The Impact of Hayek's 1945 Paper

Summarizing Key Points of Hayek's 1945 Paper

Even those most prominent for their critiques of Hayek's work, point to Hayek's paper entitled, "The Use of Knowledge in Society" (1945) as a substantial contribution to the study of economics, worthy in an of itself of the Nobel Prize. At the time, the notion of intergrating numbers, calculus and practices of the other sciences into economics was widely received. However, in the process, economists began to make simplifying assumptions, including: possessing all the relevant information, starting out from a system of preferences (given endogenously), and commanding complete knowledge of available means. This gave rise to the Walrasian Model, which implemented calculus to determine the best use of the available means and resources. In short, efficient allocation occurred when the "the marginal rates of substitution between any two commodities or factors must be the same in all their different uses." (1945).

Problems With Walrasian Model

This self contrived economic problem is not real in society. The simplifying assumptions that lay the foundation for the mathematical calculations, are never "given" for the entire society, nor is that knowledge static and equally dispersed amongst all individuals. In sum, it fails to capture the most important and relevant knowledge: the knowledge of circumstance.