Friedrich August von Hayek

In 1945, the year the war ended, Friedrich August von Hayek published an essay in the American Economic Review that asked its readers to picture tin growing scarce. A new use for the metal had appeared somewhere in the world, or a source of supply had been cut off, and Hayek added the detail the whole essay turns on: it did not matter which of the two had happened, and it was very significant that it did not matter, because the users of tin needed only to see the price move and economize, and the great majority of them would never learn why the price had risen and would never need to.

The knowledge that keeps an economy running, he argued, is not the kind that can be gathered into a central office and arranged in ledgers. It is the knowledge of the particular circumstances of time and place, scattered across millions of minds, much of it tacit and local, the sort of understanding a shopkeeper carries about his street and his stock that no survey could capture and no questionnaire could draw out of him. Prices do the work in its place. Hayek called the price system, in his own phrase, "more than a metaphor" as a system of telecommunications, a machinery for registering change by which the producer watches the movement of a few pointers the way an engineer watches the hands of a few dials, adjusting to shifts he will never know more about than what the price movement tells him.

He was answering an argument with a history. Ludwig von Mises had opened it in 1920, with his essay on economic calculation under socialism, and Hayek carried it further with the point that even if the figures could be collected they could never be collected fast enough, because the facts keep moving while the survey is still being printed. The same honest reading applies to The Road to Serfdom (1944), the book that made him famous and made him enemies. It was never a claim that every welfare program is a step toward Stalinism. Its thesis was about process, that extensive central direction of the economy concentrates coercive power in ways that eat away at a free society, and Hayek wrote in the book itself that a minimum of food, shelter, and clothing could be assured to everybody without endangering general freedom. His quarrel was with the plan that swallows everything, not the rule that protects something.

The evidence stood on the shelves of the Soviet store. They were empty not by accident of public relations but because information failure had been enforced by politics, shelves deciding nothing because the man on the spot was forbidden to decide. The irony came at the end. In 1974 Hayek shared the Nobel Memorial Prize in Economic Sciences with Gunnar Myrdal, a Swedish Social Democrat who believed in active state intervention and agreed with him on almost nothing about policy, and that December Hayek gave his Nobel lecture under the title "The Pretence of Knowledge". The planner's certainty is not knowledge. It is the pretense of it.