The Use of Knowledge in Society

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The use of knowledge in society
The use of knowledge in society was an attack upon the idea of centralised economic planning which was popular amongst economists at the end of the Second World War. The view Hayek takes is a consequence of the methodology he believes economists should adopt when analysing our economic system – before asking why a particular system does not work the way we want it to, he believed we should investigate why we would ever expect it to work at all. Hayek refers to two kinds of knowledge in the paper: on the one hand scientific knowledge, of which he is dismissive and scathing. Scientific or technical knowledge of production methods can be best judged and organised by a panel of experts, and so should have no special place in a capitalist system. But the second kind of knowledge is different. This is practical knowledge of available resources, "knowledge of the particular circumstances of time and place". This is Hayek's favourite kind of knowledge. It has the characteristic of being spread around every individual in society, not just the intellectual elite, so that "Practically every individual has some advantage over all others in that he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation". Furthermore, because every individual only processes a small piece of the puzzle, no central planner can ever run the economy efficiently. Hayek gives examples of how entrepreneurs use this second kind of knowledge in a beneficial way for society and themselves; "the shipper... using otherwise empty or half filled journeys of tramp-steamers, or the estate agent whose whole knowledge is almost exclusively one of temporal opportunities, or the arbitrageur who gains from the local differences of commodity prices". This shows the productivity gains society can experience from taking advantage of practical...
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