My take on Friedrich Hayek’s scholarly article The Use of Knowledge in Society

Friedrich Hayek is a famous economist and philosopher. He is widely known for his defense of classical liberalism. The Use of Knowledge In Society is one of his best scholarly article which deals with why should we support decentralization of knowledge to run the economy.


This article was first published in the September 1945 issue of The American Economic Review. This article is one of a kind. It ensures to give out the most important learning materials to understand economics. It explains the economic problem as clearly as possible. It emphasizes on the superiority of market economies.

Hayek was highly against establishing a Central Pricing Board. The price fluctuations in the market make it a very dynamic entity. He strongly takes the side of an open economy. He feels open economy is highly efficient. Centrally planned economy will be much lower in terms of efficiency because what one single agent will know will be only a fraction of the knowledge held by the rest of the society. A dispersed society will thus allow the flow of knowledge in the society. Proper allocation of scarce resources can only be done when knowledge is dispersing among many people because no individual or a group of experts is capable of acquiring it all.

Knowledge needs to be decentralized because each one of us has our own personal knowledge which depends upon time and place. Access to planning and control over resources should be given to everyone so that as per situational needs everyone can use it in their way. Unfortunately, major decentralization of powers may lead to imbalance in the social coordination but with the help of economic policies we can sort out this problem.

Simultaneously we can see misconception of economic policies as well because we tend to wrongly interpret economic problem of the society. The planning (allocation of resources) takes place in lack of knowledge and information asymmetry. How do we know that who will possess the best possible knowledge? How do we decide whom to recognize as experts? We tend to give away all the responsibilities in the hands of some specific individuals (whom we like to call as experts) who may not know all the information which can help to solve all the economic problems of the society. As we know every individual has their own needs thus, how can we just predict that one individual or a group of individuals (experts) can sort out everyone’s problems?

We tend to overestimate some peoples’ levels of knowledge where as on the other hand we underestimate the knowledge of most of the people from the society. This creates the misunderstandings of economic problems which further creates misunderstanding in economic policies.

Hayek correctly points out the problem of economic planning. “Planners” tend to come up with long term plans and nobody cares about the short term problems which may arise in various points during the long term planning period. Since the smaller problems remain unnoticed thus it takes big shape which becomes impossible to eradicate from the root at a later stage. With the improvement of technologies the need of economic decisions has decreased but we can never do away with economic decisions. At some or the other point we do need to form and reform our economic policies in order to help the market run at its optimal level.

Therefore I would like to conclude by saying that planning is not a good option to run the economy. Since everyone has knowledge based on time and place thus, decentralization of knowledge is very much necessary to run the economy. The need for the extra knowledge that all individual needs to acquire get reflected in price.

Author: sinharayshilpi

Happy-go-lucky young girl who is working hard to reach the desired goals in life. Experiencing the field of Public Policy. It's new to me but interesting. Lover of sports, dogs, cars and photography. Believe in "being the change you want to see".

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s