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Don Lavoie on the Continuing Relevance of the Knowledge Problem

The author is Don Lavoie, not Friedrich Hayek who invented the phrase “knowledge problem” in his classic 1985 book National Economic Planning: What Is Left?1 (itself a more accessible and more focused distillation of Lavoie’s thesis with the help of Israel Kirzner, entitled Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered).

Lavoie Reformulated and clarified the problem of knowledge that was formulated through Ludwig von Mises and Friedrich Hayek, took to challenge the numerous suggestions of the time that called for greater state control and proposed a radical liberal alternative.

You may think we’ve mastered all we can be aware of the problem of knowledge in the past, but the reality is the 2020s’ plans do not differ much from those proposed in the 1980s. Lavoie’s knowledge dilemma remains as important as ever.

What do you have to say about the knowledge issue?

Everyone knows what the issue with knowledge is central planners aren’t able to access to the entire knowledge required to plan a comprehensive economy. Most people accept the problem of knowledge on this basis (everyone except market abolishers). Here’s what Lavoie says about it:

Comprehensive plan, which is considered to be the most well-known theory of planners, attempts to create economic coherence without relying on the disagreement of different decision makers which thereby robs it of having access to one of the biggest sources of knowledge that is exhibited by these types of orders. Similar to the way that competition in biology works, there is an information-bearer function of DNA. Similarly, in the world of Tradition, this function is further enhanced by the development of the language, as well as culturally adapted methods and practices. In the world of Market, Profit, and Loss signaling are also added to the array. In the world of Planning, there is no information bearer, and those from the Market are eliminated. This lack of information provides the knowledge problem argument its strength. (86)

One of the main points in the book by Lavoie, “National Economic Planning: What Is Left?” was that the knowledge issue does not allow for the concept of comprehensive economic Planning (nationalizing whole industries and granting the state total control over all methods of production) as well as non-comprehensive economic development (targeted state ownership as well as subsidies, wage and price restrictions, and quotas, tariffs or monopoly privileges, among other policies that distort prices). This is the kind of economic plan that the majority favor today (even those who self-declare as “state socialists” who nevertheless think of a more welfare state than a communist-style state). This is more widespread than it was in the 1980s due to the demise of the Soviet Union, which dealt a significant blow to the argument for comprehensive Planning, transforming its less radical counterpart into a moderate, sensible alternative.

Lavoie demonstrated not just the relevance of the knowledge problem but also its more broad, perhaps radical, implications. The issue of knowledge is not exclusive to a few ideologies, groups, or even institutions. The point of expertise is a part of every action of humans. Our reasoning abilities can propel us to incredible levels, yet we’re inexplicably limited, bounded, and ignorant. The question is to which certain processes or processes, as well as feedback mechanisms, can help ease or increase the difficulty of acquiring knowledge. The goal of our work is, well, to achieve our goals. However, neither the most effective means for achieving our goals nor the full impact of our plans are understood (or at all!). There is a divide between our goals and the results-not always a severable gap; however, it is a chasm that is often widened or shortened depending on the tools we choose to use. Since our objectives all have the same reservoir of resources that are scarce (the materials, time, and creativity that may be utilized to serve different purposes), It becomes increasingly difficult to determine how broad or narrow numerous chasms that overlap and even “measure” them or compare them to the depths that are implicit in other objectives. Selecting from our endless range of options and goals the most effective among them or, more specifically, just figuring out the chasms of each array between intent and consequences are more narrow or wider is a task that requires knowledge. This is the problem of knowledge that is achieving efficiency when faced with uncertainty or, more precisely, constantly distinguishing the efficient from the ineffective and attempting to make adjustments to the new situation.

“The knowledge problem is part of the human condition, points to a general feature of human decision-making, and will remain an everlasting consideration in comparative institutional analysis.”

This is the reason the issue of knowledge was not rendered irrelevant by the demise of extensive Planning. The problem of knowledge is an inherent part of our human condition. It is an underlying feature of human decision-making and will be a constant aspect of the comparative analysis of institutions. The lack of omniscience in us is all-encompassing. Therefore, we rely on a variety of social technologies to aid in our choices of means and ends, apart from the more obvious signs of writing, speaking, or voting, as well as the more implicit signals of associating, giving, or trading (including the results in terms of prices).

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Jane S. King

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