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What is Central Planning

David Glasner attempts to defend central bankers from the accusation of being central planners. He does so from a distinctively Misesian perspective — or, at least, that is his intention. But, he mistakes Mises’ definition of socialism as a definition of central planning, where the former suggests the collectivization of the means of production and their rationing by means of a planning board (or something similar). Yes, socialism requires central planning, and yes socialism is untenable, but this does not mean that central planning can only occur in a socialist economy.

Mises, fortunately, defines ‘planning’ for us in “Small and Big Business”, in Economic Freedom and Interventionism (pp. 234–252). Contrary to Glasner’s claims, Mises’ definition presupposes the existence of a capitalist economy. Writes Mises,

The characteristic feature of this system of social control or planning is to be seen in the fact that it preserves to some extent a sphere in which the initiative of the entrepreneurial spirit can benefit the consumers. (p. 244)

 

It is best to approach the topic of central planning by first exploring the organization of society free from intervention. It is this form of organization that Hayek dubs “spontaneous order”, and it basis itself on human action — the fact that individuals act purposefully, economizing between means and ends. As George Reisman, in Capitalism, carefully puts it, there is planning in the free market, but it is a planning by part of the individual market agents for themselves. It is a plan to accomplish a chosen end and allotting means towards the achievement of that end.

Central planning refers to planning as a means of social engineering. In other words, the central planner intervenes in the economy to manipulate the outcome. Why does the government fund healthcare? Because it is believed that if they do not then the market will inadequately supply health services. Why do Keynesians support fiscal stimulus? Because there is insufficient aggregate demand. These are all forms of interventionism, and as such they are also all forms of central planning. They represent the intent to manipulate an outcome away from what it would have otherwise been had it been left to “spontaneous order”.

Of course, interventionism is not the same thing as socialism — socialism is a very specific economic system, where the means of production are collectively owned. But, central planning is not the same thing as socialism; it is merely a facet of socialism. Planning boards can exist in a capitalist economy (government) and a socialist economy.

Is central banking a form of central planning? Absolutely. The role of central banks is to help avoid certain outcomes which are expected to produce themselves in a free market. This includes price stabilization, unemployment targeting, and the guarantee of financial stability. Central bankers look at the data and decide whether or not an intervention is necessary. By the very definition of their actions they are centrally planning.

So, in the interest of “clear thinking” (as Glasner puts it), let us all admit that if we are in favor of certain forms of interventionism then we are in favor of central planning in those cases.

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