over Nepal and also export abroad, the government does not possess the best knowledge about the properties of tomato that grows in Kavre. The farmers in Kavre don’t aim of exporting their ketchup and growing rich because they know that their tomato has a thick skin and cannot be used to make ketchup. Their tomato is best suited for making salads and pickle, and that is where they see their market.
2. People have ‘free will’ and therefore, their decisions cannot be predicted by studying economic trends
You might love ice-creams and you’ve been having one every day for the last 2 years. Your friend knows this and brings you an ice-cream today. For some reason, today, you feel like skipping it. There is no law that enforces you to eat an ice-cream every day. You have ‘free will’ and the decisions you make today can be different from the one you made yesterday for just about any reason. Now imagine, the government trying to bring a program for entire population of Nepal.
3. Central planning is bound to collapse and give way to networks that promote voluntary cooperation
Let’s think of an economy with a central planner A. A has 3 immediate subordinates, who in turn have other three and so on and so forth, thus forming a hierarchy of command and control. Even assuming that A is a benevolent planner, he’d still have to collect the information about the bottom-most layer in the economy via some of his subordinates, who in turn do so via their subordinates. Now one, so much information gets lost in the process of it being transferred to the planner A (ever watched the telephone game in Sony TV as a kid, where 5-6 people have to communicate a 20-30 word message and how they mess everything up?) And two, while the info is being transferred, the circumstances of time and place would have changed by the time the info reaches the planner and a concrete program in implemented. This problem of ‘inefficiency’, ‘waste’ and ‘path-dependence’ leads to either ‘separation’ of the hierarchy into smaller, more efficient and more manageable hierarchies; two, the hierarchy collapses as centralized control from the top down is lost; or three, by ‘transition’, the system now begins to deal with the increased information and increased complexity by flattening the hierarchy, forming ‘networks’.
4. Price is a great communicator – a marvel!
Price system carries with it the vast amount of information (and without losing any important bit), much of which is lost in a Planned Order. Price system can make adjustments to the changes in circumstances of time and place, without every individual (or for now, let’s keep it to the planner) having to delve into the all the specifics that is causing him to behave in a certain way. This system creates new values for every individual with every tiny change in the circumstances, creates new incentives and provides sufficient avenues for all to prosper.
5. If you look around, ‘Spontaneous Order’ is all around us
Now here in the ‘network’ (that is formed when the system begins to deal with the increased information and increased complexity by flattening the hierarchy) the relationship between any two individuals is that of free exchange, that is co-operation and voluntary. This, in Hayek’s view, is a ‘Spontaneous order.’ This ‘Spontaneous order’ is a result of human action and not planners’ design. If you seek examples, think about the language you speak, or the money you buy things with. No single planner created either of these things. Years of cooperation between human beings created these things.