Economic Development: Do not forget Hayek’s Use of Knowlegde.

Hayek’s use of knowledge is not just an attack on socialism, but a useful insight, which all social scientist and especially development economists, should embrace.

We live in a world in which information is: huge in volume, created in a dynamic process, widely dispersed, and subjective. It is impossible to obtain all relevant information “scientifically”. The fundamental question social scientist should, therefore answer, is how to create a society in which the dispersed information, which is unique to every member, is best utilized Hayek (1945).

Hayek got bogged down in his fight against Socialism. After the collapse of Communism, his fundamental message on knowledge was all but lost. His theory of knowledge applies as much now as it did during the Cold War. The current economic system does not utilize the vastly dispersed knowledge in society. As Hernando de Soto points out, the majority of the world’s population is locked out of the system. Yet we must acknowledge that even the humblest people, those with the lowest income or with little formal knowledge, will possess pieces of information which can be decisive in the course of social events (Huerta de Soto 2008). Not utilizing the specific knowledge of the world’s poor is a dangerous waste!

To distort the use of knowledge in society, because of the belief that some central authority knows better, is not only arrogant, but dangerously ignorant of the fundamental problem: no single central authority possesses a complete overview of the dispersed set of information.

We have got to create a society which best utilizes the dispersed set of knowledge. Hayek called this state of society “The Extended Order”. We believe the “Extended Society” is a more fitting term. Social Scientist should debate the use of knowlegde in society. Let us hope we can develop a society in which free (entrepreneurial) exchange through the use of knowlegde is open to all.

I leave you with a thought provoking clip with Hernando de Soto.

Huerta de Soto, J. (2008),“The Austrian School: Market Order and Entrepreneurial Creativity (web version).” Edward Elgar Publishing in Association with the IEA.