Thursday, August 21, 2008

Why the Soviet Union Crumbled

A central premise in economics, thanks to Friedrich Hayek, is that the information necessary for making wise decisions in an economy is dispersed across people in an economy. No one person could ever obtain the information necessary to run a command and control economy.

Since 1958, with the essay "I, Pencil" by Leonard Read, this concept has been taught to undergraduates by demonstrating that no one person knows how to make a pencil, much less the ability to bark instructions to comrades on how to make pencils efficiently. Certain individuals, however, know how to make certain parts of pencils, and they coordinate their efforts through markets to make pencils - very cheap pencils, I add.

An economist recently created an excellent PowerPoint presentation to demonstrate this, and made it freely available for you to download here: