Was Hayek merely a Cold Warrior who is irrelevant today, or does he still have something to teach us? I ask because of two things that have happened to me this morning.
First, I read Steven's observation that my scepticism about the efficiency of bonuses is consistent with the notion that bosses "simply lack the knowledge to run their firm effectively." Secondly, I fell into a conversation with a stockbroker who believes that he has the ability to spot fund managers who have the ability to beat the market.
Hayek is relevant to both issues. For me, his massively important insight is that individuals' knowledge is fragmentary and limited:
The knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources...it is a problem of the utilization of knowledge which is not given to anyone in its totality.
If this were all, Hayek would be merely a historic figure - someone who was on the right side of history, but is irrelevant now.
But I don't think he is. The question he posed - what are the limits are individuals' economic knowledge? - still matters in at least two ways:
- If extensive knowledge is possible, then bosses might be able to manage big companies well. If not, then centrally planned companies will be inefficient. Sure, perhaps competition will eventually weed out egregious incompetence, but market forces might not grind so finely as to eliminate all inefficiency - and might even in some cases actually select in favour of quacks and charlatans.
- Should we trust fund managers with our wealth? If some people know better than the market, then maybe. But if individuals are less good at information gathering than the market, the answer is no. And the evidence (pdf) suggests no.
I'd add a third example. Labour's promise to "cut the deficit every year" is also a claim to knowledge. It just about makes sense if you know that the economy will grow every year. But this cannot be known; recessions are unpredictable and unpredicted.
There's a common theme in these three examples. The claim that individuals can possess extensive knowledge is also a claim to power and wealth; CEOs, fund managers and politicians all say: "trust us, because we know better."
In this sense, Hayek's message has shifted. Whereas it used to support dominant western institutions, it now undermines them. For this reason, it might be no coincidence that the question "what are the limits of our economic knowledge?" is rarely asked nowadays.