Carlos Faría: A Man for Our Times
If the government is going to flat out refuse even minimal market-led reforms, we're better off with a soviet-style Central Plan than with no economic coordination at all.
First things first: Nicolás Maduro is never going to oversee even minimal economic reforms aimed at letting markets clear. His training, his outlook, his understanding of his role and his track record all come together to make that entirely obvious now.
He’s been beseeched to move in that direction by more or less everyone, from Pedro Palma to Mark Weisbrot. He’s appointed not one but two Vice-presidents for the Economy who’ve pledged to do just that. But when the time comes to sign the relevant decrees, the guy freezes. Es más grande que él.
He can’t do it. He won’t do it.
And this creates a serious problem of economic coordination.
This is one of those points that’s really obvious to economists but really obscure to everyone else, so let’s take a moment to unpack it.
Markets —and more specifically market prices— play a number of roles, but the most important is coordination. When you let the free interplay of buyers and sellers set prices, those prices communicate to people what the economy needs more of and what the economy needs less of.
The classic statement of this view is Hayek’s:
In a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan. It is worth contemplating for a moment a very simple and commonplace instance of the action of the price system to see what precisely it accomplishes.
Assume that somewhere in the world a new opportunity for the use of some raw material, say, tin, has arisen, or that one of the sources of supply of tin has been eliminated. It does not matter for our purpose—and it is very significant that it does not matter—which of these two causes has made tin more scarce.
All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere and that, in consequence, they must economize tin. There is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply. If only some of them know directly of the new demand, and switch resources over to it, and if the people who are aware of the new gap thus created in turn fill it from still other sources, the effect will rapidly spread throughout the whole economic system and influence not only all the uses of tin but also those of its substitutes and the substitutes of these substitutes, the supply of all the things made of tin, and their substitutes, and so on; and all this without the great majority of those instrumental in bringing about these substitutions knowing anything at all about the original cause of these changes.
The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.
The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction.
That freely set prices are the best way to achieve this kind of coordination isn’t really under serious dispute anymore. (Bueno, at least not anywhere more than 100 meters from esquina de Carmelitas.)
Central Planning is a much worse solution to the problem of economic coordination than the price mechanism. But it is a solution.
Prices are a uniquely powerful and efficient way of conveying relevant, constantly updated information about what you should and what you shouldn’t produce and what you should and shouldn’t consume.
As that information disperses seamlessly through an economy, it becomes an amazingly efficient tool for coordinating production and consumption decisions between millions of people who don’t know each other and don’t talk to each other.
But are prices the only way to coordinate economic activity?
It’s, as Hayek hints, just about imaginable for a single mind to centralize all that information and dole it out as orders to all the different economic agents out there and replicate, más o menos, the outcome of a market mechanism.
Here’s what’s not a solution, though: nothing. Kneecapping the price mechanism without replacing it with a proper central plan.
Brutal and bloody and creaky and inefficient and corruptogenic though it might be, Central Planning is a solution to the problem of economic coordination. It’s not a good solution, but it is a solution.
Here’s what’s not a solution, though: nothing.
Kneecapping the price mechanism without replacing it with a proper central plan. What’s not a solution is leaving thousands of “private” firms out there to try to survive in an environment where they have no reasonable signal to follow about what they ought to do: prices don’t carry that information, but neither does the government, which has no overall plan, and instead is left to try to parapetear la vaina with a bunch of soldiers with guns ad-libbing orders with no worked-out idea of who should produce what when and for whom.
Central planning is miserable, yes, but this ni chicha ni limonada bullshit the government’s subjecting Venezuela to is, somehow, worse: it leaves capital allocation, production and consumption decisions to be made on the basis of literally nothing. That chaos ensues is only natural.
Which is why I silently salute the appointment of Carlos Faría as head of economic policy. Now, look, there’s no real reason to think Faría is some kind of Caribbean Kantorovich —it can’t be a good sign when the most complete statement of views you find for a guy is a four-year-old interview from VTV— but at least he’s a proper communist.
His dad founded the communist party, his education was in the Soviet Union, he’s been coordinating centrally owned factories for years. Central Planning is in this guy’s blood.
I guess what I’m saying is sometimes there’s a man who —I won’t say a hero, cause what’s a hero? —but sometimes there’s a man. And I’m talking about Carlos Faría here —sometimes there’s a man well, he’s the man for his time and place, he fits right in there— and that’s Carlos Faría, in Carmelitas.
Caracas Chronicles is 100% reader-supported.
We’ve been able to hang on for 19 years in one of the craziest media landscapes in the world. Now, the difficulty level was raised abruptly with the global pandemic. We’ve seen different media outlets in Venezuela (and abroad) cutting personnel to avoid closing shop. This is something we’re looking to avoid at all costs, and it seems we will. But your collaboration goes a long way in helping us weather the storm.Donate