"The Use of Knowledge in Society" is a scholarly article written by 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 is considered one of the most important in the field of modern economics. [3]
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. [4] He asserts that a centrally planned economy could never match the efficiency of the open market 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. [5] 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. [4]
Regarded as a seminal work, [6] [7] [8] "The Use of Knowledge in Society" was one of the most praised [9] and cited [10] articles of the twentieth century. The article managed to convince market socialists and members of the Cowles Commission (Hayek's intended target) and was positively received by economists Herbert A. Simon, Paul Samuelson, and Robert Solow. [11]
UCLA economist Armen Alchian 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. [12] [13] Tom Butler-Bowdon included "The Use of Knowledge in Society" in his book, 50 Economics Classics . [14]
While calling the essay "powerful and luminous," economist George Stigler, in his Nobel Prize Lecture, stated that Hayek failed to address the principles of knowledge acquisition. [15]
As of 2023, the article had over 22,000 citations in Google Scholar. [16]
Jimmy Wales, co-founder of Wikipedia, cites "The Use of Knowledge in Society", which he read as an undergraduate student, [17] as "central" to his thinking about "how to manage the Wikipedia project". [18] [19] 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. [18] [20] The article "set the stage" for later use of Game theory models. [21] The article vitally influenced economist Thomas Sowell and served as his inspiration to write Knowledge and Decisions. [22] Swedish economist Assar Lindbeck, who chaired the prize committee for the Nobel Memorial Prize in Economic Sciences, testified that "The Use of Knowledge in Society" was the work that clarified the "advantages of well-functioning markets" for him. [23]
The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result primarily from the motivations and actions of individuals and their self interest. Austrian school theorists hold that economic theory should be exclusively derived from basic principles of human action.
Friedrich August von Hayek, often referred to by his initials F. A. Hayek, was an Austrian-British economist and political philosopher who made contributions to economics, political philosophy, psychology, intellectual history, and other fields. Hayek shared the 1974 Nobel Memorial Prize in Economic Sciences with Gunnar Myrdal for work on money and economic fluctuations, and the interdependence of economic, social and institutional phenomena. His account of how prices communicate information is widely regarded as an important contribution to economics that led to him receiving the prize.
James Tobin was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He contributed to the development of key ideas in the Keynesian economics of his generation and advocated government intervention in particular to stabilize output and avoid recessions. His academic work included pioneering contributions to the study of investment, monetary and fiscal policy and financial markets. He also proposed an econometric model for censored dependent variables, the well-known tobit model.
Ronald Harry Coase was a British economist and author. Coase was educated at the London School of Economics, where he was a member of the faculty until 1951. He was the Clifton R. Musser Professor of Economics at the University of Chicago Law School, where he arrived in 1964 and remained for the rest of his life. He received the Nobel Memorial Prize in Economic Sciences in 1991.
Gary Stanley Becker was an American economist who received the 1992 Nobel Memorial Prize in Economic Sciences. He was a professor of economics and sociology at the University of Chicago, and was a leader of the third generation of the Chicago school of economics.
Kenneth Joseph Arrow was an American economist, mathematician, writer, and political theorist. Along with John Hicks, he won the Nobel Memorial Prize in Economic Sciences in 1972.
Robert Merton Solow, GCIH was an American economist and Nobel laureate whose work on the theory of economic growth culminated in the exogenous growth model named after him. He was Institute Professor Emeritus of Economics at the Massachusetts Institute of Technology, where he was a professor from 1949 on. He was awarded the John Bates Clark Medal in 1961, the Nobel Memorial Prize in Economic Sciences in 1987, and the Presidential Medal of Freedom in 2014. Four of his PhD students, George Akerlof, Joseph Stiglitz, Peter Diamond, and William Nordhaus, later received Nobel Memorial Prizes in Economic Sciences in their own right.
Paul Anthony Samuelson 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 "has done more than any other contemporary economist to raise the level of scientific analysis in economic theory". Economic historian Randall E. Parker has called him the "Father of Modern Economics", and The New York Times considers him to be the "foremost academic economist of the 20th century."
Frank Hyneman Knight was an American economist who spent most of his career at the University of Chicago, where he became one of the founders of the Chicago School.
Law and economics, or economic analysis of law, is the application of microeconomic theory to the analysis of law. The field emerged in the United States during the early 1960s, primarily from the work of scholars from the Chicago school of economics such as Aaron Director, George Stigler, and Ronald Coase. The field uses economics concepts to explain the effects of laws, to assess which legal rules are economically efficient, and to predict which legal rules will be promulgated. There are two major branches of law and economics; one based on the application of the methods and theories of neoclassical economics to the positive and normative analysis of the law, and a second branch which focuses on an institutional analysis of law and legal institutions, with a broader focus on economic, political, and social outcomes, and overlapping with analyses of the institutions of politics and governance.
The Chicago school of economics is a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and popularized its principles. Milton Friedman, and George Stigler are considered the leading scholars of the Chicago school.
The Mont Pelerin Society (MPS) is an international organization composed of economists, philosophers, historians, intellectuals and business leaders. The society advocates freedom of expression, free market economic policies and the political values of an open society. Further, the society seeks to discover ways in which the private sector can replace many functions currently provided by government entities. Some scholars deny that the Mont Pelerin Society is neoliberal and claim that it is classical liberal.
George Joseph Stigler 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.
In economics, a price system is a system through which the valuations of any forms of property are determined. All societies use price systems in the allocation and exchange of resources as a consequence of scarcity. Even in a barter system with no money, price systems are still utilized in the determination of exchange ratios between the properties being exchanged.
Armen Albert Alchian 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 institutional economics and widely acknowledged for his work on property rights.
Fritz Machlup was an Austrian-American economist. He was president of the International Economic Association from 1971 to 1974. He was one of the first economists to examine knowledge as an economic resource, and is credited with popularising the concept of the information society.
Aaron Director was a Russian-born American economist and academic who played a central role in the development of law and economics and the Chicago school of economics. Director was a professor at the University of Chicago Law School, and, together with his brother-in-law, Nobel laureate Milton Friedman, influenced a number of jurists, including Robert Bork, Richard Posner, Antonin Scalia, and Chief Justice William Rehnquist.
This is the chronological list of books by the Austrian school economist and philosopher Friedrich Hayek. The dates in brackets are the original year of publication of the book.
EconTalk is a weekly economics podcast hosted by Russ Roberts. Roberts, formerly an economics professor at George Mason University, is a research fellow at Stanford University's Hoover Institution. On the podcast, Roberts typically interviews a single guest—often professional economists—on topics in economics. The podcast is hosted by the Library of Economics and Liberty, an online library sponsored by Liberty Fund. On EconTalk Roberts has interviewed more than a dozen Nobel Prize laureates including Nobel Prize in Economics recipients Ronald Coase, Milton Friedman, Gary Becker, and Joseph Stiglitz as well as Nobel Prize in Physics recipient Robert Laughlin.
The New Palgrave Dictionary of Economics (2018), 3rd ed., is a twenty-volume reference work on economics published by Palgrave Macmillan. It contains around 3,000 entries, including many classic essays from the original Inglis Palgrave Dictionary, and a significant increase in new entries from the previous editions by the most prominent economists in the field, among them 36 winners of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Articles are classified according to Journal of Economic Literature(JEL) classification codes.