This paper will examine the differences between centralized planning and decentralized manner (free

market) and whether these differences have changed since the age of communism, thanks to modern
technology. By the end of this essay, I shall conclude which use of resources is superior and to what
extent. For this case, I will mainly use Hayek's theory of planning being inaccurate and the knowledge
of circumstances theory.
Firstly, one could argue that planning nowadays can be much more efficient, thanks to
collected data, but I still believe that the data research is insufficient and not accurate enough. I believe
t the reason for data not being accurate enough is because of a small number of samples. Furthermore,
data also do not rely on the external environment. For example, let us look at a small village next to a
volcano that erupts every 50 years. People from this village want to start growing potatoes next to this
volcano for the next five years. They collected data that concluded that growing potatoes in this
location will be safe for these five years because they still have seven spare years until the next
predicted eruption. The problem is, in this context, that data do not count with the external factors, for
example, global warming. These factors make data inaccurate, and therefore, this plan could fail
anytime because of the unexpected eruption that could come earlier.
Furthermore, I believe that planning is very time-consuming. The time spent planning things
could be transformed into something happening right now instead of in the future. No one knows what
will happen in 5/10/15 years. You can spend years trying to create a perfect plan, which can be ruined
any second by unexpected problems (Covid-19 etc.). What is more, a significant opportunity cost
could occur when a plan is creating.
On the other hand, the free and decentralized market also encounters some problems. These
days, with the Internet possibility people face an excessive amount of information, and this
information is without any filters. Customers cannot put an accurate value on the goods they want
because of the price differentiation. This problem gets more significant if they want to resell this good
later. When you do not know the actual price, you have difficulty putting the valid price tag. Although,
this problem of filtering could be applied on both sides.
Let us say there is only one fixed filter out there. This price cannot correctly reflect the current
price of this good. Demand and supply of this good could change anytime. Imagine buying coconuts in
the supermarket in the 1960s for the fixed price of 20 euros. Fast-forward to the present, where global
markets exist, and coconuts are available in almost every country and every grocery store with the
unchanged price tag of 20 euros. That is why I assume every person should work with their own
'filters' based on the flows of information they process on the free market. The situation of having no
filters is still far better than the scenario with just one filter.
The most significant advantage, which can be seen in a decentralized manner, would be
having no costs of using this resource while receiving the correct information with the right quantity.
In his work, Hayek (1945) calls it "Marvel of the price system." For instance, let us there is Brazil
(where coffee seeds grow), and Amsterdam (where a coffee shop is located), dire circumstances of

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harvesting in Brazil resulted in only half of the previous year's amount is sent to Amsterdam, and that
will result to a rise of price for coffee. The customer does not need to know what and why it happened,
but he will act accordingly to the change of price.
To sum up, I am convicted that Hayek's theory can still be fully applied even nowadays.
Planning will never work and will never outweigh the abilities that the free market possesses. That is
also why we do not know any modern economy that is centralized and has stable economic growth at
the same time.

Word count: 675

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