"The Use of Knowledge in Society" is a

scholarly article Academic publishing is the subfield of publishing which distributes academic research and scholarship. Most academic work is published in academic journal articles, books or thesis, theses. The part of academic written output that is not forma ...

written by economist

Friedrich Hayek Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...

, first published in the September 1945 issue of ''

The American Economic Review The ''American Economic Review'' is a monthly peer-reviewed academic journal published by the American Economic Association. First published in 1911, it is considered one of the most prestigious and highly distinguished journals in the field of eco ...

''. Written (along with ''The Meaning of Competition'') as a rebuttal to fellow

economist An economist is a professional and practitioner in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...

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 is considered one of the most important in the field of modern economics.

Argument

Hayek's article argues against the establishment of a Central Pricing Board (advocated by Lange) by highlighting the dynamic and organic nature of market price-fluctuations, and the benefits of this phenomenon. He asserts that a centrally planned economy could never match the efficiency of the

open market The term open market is used generally to refer to an economic situation close to free trade. In a more specific, technical sense, the term refers to interbank trade in securities. In economic theory Economists judge the "openness" of markets ...

because what is known by a single agent is only a small fraction of the sum total of knowledge held by all members of society. 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.

Reception

Regarded as a seminal work, "The Use of Knowledge in Society" was one of the most praised and cited articles of the twentieth century. The article managed to convince

market socialists Market socialism is a type of economic system involving the public, cooperative, or social ownership of the means of production in the framework of a market economy, or one that contains a mix of worker-owned, nationalized, and privately owned ...

and members of the Cowles Commission (Hayek's intended target) and was positively received by economists

Herbert A. Simon Herbert Alexander Simon (June 15, 1916 – February 9, 2001) was an American political scientist, with a Ph.D. in political science, whose work also influenced the fields of computer science, economics, and cognitive psychology. His primary ...

Paul Samuelson Paul Anthony Samuelson (May 15, 1915 – December 13, 2009) was an American economist who was the first American to win the Nobel Memorial Prize in Economic Sciences. When awarding the prize in 1970, the Swedish Royal Academies stated that he " ...

, and

Robert Solow Robert Merton Solow, GCIH (; born August 23, 1924) is an American economist whose work on the theory of economic growth culminated in the exogenous growth model named after him. He is currently Emeritus Institute Professor of Economics at the ...

. UCLA economist

Armen Alchian Armen Albert Alchian (; April 12, 1914February 19, 2013) was an American economist. He spent almost his entire career at the University of California, Los Angeles (UCLA). A major microeconomic theorist, he is known as one of the founders of new i ...

remembers the excitement of reading Hayek's essay and stopping fellow economists in the hallway to ask if they had read Hayek's essay. In 2011 "The Use of Knowledge in Society" was selected as one of the top 20 articles published in the ''American Economic Review'' during its first 100 years.

Tom Butler-Bowdon Tom Butler-Bowdon (; born 1967) is a non-fiction author based in Oxford, England. Early life Butler-Bowdon was born in Adelaide. He graduated from the University of Sydney (BA Hons, Government and History) and the London School of Economics (MSc ...

included "The Use of Knowledge in Society" in his book, '' 50 Economics Classics''. While calling the essay "powerful and luminous," economist

George Stigler George Joseph Stigler (; January 17, 1911 – December 1, 1991) was an American economist. He was the 1982 laureate in Nobel Memorial Prize in Economic Sciences and is considered a key leader of the Chicago school of economics. Early life and e ...

, in his Nobel Prize Lecture, stated that Hayek failed to address the principles of knowledge acquisition.

Influence

Jimmy Wales, co-founder of

Wikipedia Wikipedia is a multilingual free online encyclopedia written and maintained by a community of volunteers, known as Wikipedians, through open collaboration and using a wiki-based editing system. Wikipedia is the largest and most-read refer ...

, cites "The Use of Knowledge in Society", which he read as an

undergraduate student Undergraduate education is education conducted after secondary education and before postgraduate education. It typically includes all postsecondary programs up to the level of a bachelor's degree. For example, in the United States, an entry- ...

, as "central" to his thinking about "how to manage the Wikipedia project". Hayek argued that information is decentralized – that knowledge is unevenly dispersed among different members of society – and that as a result, decisions are best made by those with local knowledge rather than by a central authority. The article "set the stage" for later use of Game theory models. The article vitally influenced economist

Thomas Sowell Thomas Sowell (; born June 30, 1930) is an American author, economist, political commentator and academic who is a senior fellow at the Hoover Institution. With widely published commentary and books—and as a guest on TV and radio—he becam ...

and served as his inspiration to write '' Knowledge and Decisions.'' Swedish economist

Assar Lindbeck Carl Assar Eugén Lindbeck (26 January 1930 – 28 August 2020) was a Swedish professor of economics at Stockholm University and at the Research Institute of Industrial Economics (IFN). Lindbeck was a member of the Royal Swedish Academy o ...

, who chaired the prize committee for the

Nobel Memorial Prize in Economic Sciences The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel ( sv, Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is an economics award administered ...

, testified that "The Use of Knowledge in Society" was the work that clarified the "advantages of well-functioning markets" for him.

References

{{DEFAULTSORT:Use of Knowledge in Society, The Austrian School publications Books by Friedrich Hayek Capitalism Classical liberalism Economics articles Works about the information economy Political philosophy literature Political science 1945 documents 1945 in economics Economics papers

Argument

Reception

Influence

See also

References