Here’s an 80-something Hayek discussing the central problem of social theory for modern, complex societies, or what he refers somewhat lightly to as “the knowledge problem”, in the sense that no central authority could possibly acquire and use the virtually endless knowledge produced by all social actors in order to form a plan that wouldn’t end in mass starvation. And, as forgotten theorist of uncertainty George Shackle noted, we are all planning for an unknowable future, all the time. So in a sense, multiple futures already exist in our consciousness, and we act in pursuit of those futures based on the actions of everyone else in society, actions which are also the product of minds that are searching in the dark to gain a foothold on one possible future. Strange, once you think about it. The next thought inevitably, then, is, “how does society function at all, with so much uncertainty about the future?” Therein lies the central problem that thinkers such as Hayek, Shackle, Keynes, and the modern-day writer Nassim Taleb, in his Incerto trilogy, sought to solve. With Taleb being a more ostentatious, yet derivative, version of much of Hayek’s later work. Many creations of culture, products of human action yet not of human design, can be interpreted as a means of alleviating such radical uncertainty. Money, language, interest rates, prices all are part of the invisible web that make social order possible. I’m going to go ahead and insert an extended quote from Hayek’s famous essay, ‘The Use of Knowledge in Society‘, to further drive home his point about the significance of prices:
“We must look at the price system as such a mechanism for communicating information if we want to understand its real function—a function which, of course, it fulfils less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.
Of course, these adjustments are probably never “perfect” in the sense in which the economist conceives of them in his equilibrium analysis. But I fear that our theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made us somewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency. The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e.,they move in the right direction. This is enough of a marvel even if, in a constantly changing world, not all will hit it off so perfectly that their profit rates will always be maintained at the same constant or “normal” level.
I have deliberately used the word “marvel” to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind. Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do. But those who clamor for “conscious direction”—and who cannot believe that anything which has evolved without design (and even without our understanding it) should solve problems which we should not be able to solve consciously—should remember this: The problem is precisely how to extend the span of our utilization of resources beyond the span of the control of any one mind; and therefore, how to dispense with the need of conscious control, and how to provide inducements which will make the individuals do the desirable things without anyone having to tell them what to do.”
As an aside, there is something about Hayek’s voice, slight though it is, that seems to wake the dead, or least slumbering child and dog. I can play Star Trek reruns in the background all night and nothing stirs, but the moment Hayek’s thick Austrian accent begins quietly playing, doggo perks up like her castle is under seige.
