It is about this question that all the dispute about "economic planning" centers. It may be admitted that, as far as scientific knowledge is concerned, a body of suitably chosen experts may be in the best position to command all the best knowledge available—though this is of course merely shifting the difficulty Use of knowledge the problem of selecting the experts.
Third, it exposes one of the most deplorable fallacies in the standard approach to teaching economics. The very strength of the desire, constantly voiced by producers and engineers, to be allowed to proceed untrammeled by considerations of money costs, is eloquent testimony to the extent to which these factors enter into their daily work.
It follows from this that central planning based on statistical information by its nature cannot take direct account of Use of knowledge circumstances of time and place and that the central planner will have to find some way or other in which the decisions depending on them can be left to the "man on the spot.
Its author is pre-eminent among those economists who approach economic phenomena in the light of a certain branch of positivism. Even economists who regard themselves as definitely immune to the crude materialist fallacies of the past constantly commit the same mistake where activities directed toward the acquisition of such practical knowledge are concerned—apparently because in their scheme of things all such knowledge is supposed to be "given.
This prejudice has in a considerable measure affected the attitude toward commerce in general compared with that toward production. The thesis that without the price system we could not preserve Use of knowledge society based on such extensive division of labor as ours was greeted with a howl of derision when it was first advanced by von Mises twenty-five years ago.
VI 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.
It is worth contemplating for a moment a very simple and commonplace instance of the action of the price system to see what precisely it accomplishes. 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.
It suggests rather that there is something fundamentally wrong with an approach which habitually disregards an essential part of the phenomena with which we have to deal: 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 those who clamor for "conscious direction"—and who cannot believe that anything which has evolved without design and even without our understanding it should solve problems which we should not be able to solve consciously—should remember this: It is in this connection that what I have called the "economic calculus" proper helps us, at least by analogy, to see how this problem can be solved, and in fact is being solved, by the price system.
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.
It does not matter for him why at the particular moment more screws of one size than of another are wanted,why paper bags are more readily available than canvas bags, or why skilled labor, or particular machine tools, have for the moment become more difficult to obtain.
To gain an advantage from better knowledge of facilities of communication or transport is sometimes regarded as almost dishonest, although it is quite as important that society make use of the best opportunities in this respect as in using the latest scientific discoveries. The consumers do nothing of the kind.
It is, perhaps, worth stressing that economic problems arise always and only in consequence of change. 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 is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply.
Only to a mind to which all these facts were simultaneously known would the answer necessarily follow from the facts given to it. This, however, is emphatically not the economic problem which society faces.
Competition, on the other hand, means decentralized planning by many separate persons. Hayek Socialist Calculation Debate Essential If you want to learn as much as possible about economics from just one article, read Friedrich A.
III It will at once be evident that on this point the position will be different with respect to different kinds of knowledge; and the answer to our question will therefore largely turn on the relative importance of the different kinds of knowledge; those more likely to be at the disposal of particular individuals and those which we should with greater confidence expect to find in the possession of an authority made up of suitably chosen experts.
It seems to me that many of the current disputes with regard to both economic theory and economic policy have their common origin in a misconception about the nature of the economic problem of society. The practical problem, however, arises precisely because these facts are never so given to a single mind, and because, in consequence, it is necessary that in the solution of the problem knowledge should be used that is dispersed among many people.
This view disregards the fact that the method by which such knowledge can be made as widely available as possible is precisely the problem to which we have to find an answer.
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.
The fairly widespread belief in the affirmative is not, as far as I can ascertain, borne out by the practical experience of the businessman. Had he not done so, he might still have developed some other, altogether different, type of civilization, something like the "state" of the termite ants, or some other altogether unimaginable type.
The number of elements with which we have to deal is not large enough for such accidental forces to produce stability. The various ways in which the knowledge on which people base their plans is communicated to them is the crucial problem for any theory explaining the economic process, and the problem of what is the best way of utilizing knowledge initially dispersed among all the people is at least one of the main problems of economic policy—or of designing an efficient economic system.
It is a curious fact that this sort of knowledge should today be generally regarded with a kind of contempt and that anyone who by such knowledge gains an advantage over somebody better equipped with theoretical or technical knowledge is thought to have acted almost disreputably.
But I fear that our theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made us somewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency.
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 remaining dissent seems clearly to be due to purely intellectual, and more particularly methodological, differences.Learn how to use Knowledge using many example sentences.
Learn collocations of Knowledge with free vocabulary lessons. Hayek: The Use of Knowledge in Society - University of Chicago. prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use.
Please contact the publisher regarding any further use of this work. If you want to learn as much as possible about economics from just one article, read Friedrich A. Hayek’s “The Use of Knowledge in Society,” published in the September issue of The American Economic Review.
First, no other article explains the economic problem as clearly. The Online Library of Liberty A Project Of Liberty Fund, Inc. Friedrich August von Hayek, “The Use of Knowledge in Society”  The Online Library Of Liberty Collection This E-Book (PDF format) is published by Liberty Fund, Inc., a private, non-profit.
Hayek’s “The Use of Knowledge in Society” – A Summary I have been thinking a lot about the misunderstandings of Hayek’s “ The Use of Knowledge in Society ” essay.
Below I offer what I think is a quick summary of his argument that stresses both the importance of private property and the price system as jointly necessary for economic coordiation.Download