War and Economics

Day 220 of A Year of War and Peace

September of 1945 The American Economic Review published a paper called “The Uses of Knowledge in Society by Frederick Hayek. In that paper Hayek argued against the idea of a centrally planned economy. He advocated instead for decentralized economic planning with decision-making divided among many individuals. Napoleon would have benefited greatly, possibly bringing the Battle of Borodino to a more decisive and swift end, if only he could have somehow read, understood, and applied the lessons of Hayek’s paper.

Napoleon, as we have seen, is the consummate central planner. We’ve witnessed many times over now his stubborn attachment to his blueprints for battle. His belief seems to be that war may be approached with exacting, scientific precision. At one point in today’s chapter he even refers to the battlefield as a chessboard. Chess, however, is composed of inanimate wood pieces and features a set of rules of play. It can therefore be played with mere logic. Not so with the messy, organic nature of warfare composed as it is by emotionally charged humans with unknowable urges and compulsions. In treating the battle as a game of chess Napoleon is engaging, as Hayek has it, in “an erroneous transfer to social phenomena of the habits of thought we have developed in dealing with the phenomena of nature.”

This mistake leads Napoleon to disregard the requests of his generals to send in reinforcements. Napoleon instead adopts the central planner’s top-down management style rather than Hayek’s bottom-up proposal.

When Murat gallops up to Napoleon and requests that reinforcements be sent in Napoleon rejects this idea presumably because it doesn’t comport with his design for the battle. Keep in mind, as we learned yesterday, that Napoleon cannot clearly see the battle. His view is obscured by the fog of war. Murat, on the other hand, is right there in the thick of it. Hayek’s warning about the problems of a centrally planned economy are apropos here. “The knowledge of the circumstances of which we must make use never exists in concentrated or integrated form,” he writes, “but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.”

Hayek also argues that rapid change in circumstances of time and place in the economy demands an equally rapid adaptation to such changes. Therefore, the ultimate decisions “must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them.”

In terms of the Battle of Borodino the actors who are familiar with the circumstances are the French generals on the ground and, more so, the soldiers themselves, rather than Napoleon. Napoleon, nevertheless, ignores his general’s plea for reinforcements. After refusing Murat he likewise ignores Belliard. When he finally does comprehend the need for reinforcements he refuses the advice of Berthier who “knew all the divisions, regiments, and battalions by heart,” and instead sends in another division of his own choosing.

Hayek concludes his essay by noting that prices set locally in an open, competitive market serve as bits of information allowing a decentralized planning apparatus to advertise the dispersed, hidden data of the economy to otherwise ignorant market participants. To abandon this organic, emergent system in favor of command-oriented central pricing board has historically resulted in terrible outcomes. Likewise, Napoleon’s refusal to make use of the dispersed knowledge of his generals on the ground leads to a gruesome battlefield the likes of which neither he nor his generals has ever seen.

Let’s not be Napoleon. Let us instead make use of the prices available to us before we make decisions. In life those with the most intimate knowledge are those who have come before. Fortunately for us there are many who have come before. Many of them have left records of their experiences and the lessons they have learned. While it doesn’t cost much to listen to them the price of disregarded their counsel is dear indeed.

DAILY MEDITATION

The only people really at leisure are those who take time for philosophy. They alone really live. It is not their lifetime alone of which they are careful stewards: they annex every age to their own and exploit all the years that have gone before.

Seneca, On The Shortness of Life

This is the two hundred and twentieth installment in a daily, yearlong, chapter-by-chapter reading devotional and meditation on Leo Tolstoy’s War and Peace. For more information on this project please read the introduction to the series here.

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