Hayek, Wikipedia, and the Information Problem
F. A. Hayek, in his influential article, “The Use of Knowledge in Society,” discussed the problem of planned economies, like Soviet Russia. He claimed that not only was there a serious incentive problem, but more importantly, there was a knowledge problem. The problem is that no single person can know all the information required to produce even simple products, yet alone everything that a society needs in order to prosper. This formed the basis of Leanord Read’s famous essay, “I, Pencil,” (which some students may recall Milton Friedman used in his film, “Free to Choose”), which tells how no single person knows all of what it takes to make a simple wooden lead pencil.Â
Market economies solve this problem through prices that convey useful information about the relative availabilities of productive resources (answering the question of how to produce) and relative wants of people (answering what to produce). Here is a very insightful article that appeared in the Washington Post on Hayek, the Wikipedia project, open-source software projects, and prediction markets. It is well worth reading and thinking about.
 MC
February 28th, 2007 at 8:49 pm
I beleive that his views are correct. I agree, like Friedman that no one person can make even a pencil. The Soviet views are distorted because if a person cannot simply make somthing, then how is he to plan an entire economic system. The act of specilization must occur so that it does not fall on the shoulders of one person or panel.