The Use of Knowledge in Society

Philosophy & Economics: Political Philosophy

Jeffrey Tucker March 9, 2014 at 10:20 pm

Understanding this essay will get you from here to there in forming a theory of the social order. It is that important and no liberty-minded intellectual can afford not to have mastered its contents. Hayek helps you see the world around you in a new way. No way can it be planned. Not only that: there is no way this world can finally be ruled.

Kick off the discussion! Questions, comments, observations or elaborations? Either reply here or create a new discussion using the tag the-use-of-knowledge-in-society

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Alexander J. Malt April 18, 2014 at 11:41 pm

I’m currently re-reading Hayek’s Individualism and Economic Order. I think it might be one of the most important economics books ever written, mainly because it was massively ahead of its time. I get the feeling that of all the Austrians it was Hayek who was most ahead of his time – not that he completely developed the themes of contemporary research, but that he was groping toward them but never quite grasped them. Whether this is correct or not, I find that he’s really great to read ‘in retrospect’, interpreting his work in light of work that came after him.

The Use of Knowledge in Society is probably the single foundational piece for my own work – specifically, Hayek’s claim that the price mechanism is a method of conveying information. Further, throughout his work of the period there is a recognition of the importance of time, that everything is always in flux (I’ve seen another economist refer to this as ‘the Hayek problem’).

Recent research seems to make possible a number of way to take Hayek’s points further (full disclosure, these are ideas I’m currently working on, so this a bit of a shameless plug):

– Time: The neoclassical picture of economic man is synchronic, i.e. a snapshot at a point in time of an agent, the available information, the budget, their preferences, etc. Hayek seems to be relentlessly diachronic, taking it as basic that the environment and actions of others will be in constant flux. Work in dynamical systems theory seems to have developed this point of view. Agents need not be viewed as an input-output mechanism. Instead they could be considered components of a coupled system, constantly influencing and being influenced by the environment and each other, just as two pendulums swinging from a beam are continuously influencing one another (they don’t take it in turns!). So perhaps ‘Hayekian economics’ can find an ally or interesting toolkit in dynamical systems theory.

– Information: What exactly, is the nature of this information which the price mechanism communicates? It’s not preferences (if the dynamical systems approach has merit, then there are no such things as preferences… at least, not in the neoclassical sense). I suspect that here we might find some interesting concepts in the realm of information theory which can help us out and perhaps allow us to conceive of the economy as a vast information network (quite literally). In fact, we might entertain the strong hypothesis that government intervention always and everywhere causes information decay: we arrive at an economic variant of the concept of entropy.

Anyhoo – it’s late in the UK! I’m going to get some sleep…

Bye for now!

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B.K. Marcus April 19, 2014 at 12:48 am

Alexander, this is very exciting to read about. I remember when I first read Henry Hazlitt comparing the price system to a series of of interlocking steam-engine governors — and realizing he was talking about cybernetics! (Economics in One Lesson, chapter 15, “How the Price System Works”)

Could you say more, please, about this line: “if the dynamical systems approach has merit, then there are no such things as preferences… at least, not in the neoclassical sense.”

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Sam Patterson April 19, 2014 at 1:35 am

<span style=”font-family: verdana; font-size: 13px; line-height: 16.639999389648438px; text-align: justify; text-indent: 25.600000381469727px;”>I am convinced that if [the price mechanism] were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.</span>

Such a powerful statement.

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  Sam Patterson April 19, 2014 at 1:37 am
  
  ^Looks like I found a bug :). That was using the blockquote function.
  
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Alexander J. Malt April 19, 2014 at 9:00 am

Hi B. K. Marcus – I was actually planning to write something on this today, so I’ll post a link to that as soon as I’ve published it!

Equally, would you mind talking a little about Hazlitt and cybernetics? (Perhaps in a new thread to stop this one going off topic.) Cybernetics is actually something I know very little about though I’ve come across it quite often as an important precursor to information, chaos, and complexity. I’d like to learn more about it!

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Alexander J. Malt April 19, 2014 at 2:21 pm

B. K. Marcus – have just written an article which criticises the neoclassical conception of economic man. The linked article argues that reliance on internal preferences is wed to an account of mind and behaviour that need not be, and perhaps is not, correct. In place of the neoclassical input-output mechanism we might instead consider agents to be a part of coupled, dynamical systems. <span style=”line-height: 1.7em;”>This would get rid of preferences and the strategy of utility maximisation in a single stroke – though in subsequent articles I’ll suggest that we do require preferences of a very different sort than those used by the neo-classical theorists.</span>

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Alexander J. Malt April 19, 2014 at 2:43 pm

Conza – thanks for those links. I think I’m on Hayek’s side on these issues… but I don’t have time to investigate fully now! I’ll try and have a read over the next few days!

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