Featured Article
Extending Hayek's Insights about Local Knowledge
Friedrich Hayek's 1945 article in the American Economic Review, "The Use of Knowledge in Society," has become a classic. It was the last in a series of articles in which Hayek put the final intellectual nail in the coffin of socialism. Hayek argued persuasively that the information that is most valuable in an economy is decentralized; it exists in little pieces in the minds of the billions of people acting in the economy. It is not centrally aggregated by government planners and can't be centrally aggregated except as a happy result of free markets. These facts, argued Hayek, are a sufficient reason for socialism to fail. Economists who write in the Hayekian tradition often refer to people's information about their own circumstances as "local knowledge." Hayek's conclusion about the importance of local knowledge can be extended far beyond markets into many parts of our lives. In this essay, I summarize Hayek's argument and then apply it to some good things that happened on Sep...