The limits of knowledge occupy a central position in political and economic thought. Hayek’s arguments against state control of the economy rested on the limited knowledge of any individual or organisation about the total economic data of a given society. This problem, the problem of what we don’t know, demanded an institution distributed enough to incorporate networked knowledge. The market, Hayek suggested, is just such an institution.
But the argument against unlimited knowledge applies to the market, too. No institution, however widely distributed, can incorporate all the necessary knowledge for computing economic outcomes.
And there is a practical concern. Without plans of any kind, we cannot execute any decision without endless experimentation. It is like trying to make a decision without ever making it. There is such a thing as too much decisiveness. But there is also such a thing as too much indecisiveness. The market is fundamentally indecisive, favouring outcomes in an oscillating and erratic way. The market not so much fails to make decisions as it makes too many, too often. The state is the opposite, making a few ‘high quality’ decisions whose grounding in practical information is, nonetheless, limited. To balance the theoretical wisdom of state planers with the practical wisdom of market actors, we need to acknowledge the limits of both kinds of knowledge.
The state is a planner. The market is an experimenter. Life requires a balance between these two impulses — planning compatible with experimentation; inevitability compatible with the widest range of possibility.
So contrary to Hayek’s initial suggestion, it seems that the problem of what we don’t know leads not to the extremes of state tyranny and market anarchy, but to the balance in between. Although, of course, what do I know?