On Reading Hayek (sort of)

It’s kinda wussy to read the Cambridge reader on Friedrich Hayek instead of his books but it’s a start. We have to understand Hayek.

OK, price signals are indispensable as witness Soviet central planning which decided to produce Random Crap Nobody Needed. But if price signals are important why is worker input to the production process not important?

Also, you only know the price signal AFTER you’ve made and sold the product, and either further orders pour in, or, your product is returned by angry shop owners.

Hayek is spot on on the “triangular” nature of production in which investment in a product is a structured process. Steve Jobs’ decision that the Powerbooks should be constructed out of a single block of aluminum implied special tools at his suppliers. Had the decision been wrong, that investment would have been a waste, whereas classical economics treats it as a unit and “mostly” good.

In Hayek low interest rates MIGHT encourage over-diversion of resources to foolish entrepreneurs which would lower the “real wage” of the workers because the aluminum is in computers that don’t sell. Jobs was right: the Powerbook’s casing is sweet, and, more important, it sells at the price point he set for it.

“Price signals” don’t help the innovator. The original Mac was supposed to be priced at 2000.00 but this was increased before release to 2500.00. There was no way to know whether this would kill sales…it didn’t, perhaps because of the “Super Bowl” ad, which was almost killed.

The problem as I see it for Hayek is that business managers are NO MORE gifted than central planners at market anticipation, especially when they don’t listen, in the context of investment decision, to their workers. A Woz mac would have had an open backplane and would have shipped with an assembler at a minimum but I had to wait six months, farting around with MacPaint, before I got MacBasic. We have no way whether a Woz, Apple-II style Mac would have succeeded.

David T Noble, in Forces of Production, narrates the introduction of computerized machine tool technology in the 1950s. It was intended to bust unions by having non-union college kids prepare programs for the computerized machine tools. It was assumed that this would save money.

But it was found that the college boys really sucked at programming despite their math degrees. This is something we learned at Roosevelt and the University of Illinois in the 1960s when those schools started to teach computer science.

The math boys often failed to write bug-free Fortran programs because programming, while mathematical, is not at all like traditional math, especially school math, which involves too much analogue reasoning (as when the calculus teacher teaches calculus by way of showing a differential gear).

Whereas the union men could visualize the process in the actual conditions of machine tool production. The college boys, according to Noble, created tapes that created “scrap at high speeds”.

Price signals do not tell us what’s going on inside the production process itself. The end user of Mac OS doesn’t give a rat’s ass about whether its developers used tools they developed themselves to generate the OS that became part of the OS itself (“eating your own dog food”). There is NO WAY to use price signals to tell whether this is a good idea, and in my experience, managers generally don’t like the idea that a software development team might develop its own tools.

For example, during the development of the first mobile phone at Motorola, the team wanted to use the same chip used in the device to develop the tools for developing the mobile software but their management wanted the team to use Motorola’s IBM mainframe and tools developed by an outside consulting firm. I had the hapless job of representing the outside firm in my little Brooks Brothers suit and the beardoes on the team took one look at me and my elegant, commented, IBM style assembler code, and said yeccchhhhhh….

I wrote a beautiful reference manual using the standards of my firm only to discover a copy at Motorola decorated with the Bullshit stamp of the lead Motorola developer. The team probably went on to develop its own “assembler” for creating OS tables on the Z80 and the rest is history: Motorola introduced the first successful mobile phone, no thanks to me.

The price system tells us nothing about this situation.


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