“My interest had been in a broad class of situations, broader than the advanced industrial market economies, including situations in third world countries, and in countries attempting to have some kind of socialist approach to their problems. I have been interested in how one can construct efficient mechanisms that have the decentralization features similar to a market but that do not necessarily resemble a market. For this purpose, I formulated the notion of an informationally-decentralized economy in which perfect competition was just a very special case…”

— Leonid Hurwicz

Source: David Warsh, " The Road to a System that Works (Without Shooting People) http://www.economicprincipals.com/issues/2007.10.21/69.html" at economicprincipals.com, October 21, 2007.

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Leonid Hurwicz6

Russian-American economist and mathematician 1917–2008

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“1. The standard neoclassical model the formal articulation of Adam Smith's invisible hand, the contention that market economies will ensure economic efficiency provides little guidance for the choice of economic systems, since once information imperfections (and the fact that markets are incomplete) are brought into the analysis, as surely they must be, there is no presumption that markets are efficient.
2. The Lange-Lerner-Taylor theorem, asserting the equivalence of market and market socialist economies, is based on a misguided view of the market, of the central problems of resource allocation, and (not surprisingly, given the first two failures) of how the market addresses those basic problems.
3. The neoclassical paradigm, through its incorrect characterization of the market economies and the central problems of resource allocation, provides a false sense of belief in the ability of market socialism to solve those resource allocation problems. To put it another way, if the neoclassical paradigm had provided a good description of the resource allocation problem and the market mechanism, then market socialism might well have been a success. The very criticisms of market socialism are themselves, to a large extent, criticisms of the neoclassical paradigm.
4. The central economic issues go beyond the traditional three questions posed at the beginning of every introductory text: What is to be produced? How is it to be produced? And for whom is it to be produced? Among the broader set of questions are: How should these resource allocation decisions be made? Who should make these decisions? How can those who are responsible for making these decisions be induced to make the right decisions? How are they to know what and how much information to acquire before making the decisions? How can the separate decisions of the millions of actors decision makers in the economy be coordinated?
5. At the core of the success of market economies are competition, markets, and decentralization. It is possible to have these, and for the government to still play a large role in the economy; indeed it may be necessary for the government to play a large role if competition is to be preserved. There has recently been extensive confusion over to what to attribute the East Asian miracle, the amazingly rapid growth in countries of this region during the past decade or two. Countries like Korea did make use of markets; they were very export oriented. And because markets played such an important role, some observers concluded that their success was convincing evidence of the power of markets alone. Yet in almost every case, government played a major role in these economies. While Wade may have put it too strongly when he entitled his book on the Taiwan success Governing the Market, there is little doubt that government intervened in the economy through the market.
6. At the core of the failure of the socialist experiment is not just the lack of property rights. Equally important were the problems arising from lack of incentives and competition, not only in the sphere of economics but also in politics. Even more important perhaps were problems of information. Hayek was right, of course, in emphasizing that the information problems facing a central planner were overwhelming. I am not sure that Hayek fully appreciated the range of information problems. If they were limited to the kinds of information problems that are at the center of the Arrow-Debreu model consumers conveying their preferences to firms, and scarcity values being communicated both to firms and consumers then market socialism would have worked. Lange would have been correct that by using prices, the socialist economy could "solve" the information problem just as well as the market could. But problems of information are broader.”

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Source: Whither Socialism? (1994), Ch. 1 : The Theory of Socialism and the Power of Economic Ideas

“The situation in a number of countries reminds one that it's still a risky world out there in the emerging markets.”

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“It's a platform for pursuing the truth, and the decentralized creation and distribution of ideas, in the same way that markets are a decentralized mechanism for the creation and distribution of goods and services. It's a platform, in other words, for reason.”

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Context: Fortunately, the Internet has the potential to revitalize the role played by the people in our constitutional framework. It has extremely low entry barriers for individuals. It is the most interactive medium in history and the one with the greatest potential for connecting individuals to one another and to a universe of knowledge. It's a platform for pursuing the truth, and the decentralized creation and distribution of ideas, in the same way that markets are a decentralized mechanism for the creation and distribution of goods and services. It's a platform, in other words, for reason. But the Internet must be developed and protected, in the same way we develop and protect markets — through the establishment of fair rules of engagement and the exercise of the rule of law. The same ferocity that our Founders devoted to protect the freedom and independence of the press is now appropriate for our defense of the freedom of the Internet. The stakes are the same: the survival of our Republic. We must ensure that the Internet remains open and accessible to all citizens without any limitation on the ability of individuals to choose the content they wish regardless of the Internet service provider they use to connect to the Web. We cannot take this future for granted. We must be prepared to fight for it, because of the threat of corporate consolidation and control over the Internet marketplace of ideas.

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Context: I should say that when people talk about capitalism it's a bit of a joke. There's no such thing. No country, no business class, has ever been willing to subject itself to the free market, free market discipline. Free markets are for others. Like, the Third World is the Third World because they had free markets rammed down their throat. Meanwhile, the enlightened states, England, the United States, others, resorted to massive state intervention to protect private power, and still do. That's right up to the present. I mean, the Reagan administration for example was the most protectionist in post-war American history. Virtually the entire dynamic economy in the United States is based crucially on state initiative and intervention: computers, the internet, telecommunication, automation, pharmaceutical, you just name it. Run through it, and you find massive ripoffs of the public, meaning, a system in which under one guise or another the public pays the costs and takes the risks, and profit is privatized. That's very remote from a free market. Free market is like what India had to suffer for a couple hundred years, and most of the rest of the Third World.

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“Plainly, the most powerful exception to the notion of a voluntary excahnge in a market economy is the labor market. The existence of a market for labor is one of the distinguishing features of a market economy: workers compete to sell their labor at the most favorable price—meaning, in practice, the highest possible wage. At the same time, however, it is clear that the market for labor is qualitatively different from the market for goods, because workers need to sell their labor to survive.”

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“I am sorry, I do not think it is a good thing, because if you have opened up this market under such terms, what it implies is that other countries can put their products into our markets. Are you aware that all those advanced countries subsidize their exports? Subsidies are as high as 65 per cent. Now if you have globalized, and the others are subsidising their exports, to what position have you exposed the Indian dairy industry? You have declared dairy products under OGL”

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Leonid Hurwicz6

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