Monday, June 30, 2014

Peter Boettke Responds to My Comment on 'Coordination Problem'

Peter Boettke emails in reference to my post, Peter Boettke and the Coining of Technical Economic Vocabulary:


Gerald O'Driscoll wrote a book --- the first such book -- on Hayek's ideas back in the 1970s, it is entitled Economics as a Coordination Problem.

The point being, that economic theory must explain the complex coordination of plans in an economic system such that even a common pencil can be produced.  The idea is that coordination is the problem, but it is the entrepreneurial activity of individuals within the market place that provides the solution.

We have said this repeatedly when folks have asked the question such as you.  Why you would think that coordination implies planning is beyond me.  The coordination of plans must occur if an economic system is going to work, the question is who does this coordination --- the planning by the state is one answer that folks like you and I reject for various incentive and calculation issues; the "planning" by market actors is a solution that you and I accept.

Confusion occurs in science when folks use the same words to mean different things and different words to mean the same thing.  Greg Ransom is wrong to challenge the received vocabulary of a scientific discipline (the term "rent" has been used since at least Ricardo).  And the same is true with respect to the term coordination --- it is a term used by classical economists, early neoclassical economists (including the Austrian economists), and modern economists.

Anyway, let me make this clear once more --- I do not believe coordination implies planning, I believe it is one of the central puzzles of economics to explain how the production plans of some come to mesh with the consumption demands of others.  That coordination of economic activity through time is brought about by the individual purposive action market participants. In short, as I have said before, coordination is the puzzle, entrepreneurship is the solution.

All the best,


Peter Boettke
BB&T Professor for the Study of Capitalism at the Mercatus Center
University Professor of Economics & Philosophy
Department of Economics
George Mason University
Fairfax, VA 22032


1 comment:

  1. People are confused about 'coordination problem' for exactly the same reason they are confused about 'rent'.

    You have admitted that you have to explain it to people time and again, which proves your original hypothesis that economics are lousy at coining words that are properly descriptive.

    What about this is so hard to understand?