The Use of Knowledge in Society is an essay that sums up the insights of a lifetime. It is a template for a worldview. It is a source of unlimited amounts of study and reflection. It is an insight that explains vast amounts of the world around us. It is a flash of brilliance, a revelation that millions have missed, a paradigm for understanding the past and future. It is a rebuke to intellectuals from time immemorial and a new way of thinking for true intellectuals of the future. No single essay by Hayek is more important. “The Use of Knowledge in Society” is all that and more.
Knowledge is a good, perhaps the most important good, something vastly more important than all physical property combined. It is the driving force of history, the immortal, sharable, reproducible, malleable substance that has built our world and makes possible the forward motion of history. This essay shows why it is not possible for this knowledge to be produced or used by centralized agents in the civic order but rather must be generated, extracted, and put to use by real actors using real property and interacting with the world around them. Social complexity grows organically from experience of time and place and this can never be produced from the outside regardless of the supposed intelligence of the the planning class.
Hayek’s point here was elaborated on in many books over decades. It comes close to providing a framework for a robust social theory, and even gives a case for understanding why the idea of property rights can never pertain to the world of ideas. Ideas are diffuse and constantly changing; no state can presume to codified them and assign ownership over them.
For years I’ve looked for a passage from the Austrian tradition, whether Hayek or someone else, that clearly explains the nature of knowledge as a non-scarce good and its high value in pushing social and economic progress. Stephan Kinsella and I have found enough material to provide hints and suggestions, small examples and first thoughts, but never anything that really made the point super clear.
We’ve gone to great lengths to spell out the difference between the physical world of scarcity and the world of ideas in which non-scarcity prevails, and suggested that this is a major reason for the great migration to the digital world. I’ve longed for a passage from some Austrian thinker who seemed fully to grasp the idea — not just in hints and suggestions but worked out and precise.
Well, Steven Horwitz came across a passage from F.A. Hayek that is just gold. It is from the Constitution of Liberty (Chicago, 1960, 1978, p. 43). He puts it as plainly as one can possibly hope given that he was writing before the digital age. It serves as essential addendum to this essay.
The growth of knowledge is of such special importance because, while the material resources will always remain scarce and will have to be reserved for limited purposes, the uses of new knowledge (where we do not make them artificially scarce by patents of monopoly) are unrestricted. Knowledge, once achieved, becomes gratuitously available for the benefit of all. It is through this free gift of the knowledge acquired by the experiments of some members of society that general progress is made possible, that the achievements of those who have gone before facilitate the advance of those who follow.
Hayek goes on. He uses the fantastic phrase “fund of experience” — an analogy to capital theory in the physical world — as a way of explaining how the whole world and the whole of history can benefit from the success of one single firm or one innovator. “The free gift of the knowledge that has cost those in the lead much to achieve enables those who follow to reach the same level at a much smaller cost.”
This free gift is what I’ve called the socialistic side of capitalism. Every private producer, in order to market its wares, must necessarily give away that most precious thing, the evidence of its own success. That evidence, that knowledge, becomes part of the commons. That thereby inspires competitors to emulate the success. The profitable producer must, in turn, stay on the path of change and progress and never rest, generate ever newer and better knowledge.
So we see here how Hayek anticipated the great trend of our time, the steady and inexorable move of more and more of life from the realm of scarce to non-scarce: words, images, movies, physical objects with 3d printing, and now even money. This is all about the scalability, malleability, indestructibility, and immortality of ideas as non-scarce good.
It is gratuitously available for the benefit of all — and this of course is what the markets “desires” in effect: the inclusion of the whole of the world’s population and resources in the great process of improving our lives in this world in which scarcity will always and forever be a feature — a feature to deal with realistically (and humanely) and also to overcome insofar as we are able.
To understand the background, Hayek “Use of Knowledge in Society” is the essential document, one of the most important essays in the history of liberalism.