The use of knowledge in society
Citation: F. A. Hayek (1945) The use of knowledge in society. The American Economic Review (RSS)
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Tagged: Economics (RSS) knowledge (RSS), society (RSS), economics (RSS)
The use of knowledge in Society is a classic economic text by the Austrian-school economist Friedrich Hayek and represents what is perhaps the classic text from that school and a fundamental text in economics more broadly.
The article is framed largely as a response to Oskar Lange and a number of other economic advocations for centrally planned economies -- especially in regards to socialism. Plans for these planned economies called for the aggregation of statistical information to a central authority who could them manage economic activity in an orderly way.
Hayek makes an impassioned argument that the price mechanism alone (which called a "marvel" and argues is vastly under-appreciated both academically and more broadly) represents and reflect knowledge and that price fluctuations in an open market are the best possible means of representing the aggregate knowledge of all market participants.
Hayek makes a very strong argument that no centrally planned economy could ever match an open market because even an incredibly knowledgeable central planner would only have access to small quantity of the information that, in an open market, would be pushing the price in one direction or another.
The article ends with an extending critique of Schumpeter which seems to mostly come down to a assumption of perfect knowledge within an individual -- something that Hayek rejects.
The article has also also been covered, in some depth, in a Wikipedia article.
Theoretical and Practical Relevance
Although the article is primary an attack on central planning, it is perhaps more influential through its clear and succinct description of the price mechanism and its central argument that price fluctuations promote the efficient distribution of resources. Although this was controversial at the time, it is now essentially embraced by economics much more broadly.