… is from pages 162-163 of Hayek’s brilliant 1952 volume The Counter-Revolution of Science, as reprinted in Studies On the Abuse & Decline of Reason (Bruce Caldwell, ed.; 2010), which is volume 13 of the Collected Works of F.A. Hayek (footnotes excluded):
The problem of securing an efficient use of our resources is thus very largely one of how that knowledge of the particular circumstances of the moment can be most effectively utilised; and the task which faces the designer of a rational order of society is to find a method whereby this widely dispersed knowledge may best be drawn upon. It is begging the question to describe this task, as is usually done, as one of effectively using the ‘available’ resources to satisfy ‘existing’ needs. Neither ‘available’ resources nor the ‘existing’ needs are objective facts in the sense of those which the engineer deals in his limited field: they can never be directly known in all relevant detail to as single planning body. Resources and needs exist for practical purposes only through somebody knowing about them, and there will always be infinitely more known to all the people together than can be known to the most competent authority. A successful solution can therefore not be based on the authority dealing directly with the objective facts, but must be based on a method of utilising the knowledge dispersed among all members of society, knowledge of which in any particular instance the central authority will usually know neither who possesses it nor whether it exists at all.
The nature of the economic problem as described here by Hayek requires that prices be set by processes of voluntary exchanges between owners of private property. It is these market-determined prices that prompt millions of individuals each to act as if he or she (1) possesses all of the information and knowledge that is spread out across and divided among those millions of different minds, and (2) intends to coordinate his or her actions with millions of strangers in ways that result in a productive and orderly economy.
Those who would use government to control prices and wages would use government to mute what is by far the most effective communications system available to ensure that markets continue to function as smoothly and as productively as possible.
