This Week's Song by The Raconteurs - Top Yourself

8.01.2008

Prices and dispersed knowledge - Hayek

From F.A. Hayek's The Fatal Conceit that I'm reading:
We are led - for example by the pricing system in the market exchange - to do things by circumstances of which we are largely unaware and which produce results that we do not intend. In our economic activities we do not know the needs which we satisfy nor the sources of the things which we get. Almost all of us serve people whom we do not know, and even of whose existence we are ignorant and we in turn constantly live on the services of other people of whom we know nothing. All this is possible because we stand in a great framework of institutions and traditions - economic, legal, and moral - into which we fit ourselves by obeying certain rules of conduct that we never made, and which we have never understood in the sense in which we understand how the things that we manufacture function.

Modern economics explains how such an extended order can come into being, and how itself constitutes an information-gathering process, able to call up, and to put to use, widely dispersed information that no central planning agency, let alone any individual, would know as a whole, posses, or control. Man's knowledge, as [Adam] Smith knew, is dispersed...Information-gathering institutions such as the market enable us to use such dispersed and unsurveyable to form super-individual patterns. After institutions and traditions based on such patterns evolved, it was no longer necessary for people to strive for agreement on a unitary purpose (as in the small band), for widely dispersed knowledge an skills could now readily be brought into play for diverse ends.

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