"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.^[1] 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.^[2] 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.^[3] 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.^[4] 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.^[3]

"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;^[3] 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.^[5]

[edit] Friedrich A. Hayek on the price system

From "The Use of Knowledge in Society"...'The price system is just one of those formations which man has learned to use (though he is still very far from having learned to make the best use of it) after he had stumbled upon it without understanding it. Through it not only a division of labor but also a coordinated utilization of resources based on an equally divided knowledge has become possible. 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. It is the other way round: man has been able to develop that division of labor on which our civilization is based because he happened to stumble upon a method which made it possible. 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'...Friedrich A. Hayek^[6]

[edit] References

1. ^ Book Review: The Use of Knowledge in Society by Friedrich A. Hayek | The Foundation for Economic Education: The Freeman, Ideas on Liberty
2. ^ Hayek, F. A. (1996). Individualism and Economic Order. Chicago: University of Chicago Press. ISBN 0226320936. http://books.google.com/books?id=5BJcBHuvrsMC&dq=&pg=PP1&ots=3fCDzRNwJF&sig=uaE9-r8ht4tk32SXeVoSUs1CCAA&prev=http://www.google.com/search%3Fq%3DIndividualism%2Band%2BEconomic%2BOrder%26sourceid%3Dnavclient-ff%26ie%3DUTF-8%26rlz%3D1B3GGGL_enUS230US230&sa=X&oi=print&ct=title#PPP1,M1. 
3. ^ ^{a b c} Bruce J. Caldwell (editor) (1990). Carl Menger and this legacy in economics. Duke University Press. pp. 392–95. ISBN 0822310872. http://books.google.com/books?id=ir0g_PW5lAYC&pg=PA393&lpg=PA393&dq=%22the+use+of+knowledge+in+society%22+reaction&source=web&ots=i3d9J1yqrk&sig=a9YMGsmDXBLWlEsPeuN_61s2VrQ#PPA395,M1. 
4. ^ "The use of knowledge in society (abstract)". Ewing Marion Kauffman Foundation. http://research.kauffman.org/cwp/appmanager/research/researchDesktop;jsessionid=GVJKUmhZQ8YdcdEwB2DGgQxpdz26X7E3ZO8TfnqSZE7nuSIAUScJ!973872261?_nfpb=true&_pageLabel=research_resourceDetail&keep=all&id=Research/Resource/Journal_Article_2848.htm&_nfls=false. Retrieved 2007-10-05. 
5. ^ Mitra, Barun S. (1999). Hayek's Road to Freedom. Liberty Institute. http://www.angelfire.com/mi/libertyinstitute/hayek1.html#3. 
6. ^ http://74.125.95.132/search?q=cache:blv3cDigeGcJ:www.econlib.org/library/Essays/hykKnw1.html+origin+of+the+political+price+system&cd=5&hl=en&ct=clnk&gl=us Editor/Trans.First Pub. Date Sep. 1945 Publisher/Edition American Economic Review. XXXV, No. 4. pp. 519-30. American Economic Association Author Hayek, Friedrich A. Retrieved Oct-8-09

[edit] External links

• "The Use of Knowledge in Society" (full text)
• "The Use of Knowledge in Society"PDF at the India Policy Institute)
• (French) "L'utilisation de la connaissance dans la société"