Hayek is especially with resource allocation when knowledge is distributed in small bits among a large population. Knowledge here includes consumer valuations, production relations, and resource availabilities. Classical Liberalism teste This paper focuses on the nature of the economic system in particular how actors of the economic system deal with resource allocation when a fundamental knowledge is only known partially because it is distributed among a large population. Price system is a mechanism to communicate information and to coordinate actions. Even if only a few actors have access to the information/knowledge the changing prices will readily inform all other actors in the economy and so that they can use this limited but relevant knowledge to inform their next actions. **The Fraser Institute - Essential Hayek: Knowledge and Prices** [](https://www.youtube.com/watch?v=mr2fexY-utY) For Hayek rational economic order refers to the problem on how society should use knowledge to make economic decision when such knowledge is not give given to anyone in its totality. In his own words: > ***"the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess."*** > ***"I have deliberately used the word “marvel” to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinced that if it 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."*** > ***"We make constant use of formulas, symbols, and rules whose meaning we do not understand and through the use of which we avail ourselves of the assistance of knowledge which individually we do not possess. We have developed these practices and institutions by building upon habits and institutions which have proved successful in their own sphere and which have in turn become the foundation of the civilization we have built up. The price system is just one of those formations which man has learned to use..."*** Ludwig von Mises was an Austrian School economist, historian, logician, and sociologist. Mises wrote and lectured extensively on the societal contributions of classical liberalism. Since the mid-20th century, libertarian movements have been strongly influenced by Mises's writings. Hayek was one of Mises students and viewed him as one of the major figures in the revival of classical liberalism. Learn more here: [Ludwig von Mises](https://en.wikipedia.org/wiki/Ludwig_von_Mises)  > ***"knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess."*** Friedrich August von Hayek was an Austrian-British economist and philosopher who was awared the Nobel Prize in Economics in 1974 (along Gunnar Myrdal) for their work on money and economic fluctuations, and the interdependence of economic, social and institutional phenomena. He is best know for his work on classical liberalism and especially his account of how changing prices communicate information that helps individuals coordinate their plans is widely regarded as an important achievement in economics - which this paper focuses on.  "But i fear that our theoretical habits of approaching the problem with the assumption of more of less perfect knowledge on the part of almost everyone has made of somewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency." > ***"The common idea now seems to be that all such knowledge should as a matter of course be readily at the command of everybody, and the reproach of irrationality leveled against the existing economic order is frequently based on the fact that it is not so available. This view disregards the fact that the method by which such knowledge can be made as widely available as possible is precisely the problem to which we have to find an answer."*** what is the difference between an institution and an organization? why rational economic organization and not rational economic institution? No single individual needs to have access to the whole information of a given market. The fact that individuals can act as one market and use price Price conveys information to all participants in the market. None of them needs to be aware or pre-compute all events of the market, changing prices give individuals enough information to participate in the economy. > "The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity—or rather that local prices are connected in a manner determined by the cost of transport, etc.—brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process." Of the familiar assumptions mentioned here, what is the difference between ```possess all the relevant information``` and ````command complete knowledge of available means```` ? Is there a nontrivial difference the author draws between information and knowledge? Excerpt on planning from "The Road to Serfdom" by Hayek: > "Planning" owes its popularity largely to the fact that everybody desires, of course, that we should handle our common problems as rationally as possible and that, in so doing, we should use as much foresight as we can command. In this sense everybody who is not a complete fatalist is a planner, every political act is (or ought to be) an act of planning, and there can be differences only between good and bad, between wise and foresighted and foolish and shortsighted planning. An economist, whose whole task is the study of how men actually do and how they might plan their affairs, is the last person who could object to planning in this general sense. But it is not in this sense that our enthusiasts for a planned society now employ this term, nor merely in this sense that we must plan if we want the distribution of income or wealth to conform to some particular standard. According to the modern planners, and for their purposes, it is not sufficient to design the most rational permanent frame work within which the various activities would be conducted by different persons according to their individual plans. This liberal plan, according to them, is no plan -- and it is, indeed, not a plan designed to satisfy particular views about who should have what. What our planners demand is a central direction of all economic activity according to a single plan, laying down how the resources of society should be "consciously directed" to serve particular ends in a definite way. Read on here:[F. A. Hayek - The Road to Serfdom](https://cdn.mises.org/Road%20to%20serfdom.pdf) Excerpt on planning vs market from "The Road to Serfdom" by Hayek: > It is important not to confuse opposition against this kind of planning with a dogmatic laissez-faire attitude. The liberal argument is in favor of making the best possible use of the forces of competition as a means of coordinating human efforts, not an argument for leaving things just as they are. It is based on the conviction that, where effective competition can be created, it is a better way of guiding individual efforts than any other. It does not deny, but even emphasizes, that, in order that competition should work beneficially, a carefully thought-out legal framework is required and that neither the existing nor the past legal rules are free from grave defects. Nor does it deny that, where it is impossible to create the conditions necessary to make competition effective, we must resort to other methods of guiding economic activity. Economic liberalism is opposed, however, to competition's being supplanted by inferior methods of coordinating individual efforts. And it regards competition as superior not only because it is in most circumstances the most efficient method known but even more because it is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority. Indeed, one of the main arguments in favor of competition is that it dispenses with the need for "conscious social control" and that it gives the individuals a chance to decide whether the prospects of a particular occupation are sufficient to compensate for the disadvantages and risks connected with it. Read on here:[F. A. Hayek - The Road to Serfdom](https://cdn.mises.org/Road%20to%20serfdom.pdf) ### TL;DR "The Use of Knowledge in Society" by F. A. Hayek was selected as one of the top 20 articles published in The American Economic Review during its first 100 years. In this paper Hayek poses the fundamental question of the nature of the economic system. He is especially concerned in its role in dealing with resource allocation when knowledge is distributed in small bits among a large population. Knowledge here includes consumer valuations, production relations, and resource availabilities. Hayek argues for the importance of a price system in achieving coordination and efficiency in resource allocation. A free price system allows economic coordination via the price signals that changing prices send, which is regarded as one of his most significant and influential contributions. Learn more here: https://www.essentialscholars.org/hayek > ***"I have deliberately used the word “marvel” to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinced that if it 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."***