“The Use of Knowledge in Society,” Hayek, 1945

Hayek’s famous AER article on the important of knowledge specific to a place and time, which allows for minute adjustments in production and consumption using information wholly unavailable to planners. He argues that the technocratic spirit of his era has forgotten the importance of this dispersed, bottom-up knowledge when thinkers analogize economic relations to the hard sciences, where surely a group of eminent scientists has all the data needed to solve a given problem, and Joe on the Street has little to offer. In some ways, though, this article is wholly unsatisfying. For one, it is still not clear to me how to contradicts Oscar Lange’s prescription for “price-based” socialism – if individuals at ground level can adjust production and consumption in response to shortage or clearance, then one imagines, as Lange proposes, that a Central Planning Board could, certainly at some expense, gather the same data.

More worrying is Hayek’s seeming unawareness of the link between Central Planning Boards and firms – both suffer from agency problems, and both suffer from informational problems. That is, a production line worker or local plant foreman, who has Hayek’s knowledge on the ground, is as unlikely to adjust production in response to a shortage of tin as a Central Planning Board would. Indeed, he would likely bring the matter up with his managers, and the information would from there flow up the chain of management to the decisionmakers of the firm; precisely the same process, one imagines, is what proponents of socialist calculation have in mind. The true problems of socialist economies – having to do with new goods, with entrepreneurship, with how to adequately solve the agency problem which in many ways is more serious than in the firm, and of course with ethical questions (such as the right of laborers to choose their own occupation) – are utterly unaddressed.


%d bloggers like this: