glyph 536: networks, economics, personal knowledge, distributed fragmented knowledge, how small grains of knowledge, written and tacit, become organized into a coherent whole without anyone knowing how it happened ... Austrian School of economics ... one of the foundational articles of the theory of freeorder


"The Use of Knowledge in Society," by F. A. Hayek

a foundation of freeorder and open network theory & practice

This is perhaps the most important single article by F. A. Hayek, a master of an economics that fully comprenends both designed and spontaneous orders and leads us to consider the best balances among such orders. This article was first published in American Economic Review, Vol. XXXV, No. 4 (September 1945), pp. 51930. It was one of the inspriations for the creation of the Office for Open Network, in Denver, Colorado, April 1975. Formally closed, January 2000, but informally still open.

What is the problem we wish to solve when we try to construct a rational economic order? On certain familiar assumptions the answer is simple enough. If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic. That is, the answer to the question of what is the best use of the available means is implicit in our assumptions. The conditions which the solution of this optimum problem must satisfy have been fully worked out and can be stated best in mathematical form: put at their briefest, they are that the marginal rates of substitution between any two commodities or factors must be the same in all their different uses.

This, however, is emphatically not the economic problem which society faces. And the economic calculus which we have developed to solve this logical problem, though an important step toward the solution of the economic problem of society, does not yet provide an answer to it. The reason for this is that the "data" from which the economic calculus starts are never for the whole society "given" to a single mind which could work out the implications and can never be so given.

First published in American Economic Review, Vol. XXXV, No. 4 (September 1945), pp. 519-30.

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May 9, 2014

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