Tag Archives: Hayek

“The Use of Knowledge in Society” – Econlib

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. [From “The Use of Knowledge in Society”]
Source: “The Use of Knowledge in Society” – Econlib

[2015-09-16] Hayek on the Use of Knowledge in Society – MRU

This video discusses Friedrich Hayek’s most famous essay titled “The Use of Knowledge in Society.” This essay first appeared in the American Economic Review in 1945 and focused on the division of knowledge in society. Hayek uses the example of the tin market to illustrate how prices communicate relevant information. If there is a disruption in the tin market, individuals don’t need to know specifics about the disruption, just that the price for tin is higher. As the price increases, individuals economize or look for substitutes. In this sense, no one plans prices or markets, rather it is the result of spontaneous order. Entrepreneurs seek profits and consumers seek to maximize their utility, which bring about the use and mobilization of decentralized knowledge.