Is it true that, with the elaborate apparatus of modern production, economic decisions are required only at long intervals, as when a new factory is to be erected or a new process to be introduced?
We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used. It follows from this that central planning based on statistical information by its nature cannot take direct account of these 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.
We need to remember only how much we have to learn in any Use of knowledge 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, Use of knowledge of special circumstances.
Every time a government plan restricts market exchange, ignorance is substituted for knowledge. Indeed, there are few points on which the assumptions made usually only implicitly by the "planners" differ from those of their opponents as much as with regard to the significance and frequency of changes which will make substantial alterations of production plans necessary.
As Alfred Whitehead has said in another connection, "It is a profoundly erroneous truism, repeated by all copy-books and by eminent people when they are making speeches, that we should cultivate the habit of thinking what we are doing.
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 have developed these practices and institutions by building upon habits and institutions which have proved successful in their own sphere and which have in turn become the foundation of the civilization we have built up.
The precise opposite is the case. The reason for this is that the "data" from which the economic calculus starts are never for the whole society "given" to a single mind which could work out the implications and can never be so given.
This is, perhaps, also the point where I should briefly mention the fact that the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form.
The remaining dissent seems clearly to be due to purely intellectual, and more particularly methodological, differences. VII It is in many ways fortunate that the dispute about the indispensability of the price system for any rational calculation in a complex society is now no longer conducted entirely between camps holding different political views.
The marvel is that in a case like that of a scarcity of one raw material, without an order Use of knowledge 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; i.
What I wish to point out is that, even assuming that this problem can be readily solved, it is only a small part of the wider problem. 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 relevant passage is quoted in an English translation at the beginning of my article on "Socialist Calculation: In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned.
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. Today the difficulties which some still find in accepting it are no longer mainly political, and this makes for an atmosphere much more conducive to reasonable discussion.
We must solve it by some form of decentralization. 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.
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.
Hayek Socialist Calculation Debate Essential If you want to learn as much as possible about economics from just one article, read Friedrich A. 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.
In a competitive industry at any rate—and such an industry alone can serve as a test—the task of keeping cost from rising requires constant struggle, absorbing a great part of the energy of the manager. Of course, if detailed economic plans could be laid down for fairly long periods in advance and then closely adhered to, so that no further economic decisions of importance would be required, the task of drawing up a comprehensive plan governing all economic activity would be much less formidable.
Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge.Learn how to use Knowledge using many example sentences. Learn collocations of Knowledge with free vocabulary lessons.
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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.
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