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The essential points of the Austrian critique of government planning are that the economic terrain must always consist of conditions that are highly particularistic and constantly changing, and that an effective working of the economic system needs to be taking these conditions into account. Knowledge of these conditions exists only in the minds of the dispersed individuals of the system. Thus the best way to utilize knowledge of the particulars is to let individuals respond flexibly to opportunity as they discover it (Kirzner 1985, chap. 6).

The issue, says Hayek (1945, 79), is not whether to have planning, but "whether planning is to be done centrally . . . or is to be divided among many individuals." Urban and transportation planners will agree that as planning becomes more centralized, "particular knowledge of local circumstances will, of necessity, be less effectively used" (Hayek 1960, 352). Some researchers have used this insight to make the case for decentralization of government authority (Chisholm 1989). Here I have tried to suggest that Hayek’s notion of decentralized planning is essentially a proposal for a set of legal rules that give much weight to private property and freedom of contract. As Walter Block (1979) has argued, the plan of government action that would best induce the utilization of local knowledge is a plan to privatize the urban landscape and to enforce the contracts of private parties, although a few very basic limitations on the rights of real property probably would be in order.

The invisible hand is without central planning, but not without planning. It moves by a web of voluntary planning. Because the web is voluntary, its elements must appeal to the people involved. Except in the case of systematic externalities like air pollution, the principles of property and contract generate incentives to bring the particularistic parts into an abstract order which can be said to be "metacoordinating." Voluntary planning is usually better informed, more responsive, more intelligent, and more humane than government planning.

There is a distinction between metacoordination and coordination, but no process of metacoordination is without pockets of coordination. If Hayek's idea of coordination is thought of as Schelling coordination, Hayek will be misunderstood. Yet, if Hayek's process of metacoordination is thought of as being apart from planning efforts to achieve Schelling coordination, and is taken to be only speechless, atomistic market purchase (textbook perfect competition), again Hayek will be misunderstood.

In 1909, when the Liberal Party in Britain was undergoing its momentous transformation, Cabinet minister Winston Churchill wrote: "The ever growing complications of civilization create for us new services which have to be undertaken by the State, and create for us an expansion of the existing services" (quoted in Greenleaf 1983, 27). It is often thought that urban transit is too complex to be left to the invisible hand and that the invisible hand would only create problems. Yet Hayek’s line of thinking may lead one to the conclusion that the problems really lie in the fact that the invisible hand has not had proper scope to function.




The author thanks Linda Cohen, Tyler Cowen, G. J. Fielding, Pia Koskenoja, Charles Lave, Titus Levi, Adrian Moore, James Nolan, Robert Noland, and Ben Reja, and Stergios Skaperdas, Ken Small, and Alex Tabarrok for helpful comments and discussions. For financial support the author thanks the California Department of Transportation and the University of California Transportation Center.

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