Thursday, May 10, 2012

Appreciating Hayek

I think the most important insight of Hayek was to understand that knowledge in any large society is decentralized. The most important function of social institutions is to mobilize this knowledge in such a way that it can been used by individuals in making their decisions. Thus: the impossibility of rational calculation under socialism (a conclusion Mises came to in a somewhat different way), the importance of the rule of law, the importance of cultural-social rules, and so forth. Compare that with, in my view, the misguided trivality of Paul Samuelson’s behaviorist theory of revealed preference or Richard Kahn’s mechanical multiplier or Maynard Keynes’s contributions to economic policy guided by his elite hand. I could go on. In just about every class I teach I tell students about the meaning and the significance of Hayek’s idea of the decentralization of knowledge in society. This idea alone has the power to change minds dramatically. One student told me it changed her life. I do not care if students remember the Weak or Strong Axiom of Revealed Preference or the necessary conditions for perfect competition if they remember Hayek’s ”The Use of Knowlege in Society.”

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