Markets vs. central planning: some distinctions

I left the following comment on Unlearning Economics’ post at Peria:

As I see it, there are three intermingled debates going on here. They are: 1) An argument about the relative information-theoretic and allocative abilities of centralised hierarchical systems on the one hand and decentralised market systems on the other; 2) an argument about the intrinsic ethical and moral status of various types of political economy; and 3) an empirical argument about which nation states have killed the most people, and been responsible for the most suffering.

On the subject of argument 1): Free markets are not the same thing as capitalism. Central planning is not the same thing as communism. There has been a tendency for capitalist countries to exhibit far greater decentralisation of decision making and a greater reliance on some form of market system; but this historical fact doesn’t mean that ‘private ownership of the means of production’ necessarily requires a market system, nor does it mean that the historical tendency for communist countries to adopt central planning means that *all* future communist or socialist economies must be built around central planning.

I would also note that the most economically successful countries have historically used *both* central planning (in the form of large, centralised private firms; large, centralised government departments; and government-directed industrial policy) and decentralised market systems. Markets and hierarchies are tools, and different jobs require different tools.

I recommend ‘The Market System’ by Charles Lindblom on this subject. ‘The Origin of Wealth’ by Eric Beinhocker is also very good.