Your Company Is a Central Planner

In the last piece I argued that value lives in the customer — that customers, not companies, are the seat of all economic value, and that the only honest signal about what's worth building is the one those customers generate. Now I want to extend that into a sharper, more uncomfortable claim.

Most marketers are trying to solve the wrong problem. They think the problem is figuring out what customers want — so they run focus groups, build personas, commission research, and write strategy decks designed to skip the step of actually getting a product to market. The actual problem is acting on what customers are already telling you, faster than your competitors can. Hayek figured this out in 1945. Most strategy decks haven't caught up.

Common business terms like “Product Market Fit” and “Fail Fast” are examples of entrepreneurs invoking Hayekian principles, whether they know that's what they're doing or not.

The Use of Knowledge in Society

Hayek builds on the foundational piece of Austrian Economics — that value is subjective — to articulate what a price actually is in society. It's not simply an exchange rate of currency for goods. It's information about the value and scarcity of the item or service being exchanged.

Seth Godin's well-known axiom — that price is the strongest indicator of product quality, and that you want yours high to telegraph that you're worth it — gets at something real. Marketers have intuited this for decades. But the Austrians had a more complete picture seventy years before Godin. Price doesn't just signal quality. It signals value and scarcity, simultaneously — and most of the pricing-as-positioning moves available to a marketer are really moves on one of those two dimensions. Premium positioning is a value move. Limited editions, member-only access, allocation lists, and waitlists are scarcity moves. The strongest brands play both at once: Hermès doesn't just make a great bag — they make sure most people can't buy one even if they have the money. The price carries both signals at once, and the customer reads them in a single act of perception.

Hayek illustrates the scarcity half of this with the example of a tin mine collapsing somewhere in the world, reducing supply. Every supplier downstream feels the increased scarcity through a corresponding rise in price. The suppliers don't need to know why there's scarcity. They simply act on the price.

The deeper claim is that, due to the subjectivity of value, true pricing can't be calculated by any one person or organization. It must interact with the market to discover value and scarcity. That's the only way the information gets transmitted through society so that individuals can make pricing decisions and execute transactions.

Value is also a moving target. Even if a product never changes, its position in time and space changes constantly, and value changes with it. An ice cream cone is worth more in July than in January. The same cone is worth more in a stadium than in a grocery store. A bottle of water is nearly free at home and priceless on a desert island. The product is identical in each case. The value isn't, because the customer's situation isn't. Any pricing system that treats value as a property of the product rather than a property of the moment is solving the wrong problem.

And critically, Hayek's argument isn't that information is sometimes incomplete. It's that information is permanently incomplete — irreducibly dispersed across millions of actors. Any system that requires complete information to function is broken by design.

What This Looks Like in the Market

The clearest place a marketer sees this in action is the gap between MSRP and the price the market will actually pay. I've watched many product launches where MSRP fails to drive sales for a quarter or two, only to have revenue perk up the moment a discount is applied. What looks like a marketing tactic — let's run a sale to drive volume — is actually the market quietly correcting the company's pricing guess. The MSRP was the company telling the customer what the product was worth. The discounted price the customer actually pays is the customer telling the company what it was actually worth. The discount isn't a concession. It's a discovery.

The same pattern runs in reverse. When Taylor Swift drops tour tickets and Ticketmaster's site melts down within minutes — only to have those tickets reselling on StubHub for ten times face value within hours — that's also the market quietly correcting a pricing guess. The face value was the artist's claim about what the experience was worth. The resale price was the customer's response. The scalper market did the price discovery the artist refused to do, and pocketed the difference.

The market doesn't produce fairness — it produces information.

How This Feels to the Consumer

The market's answer often makes nobody happy. Swift hates that scalpers pocketed thousands of dollars from her fans rather than her own organization. The fans hate paying ten times face value to people who didn't make the music. Ticketmaster gets blamed for both halves. Even the scalpers operate in a gray zone of public legitimacy. There's an old line that a good negotiation leaves everyone slightly unhappy — by that standard, the market is doing its job perfectly. The price the customer actually paid is the closest signal anyone has to what the show was really worth, and it arrived through a process everyone in the chain finds distasteful. The market gives you the truth. It just doesn't give it to you in a form you wanted to hear.

What makes a transaction feel good isn't the price. It's the gap between the price and what either party would have accepted — the excess value they captured. A buyer who'd have paid $100 and got it for $60 walks away with $40 of excess value and a story to tell. Swift intended to give that excess value to her fans by setting face value low. The scalpers swiped it.

Uber's surge pricing is a perfect example of this.

Uber's Hayekian Business Model

How many taxis should be on the road in any given market is probably an extremely difficult question to answer.

You'd have to model demand by understanding how many people are in an area, how often they need to ride, and a full event calendar to anticipate when demand will spike. Is Taylor Swift in town for a concert? When that performance begins or ends will likely move the market for rides.

On the supply side, you'd have to figure out the cost to operate all of those vehicles, fuel and insurance costs, the opportunity cost of the drivers' labor relative to other work, and the value of not having to pick up a wave of festival-goers and drive through traffic.

Or you can just use dynamic pricing.

We all dread the call from the friend asking for a ride to the airport, but there's a price we'd be happy to do it. Uber drivers are no different. Instead of trying to model every input on the supply side, you simply raise the price to the point where Uber drivers are willing to step away from their favorite sitcom and pick up a wave of concertgoers. The value of the ride and the value of the service get priced in, the exchange happens, and the price confirms the value.

A centralized authority would miss critical information: Did the performance get canceled? Did geopolitical events spike fuel pricing? How does weather affect demand — people will walk a few blocks in the sun but not in the rain? Did a competing event in another town pull entertainment demand elsewhere?

All of these inputs affect supply and demand for rideshares. It's impossible for any organization to model every one and price a ride in real time.

Many organizations do continue to try. The NYC Medallion system for taxi cabs is effectively centralized planning of supply, and there's a reason Uber and the other ride-share companies wreck those businesses whenever the competition isn't propped up by regulation.

The numbers on this aren't ambiguous. A 2016 NBER study by Cramer and Krueger found UberX drivers operated at 38% higher capacity utilization than taxi drivers across five major cities — the same physical fleet of cars and drivers serving substantially more rides. A 2021 audit of nearly 1,700 trips in Los Angeles found ride-hail riders paid 40% lower fares, waited a quarter of the time, and were nearly guaranteed a ride. One in five taxi rides never showed up at all. The medallion system wasn't just inconvenient. It was a measurably worse allocation of the same physical resources. Source: NBER working paper 22083

Your Business Is the Medallion System

Did you hit your quarterly revenue plan? What is your growth rate relative to plan? Did we hit our marketing spend target?

These are completely irrelevant questions as far as the consumer is concerned, but they're commonplace in boardrooms all over the world. Business plans are treasure maps overlaid on shifting sands — market demand may have been completely changed by a competitor entering, or skyrocketing because of someone else's supply chain disruption. The map you printed in January is describing terrain that doesn't exist anymore.

And the disease isn't just in the plans. It's in how companies gather the information that feeds the plans. Most of what passes for customer research collects what Murray Rothbard called stated preference — what people say they'd do under conditions of zero cost. Surveys, focus groups, intent scores, NPS. The trouble is that stated preference predicts almost nothing about actual behavior. The only data that exists in the economic sense is the data generated when someone makes a real tradeoff with real money. Everything else is theater. Your customers aren't lying to you in surveys. They're just answering a different question than the one you think you're asking.

This is why no business plan worth following looks the same six months in as it did at the start. As the great and wise Mike Tyson says, “Everyone has a plan until they get punched in the face.”

Every time our customers punch us in the face, they're providing us with information. Your product is too expensive. This doesn't solve a problem I have. I don't want to be the kind of person associated with this product or service. All information the customer is granting us. They don't care that you didn't meet your margin goals. They don't care that supplier costs went up. They simply demand that you create and deliver value for them.

What This Means for Your Company

As Hayek says in The Use of Knowledge in Society — information is always going to be incomplete, but it's always actionable. The question we should all be asking ourselves is: how do we deliver value for our customers?

Since value is subjective, there are a billion ways to do this. None of them involve your plan.

How does your company respond when information is incomplete? A centrally-planned company responds by trying to gather more before deciding. A market-aware company responds by structuring smaller, faster decisions whose outcomes generate the next round of information. The first feels safer in the moment and is structurally guaranteed to be slower and worse over time. The second feels riskier in the moment and structurally compounds advantage. Most companies are doing the first while telling themselves they're doing the second.

There's one more place this disease lives, and it's the one most companies will defend the hardest: their own measurement systems. The next piece is about why marketing is usually the first line on the spreadsheet to get cut when things go wrong — and why that decision is almost always more expensive than it looks.