Fredrick Hayek: The Use of Knowledge

Hayek is one of the most recognisable names on liberal economy theories. Countless articles and YouTube videos are made on the century battle of Keynes versus Hayek. The battle itself is played on paper, but the influence of this Economic split is ever influential. Amid the lacklustre global economic activities following a 50-year victory of Keynes government intervention theory, it is always good to read some alternatives. The Use of Knowledge in Society concentrated on the big philosophical ideas of Hayek’s liberal thinking.

Is data the same available to everyone?

Hayek starts the first paragraph by saying no. Data is not fairly given nor generically accessible to everyone. In the case of our current world, two particular examples are fairly obvious. Due to manmade protection or other forms of seclusion, certain countries today cannot access to the same data or networks others have. Even within one country, in the election case of the US, Fox News believers see different sets of data than people reading Washington Post. 

Hence, the sum and essence of the data are distributed differently to different people, due to many reasons may it be ways of communication or diverse contact points of information. The totality of the data is too big for any single mind to comprehend. As a result, economic theory should be designed to secure the best resources for some members.

Why decentralise?

If humans do not make changes ourselves, will economics keep developing the way it is? No. Social economic dynamics vary all the time. People are only concerned on the issues that are related to them. For example, in the era of trade war, soya farmers may only concern about policies that are related to them. Similarly, Chinese or American citizens may only care about how this trade war will influence their own wealth instead of checking out the fall of Australian dollar. To extend the example, Hayek has also described such irrelevancy of “other” events as that often time we are not concerned of unless the results will influence us. In today’s example, we can roughly take it as trade wars made to sacrifice the benefits of soya owners may not be a concern unless such consequence will result significantly enough loss of votes. 

 To give a solution to the above observation, Hayek says, if there is a fairly designed price system, people will react to the right direction. The utilisation of resources is beyond the span of any single mind anyways.In a way, Hayek advocates for pricing system to reflect on the wants of individuals. 

Hayek is a big shot against socialism and centralised government. The argument for decentralisation is made vis-à-vis to planned economy. 

Fredrick Hayek Theory Zhu The Girl economist blogger

What should economists / policy makers / elites do?

Induce. By setting up the direction, the force of people will figure itself out. What elites need to do is to do adjustment every single day.

In a modern-day example, it may be interpreted in the interest rate hikes. Despite having the general expectation that interest rate will rise to prevent economy from being overheated, constant small adjustment of interest rate is still observed, as market reacts differently one second from another, given the big background of rising interest rates. 

Notice, this small change is somehow connected to the later subject, Behavioural Economics, I have studied at UPenn. Behavioural Economics advocates small change in policy to “nudge” consumers, individuals, citizens, to the desired position or policy result. I will talk about the extension of B.E., in my further articles on blog and across publications. 


The biggest criticism to Hayek’s work has been his simplified take on economy. Many believe that one single price system cannot signal and manage the whole big system of how our societies run. Information is passed down in multiple ways, through language, tones, sentiments, etc. beyond one simple price. As you may not decide to buy a car just because the car price is going down now, you may think about things like is it sustainable / trendy / my need to have a car now? 

Nevertheless, The Use of Knowledge in Societyis still a brilliant essay to read. Its nice flow has also made its name in history. Notice, Hayek believes in libertarian way of thinking, but it does not necessarily praise the ultimate laissez-faire proposed by Adam Smith. I personally think Hayek, despite of being accused or pointed out of many mistakes, has its magic and logics. 

While I was doing research, this article gave me another perspective. Why Keynes is more popular nowadays than Hayek? The article concludes that Keynes gives people a rosy promise of future by printing endless money. Hayek is the pessimistic pragmatist. He says bubbles will bust inevitably. Humans always opt for colourful stories, despite knowing they may not be sustainable and may be the canon sugar-coated by candies. The least humans, fallible and imperfect by nature, would want is to face the realities of tail risk, that one small risk would explode and diminish all have been accmulated in the previous successes. Interested people may check out this wonderful article

Having lost the debate to Keynes, Hayek may still have its legacy. 

Source: The Use of Knowledge in Society (Hayek 1945)

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