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The primary difference, and the reason why capitalist economy beats centralized planning[0] is that it scales much better, by making it so that a lot of details solve "themselves". I.e. capitalism depends on most of the minutiae decisions to be made by market feedback loops - instead of e.g. explicitly setting it so that factory A produces X components, so that factories B and C could use them to make Y goods, capitalism lets the factories just run on a free market, and in time, an equilibrium of supply and demand will form.

That said, planning on top-level is still needed and still done. The point of setting up feedback loops isn't to let them run unchecked, but to make it easier to control the whole system (including keeping it stabilized). Just like it would be stupid to build a thermostat without input, having the temperature be determined by the point at which the materials it's made of start to "sweat", you don't want to leave market totally unchecked, doing whatever the hell it wants. Governments still get to influence the market, the same way a temperature dial influences the thermostat.

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[0] - as performed by humans with pen and paper; I don't see a reason why a centralized planning scheme could not work better than capitalism if performed by optimization algorithms in a hyper-connected world.

> I don't see a reason why a centralized planning scheme could not work better than capitalism if performed by optimization algorithms in a hyper-connected world.

One very Hayekian (Austrian) reason is that you won't have [very useful] data on consumer preferences. The price system will aggregate this effectively. You can't really poll for this, but purchase decisions will reveal it.

Totally didn't even think of that! Thanks for pointing it out. I mostly kept imagining hyoerconnected factories and logistics operations when thinking about this.

Why can't usage data be recorded rather than what people purchase? If you want a Fuji apple, you request one, and that would be recorded in the system. How does the price system determine what people want? Many products which people don't want are made, and in fact capitalism has manufactured products that they have to convince people to use.

Because you can't measure what people don't want, or what their relative preferences are between comparable items. You really can't do this right without a price system.

UPDATE: And this applies not just at the consumer level, but in the decisions firms make regarding their supply chains.

>Because you can't measure what people don't want, or what their relative preferences are between comparable items.

In what way do prices help with that? If more Fuji apples are requested, you know people like that over the other varieties. If you want one brand of apples over the other, one brand's products_distributed variable increases by one. Sorry if it appears as though I'm being obtuse.

>And this applies not just at the consumer level, but in the decisions firms make regarding their supply chains.

Howso?

Different varieties of apple have different production costs, and those costs change over time, sometimes rapidly an unexpectedly.

Maybe I prefer Fuji apples, but only slightly; I'd be perfectly okay with a Nashi pear too, or if there's a shortage of Fuji apples, a Royal Gala.

Maybe a frost has reduced Fuji apple production; it would make sense for Fuji apples to be allocated first to the people who really prefer them, and then if any are left over they could come to people like me.

> If you want one brand of apples over the other, one brand's products_distributed variable increases by one.

Right, so how do you capture my "sure, a Fuji apple, but only if there's plenty"?

In a price system, it's easy: The price of Fuji apples fluctuates based on supply and demand, and I'll purchase the fruit based both on my internal, ever-changing preferences and the price. Regardless of the changing relative scarcity of Fuji apples, I will, apparently magically, end up with the fruit that more efficiently matches my wants and needs with the global fruit supply.

And this works even if you scale it up to 7 billion people and millions of products. That's a very difficult trick to match!

(And keep in mind, we also need to make decisions about distribution, stock levels, what apple types to grow, how much land to allocate to orchards, how much fertilizer to use, where to locate orchards to maximise growing season but minimise fuel usage for transportation. Every resource we have is limited in some fashion, often sharply so, yet our wants and needs are effectively boundless.)

This is a pretty good summary of Hayek's argument. I wonder how he would think about the discoveries of behavioral economics and information economics

> I'm not really sure I see the difference between capitalist planning and communist planning.

Other than the fact one of them scales incredibly, has been proven to work in practice, has a strong theoretical basis, and the other has none of those and is entirely different in every way...

...yeah, they're very similar?

> Don't corporations have growth targets and multi-year plans?

Many corporations are managed internally along non-market ways (ie, socialist, bureaucratic, etc.), yes.

We're looking at a higher level: The entire market for copper, the entire supply chain for pencils, or the economy as a whole. At that scale, growth targets and multi-year plans do not work, have never worked, and will probably never work.

> Don't corporations regularly do incredibly stupid, naive, uninformed, and self-destructive things that would be impossible if the kind of distributed intelligence claimed in this article was a reality?

Of course. But the market as a whole works around it. At a big picture level, we don't know how to make companies that never do bad things, but we can create a system where bad companies are (mostly) starved of funds and killed off, whole good companies are (mostly) rewarded and allowed to grow. A planned economy also doesn't know how to stop companies (or the equivalent economic unit) from doing bad things but also can't allocate resources from the bad companies to the good ones. It's strictly inferior.

Communist planning has a single planning unit for the whole country, while corporations, even very large ones, are still much smaller. Communism cannot effectively decentralize management because it has a single indivisible source of power at the very top. (As a result the central government has to manage everything; e.g. in USSR the baking recipes for a Lithuanian bakery had to be approved in the central ministry in Moscow.) Under capitalism the power (economic power) belongs to the owner of capital and thus it can easily have lots of independently managed units. In addition under capitalism there's a feedback cycle that tends to strip you of that power (the capital) if your enterprise is not efficient, so the system is also much more dynamic than that of communism.

All the rest is just the natural result of cybernetic laws, such as the law of requisite variety: the controlling element has to be as complex as the system it controls. Under capitalism there's no limit to the complexity of the management system, because it's decentralized and dynamic; every grocery store has a full-fledged human brain working solely for the benefit of the store. Under communism the complexity of the central planning unit simply cannot match the complexity of the capitalist management system. There's an interesting quirk though: the governing system cannot be overthrown, so instead of the growing economy replacing the inefficient controller, the inefficient controller simplifies the economy. The defining characteristic of all communists societies is that their economy and technology are very primitive (aside from few selected branches). They kind of flew to the space, but you cannot buy decent underpants :)

All that happens; but (1) corporate failure costs largely fall on the stakeholders of the corporation (yes bailouts etc. happen; they don't change the basic principle), and as a result (2) corporate money-losing projects in general fail faster than those managed by a government, with resources getting eventually reallocated to more productive purposes.

Corporations compete with one another and fail more gracefully, that's the difference.

When governments collapse, a lot of people tend to die.

> Don't corporations have growth targets and multi-year plans? Don't they (mostly) have a top-down management structure, where freedom of action and collective intelligence are constrained the further you get from the Central Committee (also known as the C-suite)?

Yes. IDK if Hayek addresses this or not, but Coase has a very good (and short) little book on the theory of the firm where he goes into exactly that. Basically, there are transaction costs to going to the market. So sometimes it's worthwhile to lose market feedback and centrally plan things.

> Don't corporations have growth targets and multi-year plans?

Yes, and for the most part they are driven by the requirements of a relatively small community of fund managers and so-called activist investors.