May 16, 2016

Economist Fredrich Hayek on Knowledge

Fredrich Hayek

[From article]
Perhaps the major theme running throughout Hayek’s career in formal economics concerned knowledge. For example, in a 1945 American Economic Review article titled “The Use of Knowledge in Society,” Hayek wrote that the “economic problem of society” was not merely one of allocating “given” resources, the way a standard textbook might define things. Rather, Hayek argued that the true economic problem is “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.”
This emphasis on dispersed knowledge was one of Hayek’s key contributions to the debate over socialism during the 1930s.
[. . .]
Yet without the communication network provided by free market prices, socialist planners could not effectively mobilize the dispersed knowledge held by millions of citizens in their country.
[. . .]
The socialist economists who thought otherwise were relying on unrealistic mathematical models of the economy which completely ignored the true economic problem, because they assumed all of the relevant information was “given” to the central planner.

May 8, 2016
What One Economist Knew
By Robert P. Murphy

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