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'Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainity and agitation distinquish the bourgeois epoch from all earlier ones ... All that is solid melts into air, all that is holy is profaned.' Marx

Hayek, knowledge, markets « Previous | |Next »
May 03, 2007

I have come across F. A. Hayek's 1974 Noble Prize speech entitled The Pretence of Knowledge. He opens by saying the:

failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences - an attempt which in our field may lead to outright error. It is an approach which has come to be described as the "scientistic" attitude - an attitude which, as I defined it some thirty years ago, "is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed."

Hayek is concerned to make a distinction between the physical and the social sciences and to argue that these develop their knowledges differently.

Referring to a wellfunctioning market Hayek says that into the determination of these prices and wages there will enter the effects of particular information possessed by every one of the participants in the market process

.. a sum of facts which in their totality cannot be known to the scientific observer, or to any other single brain. It is indeed the source of the superiority of the market order, and the reason why, when it is not suppressed by the powers of government, it regularly displaces other types of order, that in the resulting allocation of resources more of the knowledge of particular facts will be utilized which exists only dispersed among uncounted persons, than any one person can possess. But because we, the observing scientists, can thus never know all the determinants of such an order, and in consequence also cannot know at which particular structure of prices and wages demand would everywhere equal supply, we also cannot measure the deviations from that order; nor can we statistically test our theory that it is the deviations from that "equilibrium" system of prices and wages which make it impossible to sell some of the products and services at the prices at which they are offered.

So Hayek is primarily concerned with the nature, scope, limits, use, and abuse of reason in human life and he argues that our knowledge of the world is at best limited, incomplete, and uncertain. Consequently, the fatal conceit is our undue faith in the power of reason. This is the foundation for Hayek’s primary warning against the pretensions of socialist planning: that human knowledge is intensely personal and irretrievably distributed throughout the population in such a manner that it would be impossible to collate, assimilate and act upon it within the ambit of any collective entity which aspired to better or even match the co-ordination capacities of markets.

This is the message which is developed from his article “Economics and Knowledge” of 1937 through his well-known article, “The Use of Knowledge in Society” of 1945; and the series of articles on “scientism”.

| Posted by Gary Sauer-Thompson at 11:54 PM | | Comments (0)
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