Hayek on the essential dispersion of market knowledge

Abstract

A key insight in Hayek’s thought is the importance of so-called “local knowledge” in economic activity. In The Fatal Conceit, he states that such knowledge is “essentially dispersed,” an especially intriguing description given that “essential” is a highly technical term from a philosophical perspective. In Section 1, we outline and discuss Hayek’s use of essential as found in The Fatal Conceit and in the process distinguish a “strong” and a “weak” sense of the term. We then explain the importance of this distinction to the theoretical viability of socialism and make an initial attempt to determine which sense Hayek himself might have had in mind. Section 2 explores the “strong” sense of essential in more detail and links it to Aristotle’s “causal account” of scientific knowledge. Section 3 traces the development of the popular and highly influential “empirico-positivistic” explanation of scientific knowledge –an explanation that does not support the strong sense of essential—and concludes that Aristotle’s account is superior. In Section 4 we employ the Aristotelian account and observe that, in point of fact, local knowledge is essentially dispersed in the strong sense and as such inherently defies the centralized management required by all forms of socialism. Evidence that the stronger sense of essential is more consistent with Hayek’s own thought is also briefly presented.