Monday, June 22, 2015

F. A. Hayek and Why Government Can't Manage Society, Part I

Richard Ebeling emails:

Dear Bob,

I have a new article on the news and commentary website, “EpicTimes,” on, F. A. Hayek and Why Government Can’t Manage Society, Part I.”

Seventy years ago, Austrian economist, F. A. Hayek, published one of the important articles of the twentieth century, “The Use of Knowledge in Society.”

When the Second World War ended in 1945, the future of the world seemed to be moving the direction of socialist planned economies. Some socialists wanted Soviet-style dictatorship, while others believed in “democratic” socialism. But they all wanted the end to capitalism and the establishment of government-directed economic affairs.

In 1944, Hayek had published The Road to Serfdom, arguing that comprehensive government planning threatened to bring with it the end of the free society. “The Use of Knowledge in Society” demonstrated that the planners, even if benevolent and well-intentioned, could never have the necessary knowledge and ability to successfully plan a society due to the fact that the necessary knowledge is dispersed and decentralized among all the minds of all the people in the world.

Either people are at liberty to use their knowledge as they best see fit, or knowledge crucial to the well being of all may go unused. The key to the effective use and coordination of all that dispersed and centralized knowledge is the market price system through which people are able to inform each other about their desires as consumers and abilities as producers.

But for the price system to exist and function, there must be private property, market competition and individual freedom. Now, seventy years later, it is easier to see and appreciate the importance of Hayek’s argument. It explains why full and comprehensive socialist central planning was inevitably going to fail, as it did.

However, is Hayek’s argument against social central planning still valid and relevant in the post-Soviet world of government intervention and the welfare state? That is the next question to answer.


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