May 7, 2016

Regarding the Use of Knowledge in Political Economy

Paretian Insight into a Hayekian Challenge
  • Richard Wagner

    Distinguished Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics
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Find the paper at SSRN

Friedrich Hayek (1937, 1945) explained that scholars engage in fantasy when they presume that they, or anyone for that matter, presume to possess the knowledge necessary to construct some societal equilibrium. That knowledge is incapable of being possessed by a single mind, which means that the relevant analytical challenge is to explain how competitive processes of social interaction are able to promote what could be called an assembly of relevant knowledge, much as conveyed by Leonard Read’s (1958) piece on the pencil. Vilfredo Pareto (1935) provides particular insight into Hayek’s challenge with his distinction between logical and non-logical action. Both types of action correspond to notions of rationality, only they pertain to different environments of action. This paper brings together Pareto’s insight and Hayek’s challenge, recurring in the process to Frank Knight’s (1960) concern with the relation between intelligence and democratic action.