Chapter Ƿ: Ļe Debate over Calculation and Knowledge ȈȆownership (or the equivalent) of the means of production. Mises main-
tained that socialist planners could not adequately duplicate the results of
a market economy.
In a series of articles beginning in theȀȈȂǿs and culminating in his
ȀȈȃȄarticle on “Ļe Use of Knowledge in Society,” Hayek spelled out and
elaborated on Mises’s argument. Ļis, anyway, is the interpretation of the
discussion that I share with Professors Boettke and Koppl. How could
central planners know, for each resource, its potential contribution to the
value of output at all possible margins, in all possible combinations with
other factors of production, in all possible lines of production?
Ļe planners would need to know more than the technical aspects of
production and more than the actual and potential tastes of consumers and
workers. Efficient use of resources would further require their bringing to
bear of what Hayek called “knowledge of the particular circumstances of
time and place.” Examples are knowledge of a machine often standing
idle, of whom to call on for emergency repair of a leaking boiler, of an
employee’s skills that could be put to more valuable use, of stocks of mate-
rials that might be drawn on during an interruption of supplies, of empty
space in a freighter about to set sail, and of fleeting inter-local differences
in commodity prices. Such localized and temporary knowledge can be
used only by decisionmakers on the spot and would go to waste under
centralization.
But decentralized decision makers cannot work with this particular
knowledge alone, or with it combined with technological knowledge. Effi-
cient decisions must also take account of conditions in the whole rest
of the economic system—the availabilities and value-productivities of
resources in the innumerable lines of production that compete for them.
Here Hayek’s story brings in the role of the price system as a vast computer
and as a communicator of information and incentives, in abbreviated form,
to all consumer and business decisionmakers to whom particular bits are
relevant. Here, also—if the example were not already so familiar—would
be the place to recite Hayek’s example of the role of changed prices in
motivating appropriate responses to an increased scarcity of tin, whether
caused by a blockage of normal supplies or by development of new uses
for tin.
A vaguely expressed misunderstanding sometimes attributes to Hayek
the claim that prices convey all the information necessary for well-cal-
culated economic decisions. Yet prices are no substitute for knowledge
of production techniques in various industries and firms. Nor are prices