With Hayek on my mind...
Those who know, teach.Those who don t ... accomplish: A Quick Lesson in Economics (*)
Claudio Djissey Shikida
As Hayek very appropriately said, knowledge is dispersed. Perhaps the best legacy he left us is that individual freedom is a pre-condition for the socially optimal use of knowledge. In a free world, the market enables a dynamic exchange of ideas between suppliers and demanders, through trial and error, until the best allocations of knowledge are reached, as a result of these decentralized actions. Unlike what the enemies of freedom would have us believe, diversity is compatible with the market.
Anyone who has ever spoken to different entrepreneurs knows that the real wealth of the market does not look at all like the rosy picture of homogeneous, identical businessmen competing with each other at the same level of knowledge on the use of production factors to obtain profit. Reality is more like an infinity of entrepreneurs, some smarter that the others, fighting for survival in a world of no less diversity represented by the consumers. Believe me, that s stressful!
I would like to stress this point again: knowledge is dispersed and knowing how to use it for profit means not making too many mistakes. A businessman interested in making a profit, say, in the metalworking industry, has the typical energy and attitude that characterize his title ( entrepreneur , executive ). But, like anybody else, he doesn t know an awful lot about metallurgy. So what does he do? He hires somebody, a good technician preferrably, who will teach him the basics. A good consultant can provide him with information about the world market for that particular industry. A good engineer will outline the different technological combinations available in his drive for profit (innovate here, don t make any changes there, etc.) Thanks to the entrepreneur this odd fellow who always insists on making money these three professionals will have a job.
Notice, dear reader, the importance of knowledge. Natural vocations exist, and the chance to take advantage of them to make money is illustrated in the above example. The engineer, the consultant and the technician, each of them looking to improve their own life, represent enhancement through specialized knowledge. The entrepreneur, in his quest for profit, generated three opportunities. In a feudal/socialist world, this would only be possible by slavery (feudal lord) or under a state monopoly of labor (socialism/comunism). Both regimes well known for their rather low levels of freedom...
This aspect of information highlighted by Hayek is very well illustrated by a Dilbert comic strip, the character created by Scott Adams. In the cartoon strip, a Human Resources Manager, lecturing to some employees, is talking about how important it is to always hire somebody smarter than yourself. Suddenly, at the back of the room, somebody raises his hand and asks: Does that mean the dumbest person in the company is the president? Good question, and funny, of course. But notice the (perhaps unintentional) subtlety in Adams s joke: the opportunity for this guy to raise his hand and ask a question, instead of asking for a dime on the street was only made possible because somebody who was ignorant in a particular field of knowledge, in his search for profit, provided the anonymous wit a chance to be at the meeting. As I always say: those who know, pass their knowledge on. Those who don t, get things done. And there s nothing wrong with that. Wrong is not taking the opportunities created by the market to keep on learning a bit more all the time.
(*) Doctor in Economics. Professor at FEAD, IBMEC-MG and economist at FIEMG My opinions do not necessarily reflect those of the institutions I am associated with. Many thanks to the intern Frederico Coelho (Economic Management FIEMG) for the conversation that made me realize this utterly obvious point. The professor, we all know, is the dumbest one in the class ...
(c) by Claudio Djissey Shikida, 2005.
Claudio Djissey Shikida
As Hayek very appropriately said, knowledge is dispersed. Perhaps the best legacy he left us is that individual freedom is a pre-condition for the socially optimal use of knowledge. In a free world, the market enables a dynamic exchange of ideas between suppliers and demanders, through trial and error, until the best allocations of knowledge are reached, as a result of these decentralized actions. Unlike what the enemies of freedom would have us believe, diversity is compatible with the market.
Anyone who has ever spoken to different entrepreneurs knows that the real wealth of the market does not look at all like the rosy picture of homogeneous, identical businessmen competing with each other at the same level of knowledge on the use of production factors to obtain profit. Reality is more like an infinity of entrepreneurs, some smarter that the others, fighting for survival in a world of no less diversity represented by the consumers. Believe me, that s stressful!
I would like to stress this point again: knowledge is dispersed and knowing how to use it for profit means not making too many mistakes. A businessman interested in making a profit, say, in the metalworking industry, has the typical energy and attitude that characterize his title ( entrepreneur , executive ). But, like anybody else, he doesn t know an awful lot about metallurgy. So what does he do? He hires somebody, a good technician preferrably, who will teach him the basics. A good consultant can provide him with information about the world market for that particular industry. A good engineer will outline the different technological combinations available in his drive for profit (innovate here, don t make any changes there, etc.) Thanks to the entrepreneur this odd fellow who always insists on making money these three professionals will have a job.
Notice, dear reader, the importance of knowledge. Natural vocations exist, and the chance to take advantage of them to make money is illustrated in the above example. The engineer, the consultant and the technician, each of them looking to improve their own life, represent enhancement through specialized knowledge. The entrepreneur, in his quest for profit, generated three opportunities. In a feudal/socialist world, this would only be possible by slavery (feudal lord) or under a state monopoly of labor (socialism/comunism). Both regimes well known for their rather low levels of freedom...
This aspect of information highlighted by Hayek is very well illustrated by a Dilbert comic strip, the character created by Scott Adams. In the cartoon strip, a Human Resources Manager, lecturing to some employees, is talking about how important it is to always hire somebody smarter than yourself. Suddenly, at the back of the room, somebody raises his hand and asks: Does that mean the dumbest person in the company is the president? Good question, and funny, of course. But notice the (perhaps unintentional) subtlety in Adams s joke: the opportunity for this guy to raise his hand and ask a question, instead of asking for a dime on the street was only made possible because somebody who was ignorant in a particular field of knowledge, in his search for profit, provided the anonymous wit a chance to be at the meeting. As I always say: those who know, pass their knowledge on. Those who don t, get things done. And there s nothing wrong with that. Wrong is not taking the opportunities created by the market to keep on learning a bit more all the time.
(*) Doctor in Economics. Professor at FEAD, IBMEC-MG and economist at FIEMG My opinions do not necessarily reflect those of the institutions I am associated with. Many thanks to the intern Frederico Coelho (Economic Management FIEMG) for the conversation that made me realize this utterly obvious point. The professor, we all know, is the dumbest one in the class ...
(c) by Claudio Djissey Shikida, 2005.
posted by Prof Shikida at 10:42 PM
3 Comments:
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