The Use of Knowledge in Society

This short 1945 essay asks how an economy can coordinate the choices of millions of people when no single planner could possibly hold all the relevant facts. Hayek argues that much of the knowledge that matters is local and particular: a factory manager's sense of spare capacity, a shopkeeper's awareness of shifting tastes, a worker's grasp of a specific machine. Such knowledge is never gathered in one place. Prices, in his account, serve as a compact signal that carries information across the market and lets people adjust without understanding the whole. He concludes that central planning struggles for this reason, and that a system relying on decentralised decisions and price signals makes better use of what is known in society.