The Use of Knowledge in Society was published in 1945, American economic review. From the paper, ‘Use of Knowledge in Society’; I can infer that Hayek has questioned the development of information and relative application in central planning and he has further criticized the central planning. The core of the article revolves around the concept of knowledge and building economic order in the society.
He is referring to a division of knowledge so that business world will know the particulars about the core business to run in an efficient way. For, eg, Working class members may have the best knowledge to run the process, perhaps the top management might not know. The problem faced by society, conferring to Hayek, is not allocating the given resources instead finding ways to use the knowledge which are dispersed in society contrary to the belief that it is concentrated in a centralized way. Hayek stresses the fact that knowledge is decentralized and everyone has their share to play. Planning must be decentralized rather than steering the whole economy policies based on few experts. The centralized planning depends on drawing detailed plans specifically, for long time and abiding by them.
These types of planning ignore the aspect of change which is the root cause of the economic problem. Such planning completely ignores the constant day to day changes faced by modern society and Hayek claimed these beliefs to be flatly false. Economists majorly ignore these small changes and focus their attention on mathematical or statistical aggregates which shows stability rather than details about small changes that are associated. Hence, a decentralized way of decision making must be followed in decision making, i.e. man on the spot-the stakeholders should be involved.
But he also requires additional knowledge to make his decision, but the problem is how much of knowledge is required? Hayek, claims that it is only the relative to particulars that decision maker is bothered. This information is conveyed by using an example by Hayek, about the tin market, price system. There occurs a disruption of the supply of tin in the market, and there is less supply. Hayek points that the effects of disruption will spread through the market and the changes in prices will be communicated by individuals, and they will economize accordingly. But these individuals need not have to know anything about the tin disruption where and why happened, all they have to do is screen higher price of tin. A decrease in tin sheets supply in the market will lead to the price increase, and most of the individuals need not have to know anything, in particular, now stakeholders will seek out for substitutes when the price goes high. Price in the market communicates the relevant knowledge.
Hayek stresses that it does not require any human design in the price system. These spontaneous orders result from a lot of bids from supply and demand, entrepreneurs trying to gain more profits and the consumer trying to upsurge their utility.In this essay, Hayek is explaining the role of prices and knowledge for the success of the market economy. I felt Hayek invites the business world to consider his claim that all information is not known to a single or small group of the decision maker.
In the real economic world, information is distributed, sometimes incomplete and contradictory.