The Use of Knowledge in Society

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"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][2] 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.[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 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.[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]


"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. In the 1960s, these ideas had become more tolerable;[4] 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.[6] 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.[7]


Jimmy Wales cites "The Use of Knowledge in Society", which he read as an undergraduate,[8] as "central" to his thinking about "how to manage the Wikipedia project".[9] Hayek argued that information is decentralized – that each individual only knows a small fraction of what is known collectively – and that as a result, decisions are best made by those with local knowledge rather than by a central authority.[9]

See also[edit]


  1. ^ F. A. Hayek 1945). "The Use of Knowledge in Society," American Economic Review, 35(4), pp. 519–530.
  2. ^ Book Review: The Use of Knowledge in Society by Friedrich A. Hayek | The Foundation for Economic Education: The Freeman, Ideas on Liberty
  3. ^ Hayek, F. A. (1996). Individualism and Economic Order. Chicago: University of Chicago Press. ISBN 0-226-32093-6. 
  4. ^ a b c Bruce J. Caldwell (editor) (1990). Carl Menger and his legacy in economics. Duke University Press. pp. 392–95. ISBN 0-8223-1087-2. 
  5. ^ "The use of knowledge in society (abstract)". Ewing Marion Kauffman Foundation. Retrieved 2007-10-05. 
  6. ^ Mitra, Barun S. (1999). Hayek's Road to Freedom. Liberty Institute. 
  7. ^ Arrow, Kenneth J., B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow. 2011. "100 Years of the American Economic Review: The Top 20 Articles." American Economic Review, 101(1): 1–8.
  8. ^ Schiff, Stacy (July 31, 2006). "Know It All". The New Yorker. Retrieved October 31, 2008. 
  9. ^ a b Mangu-Ward, Katherine (June 2007). "Wikipedia and beyond: Jimmy Wales' sprawling vision". Reason 39 (2). p. 21. Retrieved October 31, 2008. 

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