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The Use of Knowledge in Society
Undated pamphlet (1980 is just a guess). Hayek sets forth arguments in favor of an individualistic, rational free market that will produce a peaceful objectively freer society. Reprint of 1945 article from the American Economic Review. 17 pages.
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First published September 1, 1945
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About the author
Friedrich A. Hayek
257 books1,698 followersFriedrich August von Hayek CH was an Austrian and British economist and philosopher known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought. He is considered by some to be one of the most important economists and political philosophers of the twentieth century. Hayek's account of how changing prices communicate signals which enable individuals to coordinate their plans is widely regarded as an important achievement in economics. Hayek also wrote on the topics of jurisprudence, neuroscience and the history of ideas.
Hayek is one of the most influential members of the Austrian School of economics, and in 1974 shared the Nobel Memorial Prize in Economics with Gunnar Myrdal "for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena." He also received the U.S. Presidential Medal of Freedom in 1991 from president George H. W. Bush.
Hayek lived in Austria, Great Britain, the United States and Germany, and became a British subject in 1938.
Hayek is one of the most influential members of the Austrian School of economics, and in 1974 shared the Nobel Memorial Prize in Economics with Gunnar Myrdal "for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena." He also received the U.S. Presidential Medal of Freedom in 1991 from president George H. W. Bush.
Hayek lived in Austria, Great Britain, the United States and Germany, and became a British subject in 1938.
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May 11, 2015Summary:
"Each individual only knows a small fraction of what is known collectively – and that as a result, decisions are best made by those with local knowledge rather than by a central authority"
"Each individual only knows a small fraction of what is known collectively – and that as a result, decisions are best made by those with local knowledge rather than by a central authority"
October 16, 2023
این اثر کوتاه و کلاسیک را باید از دو منظر دید. یکی بر مبنای مفهوم کلیدی آن درباره شیوه موثر خلق معلومات یا دانش در جامعه و دیگری در شرایط خاص سیاسی و اقتصادی زمانه‌اش یا آنچه نویسنده بحث و جدل معاصر مینامد.
از منظر شرایط سیاسی این متن همچو جوابیه‌ای است به دورانی که تاکید زیادی بر روی نقش دولت در شکل دهی به سیستم اقتصادی است و این واکنش‌های شدیدی هم ایجاد کرده. واکنشی تا این حد که هایک وقتی از سه سیستم اقتصادی حرف میزند دو طرف طیف را رقابت و برنامه ریزی یکپارچه مینامد اما نوع سوم که بینابین این دو سیستم قرار میگیرد را هم مونوپولی در صنایع مینامد که نشان میدهد هرگونه فاصله گرفتن از رقابت کامل را نوعی عدم رقابت میداند. در انتها هم می‌بینیم که به صورت مستقیم وارد نقد شومپیتر و نادرست بودن اندیشه‌هایش میشود که در کل مساله‌ای فرعی است
اما از منظر محتوایی، کلید بحث در تببین انواع دانش و ارتباط آنها با انتخاب شکل درست مدیریت آنها در جامعه است. یعنی مقابله دانشی که در اختیار تک‌تک افراد جامعه است در مقابل آنچه دانشی تخصصی است که همگان می‌پندارند معنای اصلی دانش است و بنابراین متخصصان می‌بایست آن را مدیریت کنند. اما همه دانش بشر مجموعه این دانش تخصصی نیست و بخش مهمی از آن دانش به‌خصوصی است که در شرایط خاص هر لحظه شکل میگیرد و برای دیگران قابل دسترسی نیست و منجر به این سوال میشود که روش صحیح در اختیار دیگران قرار دادن این دانش چیست. این شکل از دانش به لحاظ علمی حتی قابلیت تحلیل آماری و به نوعی اندازه‌گیری مرکزی را هم ندارد و حساس به تغییر شرایط هستند. به عبارتی تغییرات کوچک در محیط باعث می‌شوند که افرادی که به آن تغییرات آگاه هستند بهترین افراد برای تصمیم‌گیری بر مبنای آنها هستند، یعنی دانش و تصمیم‌گیری هر دو محلی‌اند. این حرف از آنجا مهم است که مهمترین مساله اقتصادی یک جامعه به نظر هایک تطبیق و تصمیم‌گیری بر اساس چنین تغییراتی است و سوالی که پیش می‌آید این است که هر فردی چطور میتواند به دانش لازم برای تصمیم گیری در هر لحظه دست پیدا کند
اینجاست که راهکار مدنظر هایک و ارتباطش با اقتصاد بازار خود را نشان میدهد. بهترین مکانیسم برای انتقال اطلاعات لازم برای تصمیم گیری در یک سیستم اقتصادی قیمت‌گذاری است - حرفی که در دوران امروز دیگر وارد اقتصاد کلاسیک شده و ریشه‌هایش را میتوان تا اینجا دنبال کرد - یعنی بازار را اگر یک سیستم پیچیده اقتصادی و اجتماعی ببینیم آنچه نتیجه تصمیم‌گیری های محلی است و درواقع قاعده تصمیم‌گیری‌های بعدی را نشان میدهد قیمت است. قیمت چیزی نیست که یک نفر تصمیم به تعیین آن گرفته باشد یا کسی بداند دقیقا چطور ایجاد میشود. اصلا انسانها نیازی ندارند همه چیز را برای تصمیم گیری بدانند و اینجا هایک جمله مشهوری را بیان میکند که تمدن از طریق توسعه دادن فرآیندهایی که بدون فکر کردن به آنها انجام‌شان می‌دهیم پیشرفت میکند.
با احتساب این اندیشه‌های قابل تامل به نظرم سه نکته بعد از این سالها خودشان را نشان می‌دهند. یکی اینکه این شیوه نگریستن به بازار و نگاه ایده‌آل به قیمت در سیستم بازار کامل بیشتر معنادارند و هرچه از این شرایط فاصله بگیریم تصمیمات قیمتی در کلیت بازار شکل نمیگیرند و عرضه کننده‌های محلی یا تولید کننده های بزرگتر نقشی تعیین کننده دارند. دوم اینکه نگاه مردم در تصمیم‌گیری محلی هم آنچنان که هایک میگوید صرفا محلی و بدون فکر به شیوه کارکرد بازار و قیمت‌گذاری نیست و آدمها هم به اتفاقات اثرگذار فکر میکنند و هم خارج از یک بازار کامل که خرید پیاز و سیب‌زمینی را بیشتر به ذهن می‌آورد در بازارهای دیگر مثل سرمایه‌گذاری صرفا مصرف‌کننده صرف قیمت‌ها نیستند. در نهایت این اندیشه که قیمت ما را از فکر بی‌نیاز میکند و بهترین مکانیسم انتقال دانش‌های محلی درباره اقتصاد است زمینه را برای دست‌بردن در شیوه انتقال اطلاعات در بازار و اثرگذاری بر ذهن مصرف‌کننده‌ها و به نوعی بازی با قیمت هموار میکند
فارغ از این بحثها به نظرم توجه به مفهوم دانشی محلی و فراتر از دانش علمی کلی در حوزه‌های مختلف زندگی فراتر از بازار و بحثهای اقتصادی قابل تامل است
از منظر شرایط سیاسی این متن همچو جوابیه‌ای است به دورانی که تاکید زیادی بر روی نقش دولت در شکل دهی به سیستم اقتصادی است و این واکنش‌های شدیدی هم ایجاد کرده. واکنشی تا این حد که هایک وقتی از سه سیستم اقتصادی حرف میزند دو طرف طیف را رقابت و برنامه ریزی یکپارچه مینامد اما نوع سوم که بینابین این دو سیستم قرار میگیرد را هم مونوپولی در صنایع مینامد که نشان میدهد هرگونه فاصله گرفتن از رقابت کامل را نوعی عدم رقابت میداند. در انتها هم می‌بینیم که به صورت مستقیم وارد نقد شومپیتر و نادرست بودن اندیشه‌هایش میشود که در کل مساله‌ای فرعی است
اما از منظر محتوایی، کلید بحث در تببین انواع دانش و ارتباط آنها با انتخاب شکل درست مدیریت آنها در جامعه است. یعنی مقابله دانشی که در اختیار تک‌تک افراد جامعه است در مقابل آنچه دانشی تخصصی است که همگان می‌پندارند معنای اصلی دانش است و بنابراین متخصصان می‌بایست آن را مدیریت کنند. اما همه دانش بشر مجموعه این دانش تخصصی نیست و بخش مهمی از آن دانش به‌خصوصی است که در شرایط خاص هر لحظه شکل میگیرد و برای دیگران قابل دسترسی نیست و منجر به این سوال میشود که روش صحیح در اختیار دیگران قرار دادن این دانش چیست. این شکل از دانش به لحاظ علمی حتی قابلیت تحلیل آماری و به نوعی اندازه‌گیری مرکزی را هم ندارد و حساس به تغییر شرایط هستند. به عبارتی تغییرات کوچک در محیط باعث می‌شوند که افرادی که به آن تغییرات آگاه هستند بهترین افراد برای تصمیم‌گیری بر مبنای آنها هستند، یعنی دانش و تصمیم‌گیری هر دو محلی‌اند. این حرف از آنجا مهم است که مهمترین مساله اقتصادی یک جامعه به نظر هایک تطبیق و تصمیم‌گیری بر اساس چنین تغییراتی است و سوالی که پیش می‌آید این است که هر فردی چطور میتواند به دانش لازم برای تصمیم گیری در هر لحظه دست پیدا کند
اینجاست که راهکار مدنظر هایک و ارتباطش با اقتصاد بازار خود را نشان میدهد. بهترین مکانیسم برای انتقال اطلاعات لازم برای تصمیم گیری در یک سیستم اقتصادی قیمت‌گذاری است - حرفی که در دوران امروز دیگر وارد اقتصاد کلاسیک شده و ریشه‌هایش را میتوان تا اینجا دنبال کرد - یعنی بازار را اگر یک سیستم پیچیده اقتصادی و اجتماعی ببینیم آنچه نتیجه تصمیم‌گیری های محلی است و درواقع قاعده تصمیم‌گیری‌های بعدی را نشان میدهد قیمت است. قیمت چیزی نیست که یک نفر تصمیم به تعیین آن گرفته باشد یا کسی بداند دقیقا چطور ایجاد میشود. اصلا انسانها نیازی ندارند همه چیز را برای تصمیم گیری بدانند و اینجا هایک جمله مشهوری را بیان میکند که تمدن از طریق توسعه دادن فرآیندهایی که بدون فکر کردن به آنها انجام‌شان می‌دهیم پیشرفت میکند.
با احتساب این اندیشه‌های قابل تامل به نظرم سه نکته بعد از این سالها خودشان را نشان می‌دهند. یکی اینکه این شیوه نگریستن به بازار و نگاه ایده‌آل به قیمت در سیستم بازار کامل بیشتر معنادارند و هرچه از این شرایط فاصله بگیریم تصمیمات قیمتی در کلیت بازار شکل نمیگیرند و عرضه کننده‌های محلی یا تولید کننده های بزرگتر نقشی تعیین کننده دارند. دوم اینکه نگاه مردم در تصمیم‌گیری محلی هم آنچنان که هایک میگوید صرفا محلی و بدون فکر به شیوه کارکرد بازار و قیمت‌گذاری نیست و آدمها هم به اتفاقات اثرگذار فکر میکنند و هم خارج از یک بازار کامل که خرید پیاز و سیب‌زمینی را بیشتر به ذهن می‌آورد در بازارهای دیگر مثل سرمایه‌گذاری صرفا مصرف‌کننده صرف قیمت‌ها نیستند. در نهایت این اندیشه که قیمت ما را از فکر بی‌نیاز میکند و بهترین مکانیسم انتقال دانش‌های محلی درباره اقتصاد است زمینه را برای دست‌بردن در شیوه انتقال اطلاعات در بازار و اثرگذاری بر ذهن مصرف‌کننده‌ها و به نوعی بازی با قیمت هموار میکند
فارغ از این بحثها به نظرم توجه به مفهوم دانشی محلی و فراتر از دانش علمی کلی در حوزه‌های مختلف زندگی فراتر از بازار و بحثهای اقتصادی قابل تامل است
May 29, 2021
this view alone:
"Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active coöperation. We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks of life is knowledge of people, of local conditions, and of special circumstances. To know of and put to use a machine not fully employed, or somebody’s skill which could be better utilized, or to be aware of a surplus stock which can be drawn upon during an interruption of supplies, is socially quite as useful as the knowledge of better alternative techniques. And the shipper who earns his living from using otherwise empty or half-filled journeys of tramp-steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the
arbitrageur who gains from local differences of commodity prices, are all performing eminently useful functions based on special knowledge of circumstances of the fleeting moment not known to others."
"Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active coöperation. We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks of life is knowledge of people, of local conditions, and of special circumstances. To know of and put to use a machine not fully employed, or somebody’s skill which could be better utilized, or to be aware of a surplus stock which can be drawn upon during an interruption of supplies, is socially quite as useful as the knowledge of better alternative techniques. And the shipper who earns his living from using otherwise empty or half-filled journeys of tramp-steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the
arbitrageur who gains from local differences of commodity prices, are all performing eminently useful functions based on special knowledge of circumstances of the fleeting moment not known to others."
July 30, 2018
Not as good an indictment of socialism as Economic Calculation in the Socialist Commonwealth, but still a valuable read. Hayek describes the knowledge-deficit of actors in a socialist economy quite well, and also offers valuable thoughts on the nature of the market. The market, he says, is spontaneous, decentralized, and it works for precisely these reasons. While I have moved on from some of Hayeks theories (I share Hoppes judgement that the knowledge-argument proves too much, at least when it's applied too strictly), I cannot say that this essay didn't have a positive effect on my understanding of economics.
November 1, 2013
"The price system is just one of those formations which man has learned to use . . . after he had stumbled upon it without understanding it. Through it not only a division of labor but also a coördinated utilization of resources based on an equally divided knowledge has become possible. The people who like to deride any suggestion that this may be so usually distort the argument by insinuating that it asserts that by some miracle just that sort of system has spontaneously grown up which is best suited to modern civilization. It is the other way round: man has been able to develop that division of labor on which our civilization is based because he happened to stumble upon a method which made it possible."
October 2, 2022
This essay is the reason Wikipedia was founded, according to Jimmy Wales. It’s about capitalism, and how important it is to allow decentralized functioning of the market economy. Probably the most important essay about economics ever written.
The prices of goods are governed by a system that accumulates all the information globally about peoples private and public interests in real time. The system is not controlled by anyone, it’s just a free-flowing endlessly complicated network of information, but luckily we do not need to understand its mechanics to benefit from it. Thus when the price of steel increases, for example, it might mean that its supply has decreased or that someone has found a more profitable use for it, thus willing to pay more. For the consumer, it doesn’t matter what the reason is, the price gives him all the information he needs – he needs to start using steel more sparingly. This is the wonder of this system, it works in real time, accumulates information from all over the world, and gives people information on how to best act on their interests.
Now it sometimes just might happen that prices of some good drop or increase more than usual but at least as long as the information is allowed to flow freely through prices, people will respond accordingly and great shortages and surpluses of goods and resulting depressions are avoided. Here’s where governments usually come in. They don’t understand decentralized systems and people in the government think that these prices are controlled by evil capitalists. Thus they introduce price controls, tariffs, minimum wage laws and endless other similar programs. This results in interruption of the information system of prices. People will not be able to act in accordance with changing prices since the prices are not allowed to change. This will result in shortages and surpluses of goods and depressions. The so called boom and bust cycles that are assumed to be a normal part of a functioning economy nowadays.
And again, the way governments approach this really reflects their lack of understanding and warped thinking on how this system works. As they themselves only know how to centrally control and force things, they believe the changing prices are a result of someone greedily controlling them. Or perhaps they see any free decentralized system as a competitor that must be eradicated and replaced by a controlled system. Either way the result is always the same.
The prices of goods are governed by a system that accumulates all the information globally about peoples private and public interests in real time. The system is not controlled by anyone, it’s just a free-flowing endlessly complicated network of information, but luckily we do not need to understand its mechanics to benefit from it. Thus when the price of steel increases, for example, it might mean that its supply has decreased or that someone has found a more profitable use for it, thus willing to pay more. For the consumer, it doesn’t matter what the reason is, the price gives him all the information he needs – he needs to start using steel more sparingly. This is the wonder of this system, it works in real time, accumulates information from all over the world, and gives people information on how to best act on their interests.
Now it sometimes just might happen that prices of some good drop or increase more than usual but at least as long as the information is allowed to flow freely through prices, people will respond accordingly and great shortages and surpluses of goods and resulting depressions are avoided. Here’s where governments usually come in. They don’t understand decentralized systems and people in the government think that these prices are controlled by evil capitalists. Thus they introduce price controls, tariffs, minimum wage laws and endless other similar programs. This results in interruption of the information system of prices. People will not be able to act in accordance with changing prices since the prices are not allowed to change. This will result in shortages and surpluses of goods and depressions. The so called boom and bust cycles that are assumed to be a normal part of a functioning economy nowadays.
And again, the way governments approach this really reflects their lack of understanding and warped thinking on how this system works. As they themselves only know how to centrally control and force things, they believe the changing prices are a result of someone greedily controlling them. Or perhaps they see any free decentralized system as a competitor that must be eradicated and replaced by a controlled system. Either way the result is always the same.
May 3, 2022
The Use of Knowledge in Society is one of the most praised and cited articles of the 20th century. If you're interested in either knowledge at a more theoretical level or in economics, this article is a must-read.
In it Hayek basically defines economic planning and then goes on to argue against central planning and for decentralized planning. He defines economic planning as "the complex of interrelated decisions about the allocation of our available resources." This planning needs to be done based on knowledge, which needs to be conveyed to the planner first. An efficient economic system thus needs to solve the problem of utilizing knowledge that is initially dispersed. That knowledge we're talking about here mostly means knowledge about changes (e.g. of the availability of resources, or of demand).
In order for central planning to work, all this dispersed knowledge about different changes and specific circumstances in time and place would need to be conveyed to the central planners, so that they can issue orders that represent appropriate reactions to the changes. As history has shown, this is notoriously difficult.
Decentralized planning means instead, that the planning is done by many separate actors which can respond locally and thus much better to changes, as they have the most accurate knowledge of their local, specific circumstances. The decentralized actor doesn't need to know the changes happening in the whole of the economic system or even their underlying causes - he is concerned only with changes directly affecting him. He gets this relevant knowledge of changes in the larger system in a concentrated form, namely through the changing of prices. Thus the price system induces the individual, while seeking his own interest, to do what is in the general interest (e.g. use tin more sparingly if there is a general shortage of tin). Through many intermediaries and through the change of price, the relevant information is thus communicated to all.
While the article definitely concerns economics, it is interesting to note that Jimmy Wales, co-founder of Wikipedia, cited it as a major inspiration of his thinking with regards to Wikipedia. This shows that the main idea of the article definitely has implications beyond mere economics.
In it Hayek basically defines economic planning and then goes on to argue against central planning and for decentralized planning. He defines economic planning as "the complex of interrelated decisions about the allocation of our available resources." This planning needs to be done based on knowledge, which needs to be conveyed to the planner first. An efficient economic system thus needs to solve the problem of utilizing knowledge that is initially dispersed. That knowledge we're talking about here mostly means knowledge about changes (e.g. of the availability of resources, or of demand).
In order for central planning to work, all this dispersed knowledge about different changes and specific circumstances in time and place would need to be conveyed to the central planners, so that they can issue orders that represent appropriate reactions to the changes. As history has shown, this is notoriously difficult.
Decentralized planning means instead, that the planning is done by many separate actors which can respond locally and thus much better to changes, as they have the most accurate knowledge of their local, specific circumstances. The decentralized actor doesn't need to know the changes happening in the whole of the economic system or even their underlying causes - he is concerned only with changes directly affecting him. He gets this relevant knowledge of changes in the larger system in a concentrated form, namely through the changing of prices. Thus the price system induces the individual, while seeking his own interest, to do what is in the general interest (e.g. use tin more sparingly if there is a general shortage of tin). Through many intermediaries and through the change of price, the relevant information is thus communicated to all.
While the article definitely concerns economics, it is interesting to note that Jimmy Wales, co-founder of Wikipedia, cited it as a major inspiration of his thinking with regards to Wikipedia. This shows that the main idea of the article definitely has implications beyond mere economics.
April 20, 2021
A peculiar essay exploring the distribution of knowledge in society from a POV of an early 20th century economist and philosopher in a similar matter one would talk about distribution of "capital" in this time period. Some points retain validity up to this day better than others. One paragraph that stuck with me though is:
One reason why economists are increasingly apt to forget about the constant small changes which make up the whole economic picture is probably their growing preoccupation with statistical aggregates, which show a very much greater stability than the movements of the detail. The comparative stability of the aggregates cannot, however, be accounted for - as the statisticians seem occasionally to be inclined to do-by the "law of large numbers" or the mutual compensation of random changes. The number of elements with which we have to deal is not large enough for such accidental forces to produce stability.
Written in 1945, Hayek correctly pointed out a possibly worrisome trend of generating an increasingly complex and interconnected structures of information, without controlling or understanding their individual elements.
One reason why economists are increasingly apt to forget about the constant small changes which make up the whole economic picture is probably their growing preoccupation with statistical aggregates, which show a very much greater stability than the movements of the detail. The comparative stability of the aggregates cannot, however, be accounted for - as the statisticians seem occasionally to be inclined to do-by the "law of large numbers" or the mutual compensation of random changes. The number of elements with which we have to deal is not large enough for such accidental forces to produce stability.
Written in 1945, Hayek correctly pointed out a possibly worrisome trend of generating an increasingly complex and interconnected structures of information, without controlling or understanding their individual elements.
Read
April 8, 2022နီယိုကလစ်စစ်ကယ်သမားတွေလို လူတွေဟာ မက်လုံးတွေ၊လောဘတွေနဲ့ လည်ပတ်နေတာကို အဓိကပြောချင်တာမဟုတ်ပါဘူး။
သိမှုမှာ လူတွေကော၊အစိုးရပါ လွဲနိုင်သလို သိနိုင်တယ်။
အဲဒီတော့ ပုံသေနည်းတခုလို ဒါဆို ဒါဖြစ်ရမယ်လို့ သေချာမပြောနိုင်ဘူး။
လက်တွေ့ဘဝမှာ အချက်အလက်တွေဟာ မပြည့်စုံ၊ပြန့်ကျဲ၊မကြာခဏဆိုသလို ပဋိပက္ခသဘောကို ဆောင်နေတယ်။
အဲဒါမို့ ကျွန်တော်တို့မှာ ရှိတဲ့ ရင်းမြစ်(resources)တွေကို ဘယ်လိုအကောင်းဆုံးအသုံးချနိုင်မလဲဆိုတာ စဉ်းစားဖို့လိုလာပီ။
ဒေသ(local)သိမှုဟာ အရေးပါတယ်လို့ဆိုတယ်။
ဥပမာ-ကြက်ဥကို ကျွန်တော်က စားချင်စိတ်မရှိတော့လို့ ကြက်ဥလိုနှုန်းလျော့တယ်။
ဘေးအိမ်က ကြက်ဥ စားချင်တော့ တက်လာတယ်။
စာရင်းအင်းအရခြုံကြည့်ရင် နှုန်းပြောင်းလဒတာကို မြင်ရမယ်မထင်ဘူး။
အဲဒီတော့ အရင်းအမြစ်ကို နေရာချ(allocate)တဲ့နေရာမှာ လွဲနိုင်တယ်။
Hayekက အစီအစဉ်ချတာ၊ထိန်းချုပ်မှုတွေမှာ ဗဟိုမချုပ်ကိုင်ဖို့လိုတယ်လို့ဆိုတယ်။
အဲဒါမှ လူတိုင်းရဲ့ သိမှုတွေကို အသုံးချနိုင်မယ်။
ထိန်းညှိပေးဖို့အတွက် စျေးနှုန်းယန္တရား(price system)ကို သုံးတယ်။
ဗဟိုမထိန်းချုပ်တာနဲ့ စျေးနှုန်းယန္တရား နှစ်ခုလုံးဟာ စီးပွါးရေးဟန်ချက်ညီဖို့ လိုအပ်တဲ့အရာတွေပဲ ဖြစ်တယ်။
သိမှုမှာ လူတွေကော၊အစိုးရပါ လွဲနိုင်သလို သိနိုင်တယ်။
အဲဒီတော့ ပုံသေနည်းတခုလို ဒါဆို ဒါဖြစ်ရမယ်လို့ သေချာမပြောနိုင်ဘူး။
လက်တွေ့ဘဝမှာ အချက်အလက်တွေဟာ မပြည့်စုံ၊ပြန့်ကျဲ၊မကြာခဏဆိုသလို ပဋိပက္ခသဘောကို ဆောင်နေတယ်။
အဲဒါမို့ ကျွန်တော်တို့မှာ ရှိတဲ့ ရင်းမြစ်(resources)တွေကို ဘယ်လိုအကောင်းဆုံးအသုံးချနိုင်မလဲဆိုတာ စဉ်းစားဖို့လိုလာပီ။
ဒေသ(local)သိမှုဟာ အရေးပါတယ်လို့ဆိုတယ်။
ဥပမာ-ကြက်ဥကို ကျွန်တော်က စားချင်စိတ်မရှိတော့လို့ ကြက်ဥလိုနှုန်းလျော့တယ်။
ဘေးအိမ်က ကြက်ဥ စားချင်တော့ တက်လာတယ်။
စာရင်းအင်းအရခြုံကြည့်ရင် နှုန်းပြောင်းလဒတာကို မြင်ရမယ်မထင်ဘူး။
အဲဒီတော့ အရင်းအမြစ်ကို နေရာချ(allocate)တဲ့နေရာမှာ လွဲနိုင်တယ်။
Hayekက အစီအစဉ်ချတာ၊ထိန်းချုပ်မှုတွေမှာ ဗဟိုမချုပ်ကိုင်ဖို့လိုတယ်လို့ဆိုတယ်။
အဲဒါမှ လူတိုင်းရဲ့ သိမှုတွေကို အသုံးချနိုင်မယ်။
ထိန်းညှိပေးဖို့အတွက် စျေးနှုန်းယန္တရား(price system)ကို သုံးတယ်။
ဗဟိုမထိန်းချုပ်တာနဲ့ စျေးနှုန်းယန္တရား နှစ်ခုလုံးဟာ စီးပွါးရေးဟန်ချက်ညီဖို့ လိုအပ်တဲ့အရာတွေပဲ ဖြစ်တယ်။
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September 22, 2016No one knows everything, this begs the question: WHO then gets to organize our complex social systems, specifically our economic system?
A brief explanation on individual actions, unknowingly shared knowledge, prices and economy.
The whole world is connected and society can advance because of every single decision we make through our complete understanding of the world as a group - selfish individuals looking out for themselves.
Awesome!
A brief explanation on individual actions, unknowingly shared knowledge, prices and economy.
The whole world is connected and society can advance because of every single decision we make through our complete understanding of the world as a group - selfish individuals looking out for themselves.
Awesome!
June 25, 2022
Even with some hard-to-read 98-word sentences (literally), Hayek's essay was really insightful. I will definitely come back to this in the future. It's an excellent defense and recognition of the marvel of prices guiding our economic decisions.
September 27, 2015
An accessible essay on economics, one in which the layman can read and have a better understanding of (economic) decision making.
As for the writing itself, Hayek writes in long(er) sentences than (I would assume) most others. But if read carefully and deliberately, the sentence length does not obscure any idea or meaning.
In the essay, Hayek argues that the knowledge in society that is relevant for economic decision making is diffuse, and in particular the knowledge of "time and place" and other local information is impossible to centralize (and this local information of time/place/etc is no less vital than other more scientific knowledge). So he argues that we keep economic decision make decentralized. But then the question is how does the local decision maker get all the other relevant knowledge (besides that time/place stuff)? Because that industrial production knowledge is also important. Hayek says the solution is in the price system - that this is the mechanism which disperses relevant information for production.
Bottom line: central planners cannot know enough to run an economy and we should rely on the price system to guide economic actors.
This may seem uncontroversial - of course you can't k ow everything. But when Hayek wrote this essay in 1945 the prevailing attitude was that central planners could run an economy and run it better and more efficiently than if the economy was left on its own. WWII was just winding up and large economies, the USA in particular, were "taken over" by central authorities to plan and produce for the war effort. And lo and behold they won. And many of those central planners thought they could and should plan the economy in times of peace as well or else there's be another Depression. So Hayek's thesis in this essay was not the common knowledge or obvious position. It was contrarian.
As for the writing itself, Hayek writes in long(er) sentences than (I would assume) most others. But if read carefully and deliberately, the sentence length does not obscure any idea or meaning.
In the essay, Hayek argues that the knowledge in society that is relevant for economic decision making is diffuse, and in particular the knowledge of "time and place" and other local information is impossible to centralize (and this local information of time/place/etc is no less vital than other more scientific knowledge). So he argues that we keep economic decision make decentralized. But then the question is how does the local decision maker get all the other relevant knowledge (besides that time/place stuff)? Because that industrial production knowledge is also important. Hayek says the solution is in the price system - that this is the mechanism which disperses relevant information for production.
Bottom line: central planners cannot know enough to run an economy and we should rely on the price system to guide economic actors.
This may seem uncontroversial - of course you can't k ow everything. But when Hayek wrote this essay in 1945 the prevailing attitude was that central planners could run an economy and run it better and more efficiently than if the economy was left on its own. WWII was just winding up and large economies, the USA in particular, were "taken over" by central authorities to plan and produce for the war effort. And lo and behold they won. And many of those central planners thought they could and should plan the economy in times of peace as well or else there's be another Depression. So Hayek's thesis in this essay was not the common knowledge or obvious position. It was contrarian.
March 27, 2025
This book is more of a dense essay critiquing central economic planning and advocating for dynamic free markets. In this work, Hayek argues that when central economic planners determine the price of a good or service, the result is often inefficiency, waste, and shortages. In contrast, prices determined by the free market are more flexible and responsive to real-world conditions.
At the heart of Hayek’s defense of market dynamism is his emphasis on the dispersed and evolving nature of knowledge. Knowledge is the basis for supply and demand, and it is different for every individual and business. When the market retains flexibility, prices can serve as a shorthand for buyers and sellers to communicate changes in resource availability, production costs, and consumer demand. Compounded by the ability for new competition to offer a good of better quality or at a cheaper cost, we can see that the price of a product should reflect a rich tapestry of ever-evolving knowledge.
Yet, this is not how capitalism functions in 21st-century America. Hayek’s essay reflects the ideals of free market capitalism in a totally transparent society. Today, the American economic system for essential goods seems to be getting more and more expensive, not because prices are reflecting changes in supply and demand, but because corporations have decided that returns to shareholders are all that matter. This, in turn, has led to the necrosis of the entire capitalistic structure, where assets have become unattainable for those who do not already own any.
One day the markets will face a reckoning, the doctrine of shareholder primacy will be scrutinized, and the West will have to revisit foundational economic principles including the very ideas Hayek laid out decades ago.
At the heart of Hayek’s defense of market dynamism is his emphasis on the dispersed and evolving nature of knowledge. Knowledge is the basis for supply and demand, and it is different for every individual and business. When the market retains flexibility, prices can serve as a shorthand for buyers and sellers to communicate changes in resource availability, production costs, and consumer demand. Compounded by the ability for new competition to offer a good of better quality or at a cheaper cost, we can see that the price of a product should reflect a rich tapestry of ever-evolving knowledge.
Yet, this is not how capitalism functions in 21st-century America. Hayek’s essay reflects the ideals of free market capitalism in a totally transparent society. Today, the American economic system for essential goods seems to be getting more and more expensive, not because prices are reflecting changes in supply and demand, but because corporations have decided that returns to shareholders are all that matter. This, in turn, has led to the necrosis of the entire capitalistic structure, where assets have become unattainable for those who do not already own any.
One day the markets will face a reckoning, the doctrine of shareholder primacy will be scrutinized, and the West will have to revisit foundational economic principles including the very ideas Hayek laid out decades ago.
November 26, 2024
Hayek was one of the key influences that officially drew me into economics in the 1st place in 2019, and I've come to regard him as one of my intellectual mentors. And so it was nice to revisit this old gem which I first read as a teenager. I rmb reading 'The Road to Serfdom' in school and preaching free market capitalism to my school principal and anyone who would care.
Some new ideas to think about:
1) Hayek's key insight - that knowledge is dispersed and so economic decisions should be decentralized - is far from new. Writers long before Smith had hinted at this, and I've been digging up old threads on history of economic thought to sort of pinpoint where it all started, and why Hayek's insight was so startling. My sense is that the historical context is key - wartime planning had met with success to meet the demands of the time so Hayek was a contrarian voice. And for example, the Great Inflation of the 70s made Milton Friedman's ideas crucial for the times. Ideas progress cyclically.
We need to rmb how commonplace the idea of planning was back then.
https://www.grumpy-economist.com/p/th...
2) If we agree that an important body of knowledge that keeps society functioning is the 'knowledge of the particular circumstances of time and place', then this is in a sense a great equalizer. 'It is with respect to this that practically every individual has some advantage over all others'. Truly ruminating on this view makes us realize that the expertise of society as a whole, is immeasurable. This also paves the way to more listening of other people's perspectives and respecting other people's unique expertise. Rmb that everyone knows smtg that you don't, and everyone has a story to tell.
3) And so I sometimes wonder what makes intellectuals/ technocrats think they are better equipped to manage an economy than a businessman with practical experience.
4) Another startlingly profound Hayekian insight:
'One reason why economists are increasingly apt to forget about the constant small changes which make up the whole economic picture is probably their growing preoccupation with statistical aggregates, which show a very much greater stability than the movements of the detail.'
Hayek is already addressing the aggregation problem. SHOULD our macro models have micro-foundations? Or should macroeconomists be free to build whatever models they like as long as they fit the data (the pool-player analogy)? Or as I like to put it, 'Does macro have a life of its own?' Should macro be allowed to deviate from micro?
And then he notes
'The comparative stability of the aggregates cannot, however, be accounted for—as the statisticians occasionally seem to be inclined to do—by the “law of large numbers” or the mutual compensation of random changes. The number of elements with which we have to deal is not large enough.'
Hayek is already pointing at the problem of not having enough macro data. We only have access to about a century's worth of clean macro data, and most of that data is correlated! Just by virtue of the limitations of data, we can't draw good conclusions from our macro models, and hence the big questions still remain unsatisfactorily answered (I'm looking at you, RBC).
A good question is: 'In a thousand years, would macro be a science?' Cuz by that time, we'd have enough quality data. Who knows?
5) Further on the aggregation problem:
'The continuous flow of goods and services is maintained by constant deliberate adjustments, by new dispositions made every day in the light of circumstances not known the day before, by B stepping in at once when A fails to deliver. '
This has been my practical experience. I see a 'how-to' manual and think it's easy, only to try to do the task (e.g., baking or whatever) and run into the 'problem of missing steps'. It's so hard to traverse from Step 1 to Step 2 - manuals naturally have to omit Steps 1.1, 1.2 and so on, for the sake of tractability.
This drives home the point that we live in a complex system, and many things aren't as easy as they seem on the surface. Which reinforces the insight of appreciation for other people's unique knowledge and experience.
6) Economics is grounded on CHANGE:
'Economic problems arise always and only in consequence of change. So long as things continue as before, or at least as they were expected to, there arise no new problems requiring a decision, no need to form a new plan.'
If everyone was always happy, if every investment behaved normally according to its risk-return parameters, if economies grew at linear rates - then there'd be no need for economics.
I've arrived independently at this insight too, when pondering Plato's Phaedo. It seems to me that most human endeavours require SUFFERING - if there were unlimited resources to satisfy our unlimited wants then there'd be no economics, if financial markets had no risk then there'd be no finance, if humans were not constrained by space and time then there'd be no engineering.
Throw in the Minsky financial instability hypothesis and you realize that stability sows the seeds of instability.
7) Hayek leaves me with an intriguing proposition: that he observes that the price system is a 'marvel' which is not the product of human design.
How is it possible for smtg that 'evolved without design' to 'solve problems which we should not be able to solve consciously'?
Hayek goes so far as to call this 'the central theoretical problem of all social science.'
This arises in nearly all truly social phenomena! In particular, LANGUAGE.
LANGUAGE IS NOT THE PRODUCT OF DESIGN.
Yet it acts as an information mechanism like the price system. It bridges our minds, allowing access between 2 sentient beings. How did language evolve? How do we manage to communicate with each other? Does language have to correspond with reality?
What would Wittgenstein say about this?
Some new ideas to think about:
1) Hayek's key insight - that knowledge is dispersed and so economic decisions should be decentralized - is far from new. Writers long before Smith had hinted at this, and I've been digging up old threads on history of economic thought to sort of pinpoint where it all started, and why Hayek's insight was so startling. My sense is that the historical context is key - wartime planning had met with success to meet the demands of the time so Hayek was a contrarian voice. And for example, the Great Inflation of the 70s made Milton Friedman's ideas crucial for the times. Ideas progress cyclically.
We need to rmb how commonplace the idea of planning was back then.
https://www.grumpy-economist.com/p/th...
2) If we agree that an important body of knowledge that keeps society functioning is the 'knowledge of the particular circumstances of time and place', then this is in a sense a great equalizer. 'It is with respect to this that practically every individual has some advantage over all others'. Truly ruminating on this view makes us realize that the expertise of society as a whole, is immeasurable. This also paves the way to more listening of other people's perspectives and respecting other people's unique expertise. Rmb that everyone knows smtg that you don't, and everyone has a story to tell.
3) And so I sometimes wonder what makes intellectuals/ technocrats think they are better equipped to manage an economy than a businessman with practical experience.
4) Another startlingly profound Hayekian insight:
'One reason why economists are increasingly apt to forget about the constant small changes which make up the whole economic picture is probably their growing preoccupation with statistical aggregates, which show a very much greater stability than the movements of the detail.'
Hayek is already addressing the aggregation problem. SHOULD our macro models have micro-foundations? Or should macroeconomists be free to build whatever models they like as long as they fit the data (the pool-player analogy)? Or as I like to put it, 'Does macro have a life of its own?' Should macro be allowed to deviate from micro?
And then he notes
'The comparative stability of the aggregates cannot, however, be accounted for—as the statisticians occasionally seem to be inclined to do—by the “law of large numbers” or the mutual compensation of random changes. The number of elements with which we have to deal is not large enough.'
Hayek is already pointing at the problem of not having enough macro data. We only have access to about a century's worth of clean macro data, and most of that data is correlated! Just by virtue of the limitations of data, we can't draw good conclusions from our macro models, and hence the big questions still remain unsatisfactorily answered (I'm looking at you, RBC).
A good question is: 'In a thousand years, would macro be a science?' Cuz by that time, we'd have enough quality data. Who knows?
5) Further on the aggregation problem:
'The continuous flow of goods and services is maintained by constant deliberate adjustments, by new dispositions made every day in the light of circumstances not known the day before, by B stepping in at once when A fails to deliver. '
This has been my practical experience. I see a 'how-to' manual and think it's easy, only to try to do the task (e.g., baking or whatever) and run into the 'problem of missing steps'. It's so hard to traverse from Step 1 to Step 2 - manuals naturally have to omit Steps 1.1, 1.2 and so on, for the sake of tractability.
This drives home the point that we live in a complex system, and many things aren't as easy as they seem on the surface. Which reinforces the insight of appreciation for other people's unique knowledge and experience.
6) Economics is grounded on CHANGE:
'Economic problems arise always and only in consequence of change. So long as things continue as before, or at least as they were expected to, there arise no new problems requiring a decision, no need to form a new plan.'
If everyone was always happy, if every investment behaved normally according to its risk-return parameters, if economies grew at linear rates - then there'd be no need for economics.
I've arrived independently at this insight too, when pondering Plato's Phaedo. It seems to me that most human endeavours require SUFFERING - if there were unlimited resources to satisfy our unlimited wants then there'd be no economics, if financial markets had no risk then there'd be no finance, if humans were not constrained by space and time then there'd be no engineering.
Throw in the Minsky financial instability hypothesis and you realize that stability sows the seeds of instability.
7) Hayek leaves me with an intriguing proposition: that he observes that the price system is a 'marvel' which is not the product of human design.
How is it possible for smtg that 'evolved without design' to 'solve problems which we should not be able to solve consciously'?
Hayek goes so far as to call this 'the central theoretical problem of all social science.'
This arises in nearly all truly social phenomena! In particular, LANGUAGE.
LANGUAGE IS NOT THE PRODUCT OF DESIGN.
Yet it acts as an information mechanism like the price system. It bridges our minds, allowing access between 2 sentient beings. How did language evolve? How do we manage to communicate with each other? Does language have to correspond with reality?
What would Wittgenstein say about this?
February 9, 2019
An essential essay, in which Hayek argues that a decentralized market economy is superior to a centrally planned economy because of its better capacity in using knowledge (especially tacit knowledge - the type of individual knowledge that can't be communicated) and in efficiently adapting to continuous change in detailed circumstances (because the ones directly exposed to them will be the ones to adapt).
October 16, 2020
Stimulating blend of epistemology and economic theory.
February 11, 2022
Hayek argues in two dozen or so pages that the biggest problem with central planning, and conversely the greatest virtue of individualist, market economies based around a price system, is how they each handle information. Our information about any given situation is imperfect pretty much every time. That is unavoidably true, but in order to make rational and well-informed decisions we need to have some amount of knowledge beforehand. For economic calculations or "economic accounting" society itself (meaning all the consumers and producers) really benefits from knowing how much is being produced and how much is being consumed. In the case of central planning this information must be communicated back to a central authority that issues orders on how much to produce of one thing or another. This is limiting, especially in Hayek's pre-instant messaging and world wide web world, because it requires information to be collected and then returned to someone not present to make the decision. During the process of collecting this information some stuff may be missed, some lost in the translation of more qualitative or nuanced information be written down as statistics, and the situation itself may change in the amount of time it takes for the planner to receive the information, decide what to do and then send out the order again. He also makes the point that long term planning is nigh impossible since information about long term trends is unattainable.
Hayek says that the price system's real miracle function is the fact that it delivers enough information to allow individuals to make the "right decision." Hayek is a little vague about what this means but he pretty much implies that it allows suppliers to increase supply as they see the price increase and the consumers to cutback as they see the same. The other function that seems miraculous is that all of the appropriate operations and information can be performed and communicated without the issuing of any orders. This seems miraculous to some for the same reason that natural selection being able to develop something as complex as the brain or the eye seems miraculous to others. A group of individuals with imperfect information interacting with a price system will communicate and acquire information that allows them to make the right decision better than other systems, especially in localized or specialized areas where knowledge about the "circumstances of space and time" or specialized advanced knowledge which exacerbate the issues central planning may face.
There are a few final interesting points that this essay brings up or invokes in me. One is how Hayek discusses the Whitehead quote near the end and its implications for our interpretation of the price system. "Civilization advances by extending the number of important operations which we can perform without thinking about them." The price system works so well, at least if you buy the argument of the essay, precisely because it helps to automate the calculation of supply and demand and our willingness to purchase something in the middle of an economic interaction and the fact that it simplifies all this information into what amounts to a single number. Another is the way Hayek handles the criticism some people apparently may have had at the time that it seems convenient that a system like the price system that works so well for modern civilization. "Well," Hayek says, "if we hadn't stumbled upon the price system we likely wouldn't have developed our modern civilization because of how important and powerful the price system was." Lastly, at the very end mainly, but really throughout the whole essay Hayek is discussing how it is impossible that one mind, the "observing economist," could have all the necessary information required to make the economic accounting decisions for the whole of society as well as the price system does. And even if they could it would still be a lot of data to handle to make a meaningful decision out of, though that part isn't impossible. The really interesting question to me is how the further development of technology since this essay was written has affected the truth value of this statement. The ability to collect and communicate information has increased spectacularly since Hayek's time and maybe one day with a ubiquitous information web about every possible detail of what is consumed and produced a single sufficiently advanced algorithm or A.I. could state to make those calculations reliably. Facebook and every online shopping website already pretty much does something like collecting massive amounts of data on purchases and searches and use that to make predictions about what you might want to buy. With a big enough information network that can count however much of some product is consumed it could possibly issue the kind of orders Hayek specifically said couldn't work here.
Hayek says that the price system's real miracle function is the fact that it delivers enough information to allow individuals to make the "right decision." Hayek is a little vague about what this means but he pretty much implies that it allows suppliers to increase supply as they see the price increase and the consumers to cutback as they see the same. The other function that seems miraculous is that all of the appropriate operations and information can be performed and communicated without the issuing of any orders. This seems miraculous to some for the same reason that natural selection being able to develop something as complex as the brain or the eye seems miraculous to others. A group of individuals with imperfect information interacting with a price system will communicate and acquire information that allows them to make the right decision better than other systems, especially in localized or specialized areas where knowledge about the "circumstances of space and time" or specialized advanced knowledge which exacerbate the issues central planning may face.
There are a few final interesting points that this essay brings up or invokes in me. One is how Hayek discusses the Whitehead quote near the end and its implications for our interpretation of the price system. "Civilization advances by extending the number of important operations which we can perform without thinking about them." The price system works so well, at least if you buy the argument of the essay, precisely because it helps to automate the calculation of supply and demand and our willingness to purchase something in the middle of an economic interaction and the fact that it simplifies all this information into what amounts to a single number. Another is the way Hayek handles the criticism some people apparently may have had at the time that it seems convenient that a system like the price system that works so well for modern civilization. "Well," Hayek says, "if we hadn't stumbled upon the price system we likely wouldn't have developed our modern civilization because of how important and powerful the price system was." Lastly, at the very end mainly, but really throughout the whole essay Hayek is discussing how it is impossible that one mind, the "observing economist," could have all the necessary information required to make the economic accounting decisions for the whole of society as well as the price system does. And even if they could it would still be a lot of data to handle to make a meaningful decision out of, though that part isn't impossible. The really interesting question to me is how the further development of technology since this essay was written has affected the truth value of this statement. The ability to collect and communicate information has increased spectacularly since Hayek's time and maybe one day with a ubiquitous information web about every possible detail of what is consumed and produced a single sufficiently advanced algorithm or A.I. could state to make those calculations reliably. Facebook and every online shopping website already pretty much does something like collecting massive amounts of data on purchases and searches and use that to make predictions about what you might want to buy. With a big enough information network that can count however much of some product is consumed it could possibly issue the kind of orders Hayek specifically said couldn't work here.
October 21, 2020
“The problem is thus in no way solved if we can show that all the facts, if they were known to a single mind (as we hypothetically assume them to be given to the observing economist), would uniquely determine the solution; instead we must show how a solution is produced by the interactions of people each of whom possesses only partial knowledge. To assume all the knowledge to be given to a single mind in the same manner in which we assume it to be given to us as the explaining economists is to assume the problem away and to disregard everything that is important and significant in the real world.”
Interesting analysis of the nature of imperfect information in an economy and how we must be aware of this problem in order to maximise efficiency (instead of following mathematical formulae etc). Because no one has all knowledge about everything, no one must be allowed to make all choices in an economy. For Hayek, this is the function of prices, which allow people to make individual decisions based on the factors that are purely relevant to them.
“We must look at the price system as such a mechanism for communicating information if we want to understand its real function—a function which, of course, it fulfils less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned.”
Definitely feels like he’s inspired some pretty smart people (like Sowell).
Interesting analysis of the nature of imperfect information in an economy and how we must be aware of this problem in order to maximise efficiency (instead of following mathematical formulae etc). Because no one has all knowledge about everything, no one must be allowed to make all choices in an economy. For Hayek, this is the function of prices, which allow people to make individual decisions based on the factors that are purely relevant to them.
“We must look at the price system as such a mechanism for communicating information if we want to understand its real function—a function which, of course, it fulfils less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned.”
Definitely feels like he’s inspired some pretty smart people (like Sowell).
June 17, 2018
Hayak simply advocates the use of Laissez Faire capitalism as a most efficient way to organize knowledge for the benefit of most of humanity. No single mind, entity, dictator, no matter how smart he is can make the best decision that delivers the most good to most people. Only when those decisions are made at the edge, by single individuals we have the optimal delivery of value. The invisible hand of Adam Smith does work and that is marvelous.
Quotes:
-The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
-This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.”
-Civilization advances by extending the number of important operations which we can perform without thinking about them.
-..emphasizes that the essential utility of the price system consists in inducing the individual, while seeking his own interest, to do what is in the general interest...
Quotes:
-The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
-This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.”
-Civilization advances by extending the number of important operations which we can perform without thinking about them.
-..emphasizes that the essential utility of the price system consists in inducing the individual, while seeking his own interest, to do what is in the general interest...
August 11, 2024
Friedrich Hayek's seminal essay, "The Use of Knowledge in Society," is a masterful exploration of how decentralized decision-making in a free market leads to the most efficient use of knowledge. Hayek's central argument is that knowledge is dispersed among individuals, and no single person or authority can possess all the information necessary to make the best economic decisions.
He brilliantly demonstrates that the price system acts as a communication network, transmitting information about relative scarcities and preferences, allowing individuals to coordinate their actions efficiently. This decentralized process, according to Hayek, outperforms any centrally planned system because it leverages the unique, often tacit knowledge possessed by each individual.
Hayek's essay is a profound defense of the market as an indispensable mechanism for utilizing dispersed knowledge. He persuasively argues that attempts to centralize economic planning ignore the complex and dynamic nature of knowledge, leading to inefficiencies and misallocations.
His insights extend beyond economics, offering a deep understanding of how societies function and the limits of centralized authority. Hayek’s clear and concise writing, combined with his profound insights, make this essay a must-read for anyone interested in economics, political theory, or the philosophy of knowledge. "The Use of Knowledge in Society" remains a timeless and influential work that continues to resonate in contemporary debates about the role of markets and government intervention.
He brilliantly demonstrates that the price system acts as a communication network, transmitting information about relative scarcities and preferences, allowing individuals to coordinate their actions efficiently. This decentralized process, according to Hayek, outperforms any centrally planned system because it leverages the unique, often tacit knowledge possessed by each individual.
Hayek's essay is a profound defense of the market as an indispensable mechanism for utilizing dispersed knowledge. He persuasively argues that attempts to centralize economic planning ignore the complex and dynamic nature of knowledge, leading to inefficiencies and misallocations.
His insights extend beyond economics, offering a deep understanding of how societies function and the limits of centralized authority. Hayek’s clear and concise writing, combined with his profound insights, make this essay a must-read for anyone interested in economics, political theory, or the philosophy of knowledge. "The Use of Knowledge in Society" remains a timeless and influential work that continues to resonate in contemporary debates about the role of markets and government intervention.
February 9, 2018
- لا يمكن ﻷحد أن يملك معرفة شاملة لﻷشياء، لذلك السلطة المركزية ستفشل في توجيه السوق بسبب جهلها وإغفالها على الكثير من اﻷمور، في حين ستكون القرارات التي تتخذ من طرف أشخاص لهم معرفة خاصة بمجال عملهم ستكون أفضل ﻷن لهم معرفة أفضل بالزمان والمكان والظروف الذين يشتغلون فيهم.
-يبين هايك أيضا أن التخطيط المركزي دليل على اﻹحتكار من طرف جهة واحدة "الدولة" عكس المنافسة التي يكون فيها الكثير من الناس يخططون بطرق مختلفة.
- المعرفة كانت ستستعمل بشكل جيد لو أنها لم تكن محتكرة من طرف نوع واحد منها، بالضبط المعرفة العلمية التي تحوز على منطقة شاسعة من خيال العامة الشيء الذي يجعلهم يميلون إلى نسيان أنها ليست النوع الوحيد الذي له صلة بالموضوع.
-اﻹحصاء يجعل اﻹقتصاديين يميلون إلى إعتبار أن التغيرات في السوق تكون على المدى البعيد، وهذا يجعلهن يتجاوزون الكثير من التغيرات الصغيرة والتفاصيل لذلك تكةن أغلب توقعاتهم خاطئة "يذكرني هذا بكتاب the black swan لنسيم نيكولاس طالب".
-يجب أن ننظر إلى نظام اﻷثمنة كميكانيزم لتواصل المعلومات حتى نفهم الغرض الحقيقي من وجودها.
-مشكل: كيف نوسع نطاق استعمالنا للموارد خارج نطاق التحكم في عقل أي كان، وبعدها معرفة كيف نستغني عن الحاجة إلى التحكم وكيف نزود اﻷشخاص بالدوافع التي تجعل الناس يقومون باﻷشياء المرغوب فيها دون أن نخبرهم ما الذي يجب فعله "يذكرني بكتاب nudge لريتشارد تايلر"
-يبين هايك أيضا أن التخطيط المركزي دليل على اﻹحتكار من طرف جهة واحدة "الدولة" عكس المنافسة التي يكون فيها الكثير من الناس يخططون بطرق مختلفة.
- المعرفة كانت ستستعمل بشكل جيد لو أنها لم تكن محتكرة من طرف نوع واحد منها، بالضبط المعرفة العلمية التي تحوز على منطقة شاسعة من خيال العامة الشيء الذي يجعلهم يميلون إلى نسيان أنها ليست النوع الوحيد الذي له صلة بالموضوع.
-اﻹحصاء يجعل اﻹقتصاديين يميلون إلى إعتبار أن التغيرات في السوق تكون على المدى البعيد، وهذا يجعلهن يتجاوزون الكثير من التغيرات الصغيرة والتفاصيل لذلك تكةن أغلب توقعاتهم خاطئة "يذكرني هذا بكتاب the black swan لنسيم نيكولاس طالب".
-يجب أن ننظر إلى نظام اﻷثمنة كميكانيزم لتواصل المعلومات حتى نفهم الغرض الحقيقي من وجودها.
-مشكل: كيف نوسع نطاق استعمالنا للموارد خارج نطاق التحكم في عقل أي كان، وبعدها معرفة كيف نستغني عن الحاجة إلى التحكم وكيف نزود اﻷشخاص بالدوافع التي تجعل الناس يقومون باﻷشياء المرغوب فيها دون أن نخبرهم ما الذي يجب فعله "يذكرني بكتاب nudge لريتشارد تايلر"
April 23, 2019
"some form of decentralization" = on-chain liquid democracy
"If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating
all knowledge, issues its orders. We must solve it by some form of decentralization. But this answers only part of our problem. We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used. But the “man on the spot” cannot decide solely on the basis of his limited but intimate knowledge of the facts of his immediate surroundings. There still remains the problem of communicating to him such further information as he needs to fit his decisions into the whole pattern of changes of the larger economic system."
"If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating
all knowledge, issues its orders. We must solve it by some form of decentralization. But this answers only part of our problem. We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used. But the “man on the spot” cannot decide solely on the basis of his limited but intimate knowledge of the facts of his immediate surroundings. There still remains the problem of communicating to him such further information as he needs to fit his decisions into the whole pattern of changes of the larger economic system."
April 19, 2021
1. The economic problem is a problem of information distribution. As Hayek puts it, it is 'not merely a problem of how to allocate "given" resources-if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge not given to anyone in its totality.'
2. Unlike scientific knowledge, which is the knowledge of what can be generalized, the majority of data required for economic planning is distributed, ever-changing, and can hardly be aggregated via statistics (e.g., whimsical individual preferences). This "knowledge of the particular" may be constantly frowned upon in our "modern" (viz. bunch-of-hairless-apes-deifying-science) age, yet economic rewards are obtained by satisfying particular needs, not grand theories.
3. Attempting to centralize this "knowledge of the particular" for the purpose of economic planning is a risky endeavor, as data might be missing, or out of date, or averaged into oblivion. Consequences should therefore be felt in their entirety by the planners, to ensure a feedback loop - and this is why government planning (i.e., central planning that by force distributes consequences among everyone, not just the planners) is a no-no.
2. Unlike scientific knowledge, which is the knowledge of what can be generalized, the majority of data required for economic planning is distributed, ever-changing, and can hardly be aggregated via statistics (e.g., whimsical individual preferences). This "knowledge of the particular" may be constantly frowned upon in our "modern" (viz. bunch-of-hairless-apes-deifying-science) age, yet economic rewards are obtained by satisfying particular needs, not grand theories.
3. Attempting to centralize this "knowledge of the particular" for the purpose of economic planning is a risky endeavor, as data might be missing, or out of date, or averaged into oblivion. Consequences should therefore be felt in their entirety by the planners, to ensure a feedback loop - and this is why government planning (i.e., central planning that by force distributes consequences among everyone, not just the planners) is a no-no.
August 21, 2025
Hayek rightly shows that prices economize on knowledge, but precisely because prices are thin, aggregated signals, they systematically omit moral spillovers, ecological risk, and power relations. In settings with information asymmetries and concentrated market power, this informational compression enables rent extraction and misallocation. Price guided coordination also unfolds within firms and platforms whose governance can curtail autonomy, while prevailing financial and political institutions bias decisions toward the short term. Thus, decentralized prices are necessary for complex coordination, but they are not sufficient for social desirability; the missing pieces are institutional complements such as competition policy, disclosure/liability regimes, public goods provision, and long horizon rules that restore the information and incentives prices cannot carry.
Although Hayek masterfully disassembles central planning, he overlooks the limitations of free and open markets, thereby inviting both criticism and the search for more robust designs of economic systems.
Although Hayek masterfully disassembles central planning, he overlooks the limitations of free and open markets, thereby inviting both criticism and the search for more robust designs of economic systems.
December 28, 2024
Notes
Economic problem of society is in concentrating/integrating dispersed bits of incomplete, frequently contradictory knowledge possessed by individuals, securing best use of resources for ends whose relative importance is known only to them.
A body of important but unorganized knowledge that is not scientific (general rules) - particular circumstance of place and time - giving each individual an advantage, but only if decisions depending on the information are made with his cooperation.
Real estate agent, arbitrageur, shipper using half-utilized containers, all utilizing knowledge of fleeting moment not known to others. Prejudice against this commerce vis-a-vis production.
Schumpeter - by demanding consumer goods, consumers also demand the means of production that go into producing those goods.
Economic problem of society is in concentrating/integrating dispersed bits of incomplete, frequently contradictory knowledge possessed by individuals, securing best use of resources for ends whose relative importance is known only to them.
A body of important but unorganized knowledge that is not scientific (general rules) - particular circumstance of place and time - giving each individual an advantage, but only if decisions depending on the information are made with his cooperation.
Real estate agent, arbitrageur, shipper using half-utilized containers, all utilizing knowledge of fleeting moment not known to others. Prejudice against this commerce vis-a-vis production.
Schumpeter - by demanding consumer goods, consumers also demand the means of production that go into producing those goods.
September 8, 2020
A great essay about knowledge and spontaneous order in society. It explains why central planning is usually not the answer to resolve social problems. Also to understand the importance of (free) prices in an economy. And it is a reminder that scientific knowledge is not necessarily the best kind of knowledge.
Some important ideas:
The economic problem is not one of allocation of resources, but a problem of how to use best the knowledge of society to achieve individual goals. This knowledge is dispersed in millions of people, can not be given to a central authority because It is knowledge of particular circumstances of space and time. This kind of knowledge can only be transmitted by the marvelous price system. This system is not the result of human design but of human action.
Some important ideas:
The economic problem is not one of allocation of resources, but a problem of how to use best the knowledge of society to achieve individual goals. This knowledge is dispersed in millions of people, can not be given to a central authority because It is knowledge of particular circumstances of space and time. This kind of knowledge can only be transmitted by the marvelous price system. This system is not the result of human design but of human action.
February 13, 2025
This book strikes me as largely reasonable for its day and length but seems almost comically optimistic about independent business actors' ability to make use of information. Never in human history have businesses had so much access to information and yet, over and over again, we continue to see the biggest corporations release/prioritize products that are bafflingly out of touch with their audience or their designers (the entertainment industry's bizarre flops like Concord being the most obvious but likely far from the costliest). I'll be charitable to Hayek and grant that his understanding probably was more apt in the age of physical production instead of the age of information. But, like so many economic texts, this largely feels like "strong criticism of enemy, weak defense of self".
Read
October 1, 2023The central thesis of this essay is that individuals who make up a society have nuanced knowledge on varying topics that can be of use for varying circumstances.
This decentralized model, which is enabled through a pricing mechanism, is a more efficient model to run a society than having a central authority to do all the planning and decision-making.
The thesis written in 1945 has been tested many times since and has been validated.
The style and vocabulary used made it a difficult read. A disservice to the excellent idea presented.
I will probably not read Hayek's direct work after this intro.
This decentralized model, which is enabled through a pricing mechanism, is a more efficient model to run a society than having a central authority to do all the planning and decision-making.
The thesis written in 1945 has been tested many times since and has been validated.
The style and vocabulary used made it a difficult read. A disservice to the excellent idea presented.
I will probably not read Hayek's direct work after this intro.
October 31, 2024
While the essay offered a glimpse into Hayek's thought, I found his ideas to be rigid and dogmatic.
His (lack of) arguments on the existence and even the possibility of designing viable alternative economic systems seemed fixed and resistant to alternative perspectives.
On top he dares to venture into scientific fields outside of his expertise (sociology, anthropology) and yet use them to strengthen his (non) arguments and negate their findings.
His (lack of) arguments on the existence and even the possibility of designing viable alternative economic systems seemed fixed and resistant to alternative perspectives.
On top he dares to venture into scientific fields outside of his expertise (sociology, anthropology) and yet use them to strengthen his (non) arguments and negate their findings.
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