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Use of Knowledge in Society - Friedrich Hayek · American Bee Journal

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  Speaker 1: Introduction of the use of Knowledge in Society. This is
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  Speaker 1: a LibriVox recording. All LibriVox recordings are in the public domain.
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  Speaker 1: For more information or to volunteer, please visit LibriVox dot org.
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  Speaker 1: Read by Stasim The Use of Knowledge in Society by
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  Speaker 1: Friedrich Hayek introduction. Few scholars in the twentieth century have
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  Speaker 1: equalled the breadth of fa Hyek's interests in the human sciences.
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  Speaker 1: His many books and articles focus on the pivotal questions
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  Speaker 1: of theory and method in a variety of disciplines, ranging
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  Speaker 1: from philosophy and natural science to history, law, psychology, and economics.
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  Speaker 1: In spite of the malignant totalitarianism of the times, he
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  Speaker 1: has steadfastly advanced the traditional concern for individual liberty which
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  Speaker 1: he inherited from his classical liberal predecessors, and has become
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  Speaker 1: an intellectual leader of international stature. Born in Vienna in
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  Speaker 1: eighteen ninety nine, Hayak earned doctoral degrees in law and
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  Speaker 1: economics at the University of Vienna following his military service
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  Speaker 1: during the First World War. Over the years, he has
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  Speaker 1: lectured widely throughout the world and pursued an active career
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  Speaker 1: of teaching and research in Austria, England, the United States, Germany,
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  Speaker 1: and Japan. He is professor emeritus of two universities, Chicago
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  Speaker 1: and Freiburg, and now lives in Salzburg, where he continues
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  Speaker 1: to teach and write. Perhaps the most important measure of
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  Speaker 1: a classic is that it speaks for all times. Its
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  Speaker 1: insight is timeless, its relevance never ceases. What the author
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  Speaker 1: says illuminates the past, informs the present, and we may
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  Speaker 1: hope guides men toward wiser actions than they have taken before.
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  Speaker 1: This essay by Professor Hayak meets these criteris both in
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  Speaker 1: the philosophical nature of his discourse and in the subject itself,
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  Speaker 1: man's striving to improve his material well being. This is
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  Speaker 1: the problem of achieving rational economic organization, or the efficient
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  Speaker 1: allocation of available resources. Its solution, Hyek maintains, rests on
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  Speaker 1: the extent to which men can effectively acquire knowledge and
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  Speaker 1: use it economically so that they can make rapid adaptations
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  Speaker 1: to the changes they keep facing in their circumstances. The
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  Speaker 1: method most commonly employed throughout recorded history has been conscious control,
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  Speaker 1: some form of centralized political planning based on an avowed
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  Speaker 1: or implicit belief in superman. Unfortunately, this approach causes a
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  Speaker 1: static rather than dynamic response to man's struggle with his environment,
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  Speaker 1: and produces reactionary policies and even retrogressive results. Without belaboring
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  Speaker 1: the dismal record of those efforts, high up Z finds
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  Speaker 1: the key to success in a far different instrumentality, namely
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  Speaker 1: the free market, which he sees as performing the functions
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  Speaker 1: that are indispensable for the effective acquisition and economical use
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  Speaker 1: of knowledge. The market fully inaccurately reflects personal preferences and
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  Speaker 1: particular facts known only to each individual, and through the
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  Speaker 1: mechanism of the price system, provides for the transmission and
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  Speaker 1: reception of only that portion of this infinite knowledge which
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  Speaker 1: is useful and necessary to achieve rational economy. No other
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  Speaker 1: arrangement can bring about this desired end. It is ironic
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  Speaker 1: that the free market, whose remarkable characteristics hixso clearly delineates
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  Speaker 1: in this essay, has been under constant attack by the
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  Speaker 1: major political antagonists of modern times. On the one hand,
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  Speaker 1: the entrenched leadership in every nation has rejected the price
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  Speaker 1: system by repeatedly instituting restricts controls. On the other, various
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  Speaker 1: groups revolting against this leadership have repudiated economic freedom by
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  Speaker 1: confusing these derigious regimes with the free market economy, which
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  Speaker 1: they denounce, were supposedly enslaving wage price system and dehumanizing
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  Speaker 1: division of labor. In contrast to the obvious coercion and
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  Speaker 1: violence generated by these adversaries, Kayak points the way toward
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  Speaker 1: a truly rational economic order which recognizes the necessity of
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  Speaker 1: individual choice or subjective value, and facilitates peaceful decision making
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  Speaker 1: through the objective functioning of the price system in a
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  Speaker 1: free market. He demonstrates the superiority of what might be
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  Speaker 1: called social individualism over political collectivism as the operative principle
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  Speaker 1: for a free and orderly society. Perhaps contemporary revolutionaries may
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  Speaker 1: yet discover lass a fair as the secret to real reform,
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  Speaker 1: while national leaders may see it as the elusive answer
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  Speaker 1: to the economic disorders which their own actions have intensified
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  Speaker 1: rather than cured. In any event, this essay should prove
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  Speaker 1: helpful to those who are genuinely concerned about these problems.
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  Speaker 1: Kenneth S. Templeton, Junior Institute for Humane Studies, end of introduction.
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  Speaker 2: Section two of the Use of Knowledge in Society. This
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  Speaker 2: is a LibriVox recording all LibriVox recordings are in the
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  Speaker 2: public domain. For more information or to volunteer, please visit
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  Speaker 2: LibriVox dot org. Read by Mary t The Use of
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  Speaker 2: Knowledge in Society by Friedrich Hayek. The Use of Knowledge
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  Speaker 2: in Society. Many of the current disputes with regard to
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  Speaker 2: both economic theory and economic policy have their common origin.
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  Speaker 2: It seems to me in a misconcept about the nature
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  Speaker 2: of the economic problem of society. This misconception, in turn,
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  Speaker 2: is due to an erroneous transfer to social phenomena of
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  Speaker 2: the habits of thought we have developed in dealing with
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  Speaker 2: the phenomena of nature. What is the problem we wish
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  Speaker 2: to solve when we try to construct a rational economic
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  Speaker 2: order on certain familiar assumptions. The answer is simple enough.
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  Speaker 2: If we possess all the relevant information, if we can
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  Speaker 2: start out from a given system of preferences, and if
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  Speaker 2: we command complete knowledge of available means, the problem which
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  Speaker 2: remains is purely one of logic. That is, the answer
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  Speaker 2: to the question of what is the best use of
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  Speaker 2: the available means is implicit in our assumptions. Stated briefly
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  Speaker 2: a mathematical form, it is that the marginal rates of
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  Speaker 2: substitution between any two commodities or factors must be the
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  Speaker 2: same in all their different uses. This, however, is emphatically
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  Speaker 2: not the economic problem which society faces, and the economic
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  Speaker 2: calculus which we have developed to solve it. Though an
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  Speaker 2: important step towards the solution of the economic problem of society,
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  Speaker 2: does not yet provide an answer to it. The reason
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  Speaker 2: for this is that the data for the whole society
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  Speaker 2: from which the economic calculus starts are never given to
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  Speaker 2: a single mind. The peculiar character of the problem of
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  Speaker 2: a rational economic order is determined precisely by the fact
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  Speaker 2: that the knowledge of the circumstances which we must use
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  Speaker 2: never exists in concentrated or integrated form, but solely as
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  Speaker 2: the disperse bits of incomplete and frequently contradictory knowledge which
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  Speaker 2: separate individuals possess. The economic problem of society is thus
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  Speaker 2: not merely a problem of how to allocate given resources,
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  Speaker 2: if given is taken to mean given to a single
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  Speaker 2: mind which deliberately solves the problem set by these data.
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  Speaker 2: It is rather a problem of how to secure the
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  Speaker 2: best use of resources known to any of the members
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  Speaker 2: of society, for ends whose relative importance only these individuals know,
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  Speaker 2: or to put it briefly, is a problem of the
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  Speaker 2: utilization of knowledge which is not given to anyone in
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  Speaker 2: its totality. This character of the fundamental problem has, I
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  Speaker 2: am afraid, been obscured, rather than illuminated, by many of
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  Speaker 2: the recent refinements of economic theory, particularly by many of
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  Speaker 2: the uses made of mathematics. Though the problem with which
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  Speaker 2: I want primarily to deal in this paper is the
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  Speaker 2: problem of a rational economic organization. I shall be led
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  Speaker 2: again and again to point to its close connections with
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  Speaker 2: certain methodological questions. Many of the points I wish to
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  Speaker 2: make are indeed conclusions towards which diverse paths of reasoning
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  Speaker 2: have unexpectedly converged. But as I now see these problems,
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  Speaker 2: this is no accident. In ordinary language, we describe by
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  Speaker 2: the word planning the complex of interrelated decisions about the
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  Speaker 2: allocation of our available resources. All economic activity is in
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  Speaker 2: this sense planning, And in any society in which many
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  Speaker 2: people collaborate this planning, whoever does it, will in some
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  Speaker 2: measure have to be based on knowledge which in the
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  Speaker 2: first instance is not given to the planner but to
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  Speaker 2: somebody else. Yet, somehow will have to be conveyed to
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  Speaker 2: the planner. The various ways in which this knowledge on
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  Speaker 2: which people base their plans is communicated to them is
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  Speaker 2: the crucial problem for any theory explaining the economic process,
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  Speaker 2: and the problem of what is the best way of
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  Speaker 2: utilizing knowledge initially dispersed among all the people is at
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  Speaker 2: least one of the main problems of economic policy or
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  Speaker 2: of designing an efficient economic system. The answer to this
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  Speaker 2: question is closely connected with that other question which arises here,
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  Speaker 2: that of who is to do the planning. It is
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  Speaker 2: about this question that all the dispute about economic planning centers.
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  Speaker 2: This is not a dispute about whether planning is to
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  Speaker 2: be done or not. It is a dispute as to
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  Speaker 2: whether planning is to be done centrally by one authority
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  Speaker 2: for the whole economic system, or is to be divided
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  Speaker 2: among many individuals. Planning, in the specific sense in which
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  Speaker 2: the term is used in contemporary controversy necessarily means central
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  Speaker 2: planning direction of the whole economic system according to one
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  Speaker 2: unified plan. Competition, on the other hand, means decentralized planning
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  Speaker 2: by many separate persons. The half way house between the
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  Speaker 2: two about which many people talk but which few like
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  Speaker 2: when they see it, is the delegation of planning to
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  Speaker 2: privileged industries or, in other words, monopolies. Which of these
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  Speaker 2: systems is likely to be more efficient depends mainly on
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  Speaker 2: the question under which of them can we expect that
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  Speaker 2: fuller use will be made of the existing knowledge. This,
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  Speaker 2: in turn depends on whether we are more likely to
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  Speaker 2: succeed in putting at the disposal of a single central
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  Speaker 2: authority all the knowledge which ought to be used, but
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  Speaker 2: which is initially dispersed among many different individuals, or in
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  Speaker 2: conveying to the individuals such additional knowledge as they need
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  Speaker 2: in order to enable them to dovetail their plans with
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  Speaker 2: those of others. End of section two. Read by Mary T.
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  Speaker 2: San Diego, California, March fifth, twenty twenty four.
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  Speaker 3: Section three of the Use of Knowledge and Society. This
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  Speaker 3: is a LibriVox recording. All LibriVox recordings are in the
• 11:56
  Speaker 3: public domain. For more information or to voluntier, please visit
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  Speaker 3: librovox dot org. Read by Tedleinhart. The Use of Knowledge
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  Speaker 3: and Society by Frederick Hayek. Uncommon knowledge, it will at
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  Speaker 3: once be evident that on this point the position will
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  Speaker 3: be different with respect to different kinds of knowledge. The
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  Speaker 3: answer to our question will therefore largely turn on the
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  Speaker 3: relative importance of the different kinds of knowledge, those more
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  Speaker 3: likely to be at the disposal of particular individuals, and
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  Speaker 3: those which we should, with greater confidence expect to find
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  Speaker 3: in the possession of an authority made up of suitably
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  Speaker 3: chosen experts, if it is today so widely assumed that
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  Speaker 3: the latter will be in a better position. This is
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  Speaker 3: because one kind of knowledge, namely scientific knowledge, occupies now
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  Speaker 3: so prominent a place in public imagination that we tend
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  Speaker 3: to forget that it is not the only kind that
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  Speaker 3: is relevant. It may be admitted that, as far as
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  Speaker 3: scientific knowledge is concerned, a body of suitably chosen experts
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  Speaker 3: may be in the best position to command all the
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  Speaker 3: best knowledge available, though this is of course merely shifting
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  Speaker 3: the difficulty to the problem of selecting the experts. What
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  Speaker 3: I wish to point out is that, even assuming that
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  Speaker 3: this problem can be readily solved, it is only a
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  Speaker 3: small part of the wider problem. Today it is almost
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  Speaker 3: heresy to suggest that scientific knowledge is not the sum
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  Speaker 3: of all knowledge, But a little reflection will show that
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  Speaker 3: there is, beyond question a body of very important but
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  Speaker 3: unorganized knowledge which cannot possibly be called scientific in the
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  Speaker 3: sense of knowledge of general rules, the knowledge of the
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  Speaker 3: particular circumstances of time and place. It is with respect
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  Speaker 3: to this that practically every individual has some advantage over
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  Speaker 3: all others, because he possesses unique information of which beneficial
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  Speaker 3: use might be made only if the decisions depending on
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  Speaker 3: it are left to him, or are made with his
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  Speaker 3: active cooperation. We need only to remember how much we
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  Speaker 3: have to learn in any occupation after we have completed
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  Speaker 3: our theoretical training, how big a part of our working
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  Speaker 3: life we spend learning particular jobs, and how valuable an
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  Speaker 3: asset in all walks of life is knowledge of people,
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  Speaker 3: of local conditions, and of special circumstances. To know of
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  Speaker 3: and put to use a machine not fully employed, or
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  Speaker 3: somebody's skill which could be better utilized, or to be
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  Speaker 3: aware of a surplus stock which can be drawn upon
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  Speaker 3: during an interruption of supplies, is socially quite as useful
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  Speaker 3: as the knowledge of better alternative techniques. The shipper who
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  Speaker 3: earns his living from using otherwise empty or half filled
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  Speaker 3: journeys of tramp steamers, or the estate agent whose whole
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  Speaker 3: knowledge is almost exclusively one of temporary opportunities, or the arbiture,
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  Speaker 3: who gains from local differences of commodity prices, All are
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  Speaker 3: performing eminently useful functions based on special knowledge of circumstances
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  Speaker 3: of the fleeting moment not known to others. It is
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  Speaker 3: a curious fact that this sort of knowledge should today
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  Speaker 3: be generally regarded with a kind of contempt. That anyone who,
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  Speaker 3: by such knowledge gains an advantage over somebody better equipped
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  Speaker 3: with theoretical or technical knowledge is thought to have acted
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  Speaker 3: almost disreputably. To gain an advantage from better knowledge of
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  Speaker 3: facilities of communication or transport is sometimes regarded as almost dishonest.
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  Speaker 3: Although it is quite as important that society make use
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  Speaker 3: of the best opportunities in this respect as in using
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  Speaker 3: the latest scientific discoveries. This prejudice has in a considerable
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  Speaker 3: measure affected the attitude toward commerce in general compared with
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  Speaker 3: that toward production. Even economists who regard themselves as immune
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  Speaker 3: to the crude materialist fallacies of the past constantly commit
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  Speaker 3: the same mistake where activities directed toward the acquisition of
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  Speaker 3: such practical knowledge are concerned, apparently because in their scheme
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  Speaker 3: of things, all such knowledge is supposed to be given.
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  Speaker 3: The common idea now seems to be that all such
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  Speaker 3: knowledge should, as a matter of course, be readily at
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  Speaker 3: the command of everybody, and the reproach of irrationality leveled
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  Speaker 3: against the existing economic order is frequently based on the
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  Speaker 3: fact that it is not so available. This view disregards
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  Speaker 3: the fact that the method by which such knowledge can
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  Speaker 3: be made as widely available as possible is precisely the
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  Speaker 3: problem to which we have to find an answer. And
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  Speaker 3: of section three.
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  Speaker 4: Section four of the Use of Knowledge in Society. This
• 17:05
  Speaker 4: is LibriVox recording. All LibriVox recordings are in the public domain.
• 17:10
  Speaker 4: For more information or to volunteer, please visit LibriVox dot org.
• 17:15
  Speaker 4: The Use of Knowledge in Society by Friedrich Hayek. The
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  Speaker 4: planner's dilemma. If it is fashionable today to minimize the
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  Speaker 4: importance of the knowledge of the particular circumstances of time
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  Speaker 4: and place, this is closely connected with the smaller importance
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  Speaker 4: which is now attached to changes such Indeed, there are
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  Speaker 4: few points on which the assumptions made, usually only implicitly
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  Speaker 4: by the planners differ from those of their opponents, as
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  Speaker 4: much as with regard to the significance and frequency of
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  Speaker 4: changes which will make substantial alteration of production plans necessary.
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  Speaker 4: Of course, if detailed economic plans could be laid down
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  Speaker 4: for fairly long periods in advance and then closely at
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  Speaker 4: the year to so that no further economic decisions of
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  Speaker 4: importance would be required, the task of drawing up comprehensive
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  Speaker 4: plan governing all economic activity would be much less formidable.
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  Speaker 4: It is perhaps worth stressing that economic problems arise always
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  Speaker 4: and only in consequence of change. As long as things
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  Speaker 4: continue as before, or at least as they were expected to,
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  Speaker 4: there arise no new problems requiring a decision, no need
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  Speaker 4: to form a new plan. The belief that changes, or
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  Speaker 4: at least day to day adjustments, have become less important
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  Speaker 4: in modern times implies the contention that economic problems also
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  Speaker 4: have become less important. This belief in the decreasing importance
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  Speaker 4: of changes for that reason, usually held by the same
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  Speaker 4: people who argue that the importance of economic considerations has
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  Speaker 4: been driven into the background by the growing importance of
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  Speaker 4: technological knowledge. Is it true that with the elaborate apparatus
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  Speaker 4: of mande, modern production economic decisions are required only at
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  Speaker 4: long intervals, as when a new factory is to be
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  Speaker 4: erected or a new process to be introduced. Is it
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  Speaker 4: true that once a plant has been built, the rest
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  Speaker 4: is all more or less mechanical, determined by the character
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  Speaker 4: of the plant, and leaving little to be changed in
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  Speaker 4: adapting to the ever changing circumstances of the moment. The
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  Speaker 4: fairly widespread belief in the affirmative is not, as far
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  Speaker 4: as I can ascertain, borne out by the practical experience
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  Speaker 4: of the businessmen in a competitive industry at any rate,
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  Speaker 4: and such an industry alone can serves the test. The
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  Speaker 4: task of keeping costs from rising requires constant struggle, absorbing
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  Speaker 4: a great part of the energy of the manager. How
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  Speaker 4: easy it is for an inefficient manager to decipiate the
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  Speaker 4: differentials on which profitability rests a great variety and costs
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  Speaker 4: of production, even when using the same technical facilities, is
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  Speaker 4: commonplace in business experience, but does not seem to be
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  Speaker 4: equally familiar to many economists. The very strength of the
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  Speaker 4: desire constantly voiced by producers and engineers to be allowed
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  Speaker 4: to proceed untrammeled by considerations of money costs is eloquent
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  Speaker 4: testimony to the extent to which these factors enter into
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  Speaker 4: their daily work. One reason why economists are increasingly apt
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  Speaker 4: to forget about the constant small changes which make up
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  Speaker 4: the whole economic picture, as probably their growing preoccupation with
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  Speaker 4: statistical aggregates, which show a very much greater stability than
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  Speaker 4: the movements of the detail. The comparative stability of the
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  Speaker 4: aggregates cannot, however, be accounted for, as the statisticians occasionally
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  Speaker 4: seem to be inclined to do, by the law of
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  Speaker 4: large numbers or the mutual compensation of random changes. The
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  Speaker 4: number of elements with which we have to deal is
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  Speaker 4: not large enough for such accidental forces to produce stability.
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  Speaker 4: The continuous flow of goods and services is maintained by constant,
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  Speaker 4: deliberate adjustments by new dispositions made every day in the
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  Speaker 4: light of circumstances not known the day before, by b
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  Speaker 4: stepping in at once when a fails to deliver. Even
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  Speaker 4: the large and highly mechanized plant keeps going largely because
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  Speaker 4: of an environment upon which it can draw for all
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  Speaker 4: sorts of unexpected needs, tiles for its roof, stationary or
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  Speaker 4: its forms, and all the thousand and one kinds of
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  Speaker 4: equipment in which it cannot be self contained, and which
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  Speaker 4: the plans for the operation of the plant require to
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  Speaker 4: be readily available in the market. I should also briefly
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  Speaker 4: mention the fact that the sort of knowledge with which
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  Speaker 4: I have been concerned is knowledge of the kind which,
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  Speaker 4: by its nature cannot enter into statistics, and therefore cannot
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  Speaker 4: be conveyed to any central authority in statistical form. The
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  Speaker 4: statistics which such a central authority would have to use
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  Speaker 4: would have to be arrived at precisely by abstracting and
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  Speaker 4: then lumping together items which differ as regards location, quality
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  Speaker 4: and other particulars in ways that may be very significant
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  Speaker 4: for the specific decision. It follows from this that central planning,
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  Speaker 4: which is based on statistical information, cannot, by its nature
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  Speaker 4: take direct account of these circumstances of time and place.
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  Speaker 4: The central planner will have to find some way to
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  Speaker 4: make decisions by leaving them to be made by the
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  Speaker 4: man on the spot. If we can agree that the
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  Speaker 4: economic problem of society is mainly one of rapid adaptation
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  Speaker 4: to changes in the particular circumstances of time and place,
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  Speaker 4: it would seem to follow that the ultimate decisions must
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  Speaker 4: be left to the people who are familiar with these circumstances,
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  Speaker 4: who know directly of the relevant changes and of the
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  Speaker 4: resources immediately available to meet them. We cannot expect that
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  Speaker 4: this problem will be solved by first communicating all this
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  Speaker 4: knowledge to a central board, which, after integrating all knowledge,
• 22:58
  Speaker 4: issues its orders. We must solve it by some form
• 23:02
  Speaker 4: of decentralization. But this answer is only part of our problem.
• 23:07
  Speaker 4: We need decentralization because only thus can we ensure that
• 23:11
  Speaker 4: the knowledge of the particular circumstances of time and place
• 23:15
  Speaker 4: will be promptly used. The men on the spot cannot, however,
• 23:20
  Speaker 4: decide solely on the basis of his limited but intimate
• 23:23
  Speaker 4: knowledge of the facts of his immediate surroundings. There still
• 23:28
  Speaker 4: remains the problem of communicating to him such further information
• 23:31
  Speaker 4: as he needs to fit his decisions into the whole
• 23:34
  Speaker 4: pattern of changes of the larger economic system. End of section.
• 23:40
  Speaker 5: Four Section five of the Use of Knowledge in Society.
• 23:52
  Speaker 5: This is a LibriVox recording. All LibriVox recordings are in
• 23:57
  Speaker 5: the public domain. For more information or to volunteer, please
• 24:02
  Speaker 5: visit librevox dot org. Read by Anthony JC. The Use
• 24:09
  Speaker 5: of Knowledge in Society by Friedrich Hayek. Useful individual knowledge?
• 24:17
  Speaker 5: How much knowledge does the individual need in order to
• 24:21
  Speaker 5: make these decisions successfully? Which of the events beyond his
• 24:26
  Speaker 5: own horizon of immediate knowledge, are of relevance to his
• 24:30
  Speaker 5: immediate decision, and how much of them need he know.
• 24:34
  Speaker 5: There is hardly anything that happens anywhere in the world
• 24:38
  Speaker 5: that might not have an effect on the decision he
• 24:41
  Speaker 5: ought to make. But he need not know of these
• 24:45
  Speaker 5: events as such, nor of all their effects. It does
• 24:50
  Speaker 5: not matter for him why more screws of one size
• 24:53
  Speaker 5: than of another are wanted at the particular moment, why
• 24:58
  Speaker 5: paper bags are more readily available than canvas bags, or
• 25:02
  Speaker 5: why skilled labor or particular machine tools have for the
• 25:07
  Speaker 5: moment become more difficult to obtain. All that is significant
• 25:12
  Speaker 5: for him is how much more or less difficult to
• 25:15
  Speaker 5: procure they have become compared with other things with which
• 25:19
  Speaker 5: he is also concerned, or how much more or less
• 25:23
  Speaker 5: urgently wanted are the alternative things he produces or uses.
• 25:29
  Speaker 5: It is always a question of the relative importance of
• 25:32
  Speaker 5: the particular things with which he is concerned, and the
• 25:36
  Speaker 5: causes which alter their relative importance are of no interest
• 25:41
  Speaker 5: to him beyond the effect on those concrete things of
• 25:44
  Speaker 5: his own environment. It is in this connection that what
• 25:49
  Speaker 5: I have called the economic calculus or the pure logic
• 25:53
  Speaker 5: of choice helps us, at least by analogy, to see
• 25:57
  Speaker 5: how this problem can be solved and being solved by
• 26:01
  Speaker 5: the price system. Even the single controlling mind in possession
• 26:06
  Speaker 5: of all the data for some small and self contained
• 26:10
  Speaker 5: economic system would not, every time some small adjustment in
• 26:15
  Speaker 5: the allocation of resources had to be made, go explicitly
• 26:19
  Speaker 5: through all the relations between ends and means which might
• 26:23
  Speaker 5: possibly be affected. It is indeed the great contribution of
• 26:29
  Speaker 5: the pure logic of choice to have demonstrated conclusively that
• 26:34
  Speaker 5: even such a single mind could solve this kind of
• 26:37
  Speaker 5: problem only by constructing and constantly using rates of equivalents
• 26:43
  Speaker 5: or values or marginal rates of substitution. That is, he
• 26:48
  Speaker 5: would have to attach to each kind of scarce resource
• 26:52
  Speaker 5: a numerical index which cannot be derived from any property
• 26:56
  Speaker 5: possessed by that particular thing, but which reflect or in
• 27:00
  Speaker 5: which is condensed its significance in view of the whole
• 27:04
  Speaker 5: means end structure. In any small change, he will have
• 27:09
  Speaker 5: to consider only these quantitative indices or values in which
• 27:15
  Speaker 5: all the relevant information is concentrated, and by adjusting the
• 27:19
  Speaker 5: quantities one by one, he can appropriately rearrange his dispositions
• 27:25
  Speaker 5: without having to solve the whole puzzle abinetio or without
• 27:29
  Speaker 5: needing at any stage to survey it at once in
• 27:33
  Speaker 5: all its ramifications. Fundamentally, in a system in which the
• 27:38
  Speaker 5: knowledge of the relevant facts is dispersed among many people,
• 27:43
  Speaker 5: prices can act to coordinate the separate actions of different people,
• 27:48
  Speaker 5: in the same way as subjective values help the individual
• 27:52
  Speaker 5: to coordinate the parts of his plan. End of section five.
• 27:59
  Speaker 5: Read by Anthony JC. Charlotte, eight Pril twenty fifth, twenty
• 28:06
  Speaker 5: twenty four.
• 28:12
  Speaker 3: Section six of The Use of Knowledge in Society. This
• 28:16
  Speaker 3: is a LibriVox recording. All LibriVox recordings are in the
• 28:20
  Speaker 3: public domain. For more information or to volunteer, please visit
• 28:24
  Speaker 3: LibriVox dot org. Read by Tedleinhardt. The Use of Knowledge
• 28:29
  Speaker 3: in Society by Frederick Hayek. Miracle of the price system.
• 28:36
  Speaker 3: It is worth contemplating for a moment a very simple
• 28:39
  Speaker 3: and commonplace instance of the action of the price system
• 28:42
  Speaker 3: to see what precisely it accomplishes. Assume that somewhere in
• 28:46
  Speaker 3: the world a new opportunity for the use of some
• 28:49
  Speaker 3: raw material, say ten, has arisen, or that one of
• 28:53
  Speaker 3: the sources of supply of ten has been eliminated. It
• 28:57
  Speaker 3: does not matter for our purpose, and it is significant
• 29:01
  Speaker 3: that it does not matter which of these two causes
• 29:04
  Speaker 3: has made ten more scarce. All that the users of
• 29:08
  Speaker 3: tin need to know is that some of the tin
• 29:11
  Speaker 3: they used to consume is now more profitably employed elsewhere,
• 29:15
  Speaker 3: and that in consequence they must economize ten. There is
• 29:19
  Speaker 3: no need for the great majority of them even to
• 29:22
  Speaker 3: know where the more urgent need has arisen, or in
• 29:25
  Speaker 3: favor of what other needs they ought to husband the supply.
• 29:29
  Speaker 3: If only some of them know directly of the new
• 29:32
  Speaker 3: demand and switch resources over to it, and if the
• 29:35
  Speaker 3: people who are aware of the new gap thus created
• 29:38
  Speaker 3: in turn fill it from still other sources, the effect
• 29:42
  Speaker 3: will rapidly spread throughout the whole economic system. This influence
• 29:47
  Speaker 3: is not only all the uses of tin, but also
• 29:50
  Speaker 3: those of its substitutes, and the substitutes of these substitutes,
• 29:54
  Speaker 3: the supply of all things made of tin, and their substitutes,
• 29:58
  Speaker 3: and so on. All this takes place without the great
• 30:02
  Speaker 3: majority of those instrumental in bringing about these substitutions knowing
• 30:07
  Speaker 3: anything at all about the original cause of these changes.
• 30:10
  Speaker 3: The whole acts as one market, not because any of
• 30:14
  Speaker 3: its members surveys the whole field but because their limited
• 30:18
  Speaker 3: individual fields of vision sufficiently overlap, so that through many
• 30:22
  Speaker 3: intermediaries the relevant information is communicated to all. The mere
• 30:28
  Speaker 3: fact that there is one price for any commodity, or
• 30:31
  Speaker 3: rather that local prices are connected in a manner determined
• 30:35
  Speaker 3: by the cost of transport, etc. Brings about the solution which,
• 30:40
  Speaker 3: if conceptually possible, might have been arrived at by one
• 30:44
  Speaker 3: single mind possessing all the information, which is in fact
• 30:48
  Speaker 3: dispersed among all the people involved in the process. We
• 30:52
  Speaker 3: must look at the price system as such a mechanism
• 30:55
  Speaker 3: for communicating information if we want to understand its real function,
• 31:00
  Speaker 3: a function which it fulfills less perfectly as prices grow
• 31:04
  Speaker 3: more rigid. Even when quoted prices have become quite rigid, however,
• 31:09
  Speaker 3: the forces which would operate through changes in price still
• 31:13
  Speaker 3: operate to a considerable extent through changes in the other
• 31:16
  Speaker 3: terms of the contract. The most significant fact about this
• 31:20
  Speaker 3: system is the economy of knowledge with which it operates,
• 31:24
  Speaker 3: or how little the individual participants need to know in
• 31:28
  Speaker 3: order to be able to take the right action. An
• 31:31
  Speaker 3: abbreviated form by a kind of symbol, only the most
• 31:34
  Speaker 3: essential information is passed on, and this is passed on
• 31:38
  Speaker 3: only to those concerned. It is more than a metaphor
• 31:41
  Speaker 3: to describe the price system as a kind of machinery
• 31:44
  Speaker 3: for registering change, or a system of telecommunications which enables
• 31:50
  Speaker 3: individual producers to watch merely the movement of a few pointers,
• 31:54
  Speaker 3: as an engineer might watch the hands of a few dials,
• 31:58
  Speaker 3: in order to adjust their actation activities to changes of
• 32:01
  Speaker 3: which they may never know more than their reflection in
• 32:04
  Speaker 3: the price movement. Of course, these adjustments are probably never
• 32:09
  Speaker 3: perfect in the sense in which the economist conceives of
• 32:13
  Speaker 3: them in his equilibrium analysis. But I fear that our
• 32:17
  Speaker 3: theoretical habits of approaching the problem with the assumption of
• 32:20
  Speaker 3: more or less perfect knowledge on the part of almost everyone,
• 32:24
  Speaker 3: has made us somewhat blind to the true function of
• 32:27
  Speaker 3: the price mechanism, and led us to apply rather misleading
• 32:31
  Speaker 3: standards in judging its efficiency. The marvel is that, in
• 32:35
  Speaker 3: a case like that of a scarcity of one raw
• 32:37
  Speaker 3: material without an order being issued, without more than perhaps
• 32:42
  Speaker 3: a handful of people knowing the cause, tens of thousands
• 32:46
  Speaker 3: of people whose identity could not be ascertained by months
• 32:49
  Speaker 3: of investigation are made to use the material or its
• 32:53
  Speaker 3: products more sparingly that is, they move in the right direction.
• 32:58
  Speaker 3: This is enough of a marvel even and if in
• 33:00
  Speaker 3: a constantly changing world not all will react so perfectly
• 33:05
  Speaker 3: that their profit rates will always be maintained at the
• 33:08
  Speaker 3: same normal level. I have deliberately used the word marvel
• 33:13
  Speaker 3: to shock the reader out of the complacency with which
• 33:15
  Speaker 3: we often take the working of the price mechanism for granted.
• 33:19
  Speaker 3: I am convinced that if it were the result of
• 33:22
  Speaker 3: deliberate human design, and if the people guided by the
• 33:25
  Speaker 3: price changes understood that their decisions have significance far beyond
• 33:30
  Speaker 3: their immediate aim, this mechanism would have been acclaimed as
• 33:34
  Speaker 3: one of the greatest triumphs of the human mind. Its
• 33:37
  Speaker 3: misfortune is the double one that it is not the
• 33:40
  Speaker 3: product of human design, and that the people guided by
• 33:43
  Speaker 3: it usually do not know why they are made to
• 33:46
  Speaker 3: do what they do. But those who clamor for conscious direction,
• 33:51
  Speaker 3: and who cannot believe that anything which has evolved without
• 33:54
  Speaker 3: design and even without our understanding it can solve problems
• 33:59
  Speaker 3: which we can solve consciously, should remember this. The problem
• 34:03
  Speaker 3: is precisely how to extend our utilization of resources beyond
• 34:08
  Speaker 3: the span of the control of any one mind. And
• 34:11
  Speaker 3: therefore how to dispense with the need of conscious control,
• 34:15
  Speaker 3: how to provide inducements which will make the individuals do
• 34:19
  Speaker 3: the desirable things without anyone having to tell them what
• 34:23
  Speaker 3: to do. The problem which we meet here is by
• 34:26
  Speaker 3: no means peculiar to economics, but arises in connection with
• 34:30
  Speaker 3: nearly all truly social phenomena, including language and most of
• 34:35
  Speaker 3: our cultural inheritance, and constitutes really the central theoretical problem
• 34:41
  Speaker 3: of all social science. As Alfred Whitehead has said in
• 34:45
  Speaker 3: another connection, it is a profoundly erroneous truism repeated by
• 34:50
  Speaker 3: all copybooks and by eminent people when they are making speeches,
• 34:54
  Speaker 3: that we should cultivate the habit of thinking what we
• 34:57
  Speaker 3: are doing. The precise opposite is the case. Civilization advances
• 35:02
  Speaker 3: by extending the number of important operations which we can
• 35:06
  Speaker 3: perform without thinking about them. This is of profound significance.
• 35:10
  Speaker 3: In the social field. We make constant use of formulas, symbols,
• 35:15
  Speaker 3: and rules whose meaning we do not understand, and through
• 35:18
  Speaker 3: the use of which we avail ourselves of the assistance
• 35:21
  Speaker 3: of knowledge which individually we do not possess. We have
• 35:25
  Speaker 3: developed these practices by building upon habits and institutions which
• 35:30
  Speaker 3: have proved successful in their own sphere, and which have
• 35:33
  Speaker 3: in turn become the foundation of the civilization we have
• 35:37
  Speaker 3: built up. The price system is just one of those
• 35:40
  Speaker 3: formations which man has learned to use, though he is
• 35:44
  Speaker 3: still very far from having learned to make the best
• 35:46
  Speaker 3: use of it, after he had stumbled upon it without
• 35:49
  Speaker 3: understanding it. Through it, not only a division of labor,
• 35:53
  Speaker 3: but also a coordinated utilization of resources based on a
• 35:57
  Speaker 3: similarly divided knowledge has become possible. The people who like
• 36:02
  Speaker 3: to deride any suggestion that this may be so usually
• 36:07
  Speaker 3: distort the argument by insinuating that it asserts that, by
• 36:11
  Speaker 3: some miracle, just that sort of system has spontaneously grown up,
• 36:15
  Speaker 3: which is best suited to modern civilization. It is the
• 36:19
  Speaker 3: other way round. Man has been able to develop that
• 36:22
  Speaker 3: division of labor on which our civilization is based because
• 36:26
  Speaker 3: he happened to stumble upon a method which made it possible.
• 36:30
  Speaker 3: Had he not done so, he might still have developed
• 36:33
  Speaker 3: some other, altogether different type of civilization, something like the
• 36:38
  Speaker 3: state of the termite ants, or some other altogether unimaginable type.
• 36:44
  Speaker 3: All that we can say is that nobody has yet
• 36:46
  Speaker 3: succeeded in designing an alternative system in which certain features
• 36:51
  Speaker 3: of the existing one can be preserved which are dear
• 36:54
  Speaker 3: even to those who most violently assail it, such as
• 36:57
  Speaker 3: particularly the extent to which the individual dual can choose
• 37:00
  Speaker 3: his pursuits and consequently freely use his own knowledge and skill.
• 37:06
  Speaker 3: It is in many ways fortunate that the dispute about
• 37:09
  Speaker 3: the indispensability of the price system for any rational calculation
• 37:13
  Speaker 3: in a complex society is now no longer conducted entirely
• 37:18
  Speaker 3: between camps holding different political views. The thesis that without
• 37:23
  Speaker 3: the price system we could not preserve a society based
• 37:26
  Speaker 3: on such extensive division of labor as ours was greeted
• 37:30
  Speaker 3: with a howl of derision when it was first advanced
• 37:33
  Speaker 3: by von Messes in the early nineteen twenties. Today, the
• 37:37
  Speaker 3: difficulties which some still find in accepting it are no
• 37:41
  Speaker 3: longer mainly political, and this makes for an atmosphere much
• 37:45
  Speaker 3: more conducive to reasonable discussion. When we find Leon Trotsky
• 37:49
  Speaker 3: arguing that economic accounting is unthinkable without market relations, when
• 37:54
  Speaker 3: Professor Oscar Laying promises Professor von Messes a statue in
• 37:59
  Speaker 3: the marble hull of the future Central Planning Board, and
• 38:03
  Speaker 3: when Professor Abba P. Lerner rediscovers Adam Smith and emphasizes
• 38:08
  Speaker 3: that the essential utility of the price system consists in
• 38:12
  Speaker 3: inducing the individual, while seeking his own interest, to do
• 38:16
  Speaker 3: what is in the general interest. The differences can, indeed
• 38:19
  Speaker 3: no longer be ascribed to political prejudice. The remaining dissent
• 38:24
  Speaker 3: seems clearly to be due to purely intellectual and more
• 38:28
  Speaker 3: particularly methodological differences. End of Section six.