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The Use of Knowledge in Society
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The Use of Knowledge in Society is a scholarly article written by renowned Austrian-school economist Friedrich Hayek, first published in the September 1945 issue of The American Economic Review. Written (along with The Meaning of Competition) as a rebuttal to fellow economist Oskar R. Lange and his endorsement of a planned economy, it was included among the twelve essays in Hayek's 1948 compendium Individualism and Economic Order.
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The Use of Knowledge in Society is a scholarly article written by renowned Austrian-school economist Friedrich Hayek, first published in the September 1945 issue of The American Economic Review. Written (along with The Meaning of Competition) as a rebuttal to fellow economist Oskar R. Lange and his endorsement of a planned economy, it was included among the twelve essays in Hayek's 1948 compendium Individualism and Economic Order. The article argues against the establishment of a Central Pricing Board (advocated by Lange) by highlighting the assiduously dynamic and organic nature of market price-fluctuations, and the benefits of this phenomenon. He asserts that a centrally planned market could never match the efficiency of the open market because any individual knows only a small fraction of all which is known collectively. A decentralized economy thus complements the dispersed nature of information spread throughout society. In Hayek's words, "The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; that is, they move in the right direction." The article also discusses the concepts of 'individual equilibrium' and of Hayek's notion of the divide between information which is useful and practicable versus that which is purely scientific or theoretical.
The Use of Knowledge in Society met with a poor reception from fellow economists because of the contemporary political climate and its perception as being overly trivial in its critiques. Partly as a result of this disappointing outcome, Hayek had by the end of the 1940s ceased to target his literature at the established economic community. Twenty years later these ideas had become more tolerable; today several are accepted as basic economic tenets. Specifically, the essay's central argument that market price fluctuations promote efficient distribution of resources is embraced by most modern economists.
The essay convinced Jimbo Wales of the workability of the free encyclopedia project that later became Wikipedia.
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