1
INFORMATION AND ECONOMICS:
A CRITIqUE OF HAYEK
Allin F. Cottrell and W. Paul Cockshott
October, 1994
1 introduction ning put forward by Hayek in his classic arti-
cle ‘The Use of Knowledge in Society’ (1945).
Neither the theoretical arguments put forward The relevance of such an argument to the
in the West, nor the fact of the collapse of read- ership of this journal might be
Soviet socialism, historic landmark as it un- questioned. Doesn’t Hayek lie outside of the
doubtedly is, warrant the belief that socialist mainstream of British (increasingly, Anglo-
economic planning tout court is an untenable American) pro- fessional economics, with its
notion whose time has passed. Indeed, mod- dual roots in Mar- shallian pragmatism and
ern developments in information technology the formal general equilibrium theory of the
open up the possibility of a planning system Lausanne school? Wasn’t Hayek’s defence of
that could outperform the market in terms of the market always a bit too strident and
efficiency (in meeting human needs) as well doctrinaire to suit the sensibilities of a
as equity. Such are the claims that we have profession that (in Britain at any rate) has
defended in a number of recent publications, traditionally had a broadly social-democratic
designed to re-open a debate over socialist outlook? Maybe so, but it is our impression
economics.1 We do not expect that our ideas that Hayek’s star is on the rise in the post-
will meet with immediate political success, Communist world, and that even those who
but we do venture to hope that open-minded baulk at his extreme enthusiasm for the
economists will consider our economic argu- unfettered market are often quite ready to see
ments on their merits. his arguments used to bury any form of
We do not intend to reiterate our general thorough-going socialism.
arguments in favour of planning here. Our ob- And so to business. We offer below an expo-
ject is to refute the objections to socialist plan- sition and point-by-point contestation of the
ideas in Hayek (1945). We should make it
1
Our ideas were first presented in Cockshott and clear that some, though by no means all, of our
Cottrell (1989), and are set out most fully in Cockshott
and Cottrell (1993). Cottrell and Cockshott (1993a) re- criti- cisms of Hayek are anachronistic—that
examines the historic socialist calculation debate, with is, they depend on advances in information
emphasis on the arguments of Mises and Lange. In technology that have taken place since Hayek
Cottrell and Cockshott (1993b) we stress the dif-
wrote. We think this is justified for two
ferences between our proposals and the system that
existed in the Soviet Union. Technical details of the reasons. First, Hayek clearly thought he was
algorithm we propose for short- to medium-term plan- putting for- ward a very general argument,
ning are spelled out in Cockshott (1990). which he did not expect to see undermined by
technological change. Second, Hayek’s
followers (e.g. Lavoie,
1
,2
1985) continue to support his arguments of
He argues that there is an irreducible sub-
several decades ago, and to assert that devel-
jective element to the subject mater of the so-
opments in information technology are largely
cial sciences which was absent in the physical
beside the point.
sciences.
In our exposition of Hayek we try to bal-
ance concision with the need to produce a suf- [M]ost of the objects of social or human
ficiently full and fair account to obviate the action are not “objective facts” in the
suspicion that we may be attacking a straw special narrow sense in which the term
man. We begin with a brief summary of the is used in the Sciences and contrasted
philosophical views that inform the argument to “opinions”, and they cannot at all be
of ‘The Use of Knowledge in Society’, which defined in physical terms. So far as hu-
are spelled out more fully in The Counter- man actions are concerned, things are
Revolution of Science (Hayek, 1955). what the acting people think they are.
(Hayek, 1955, pp. 27–27)
His paradigm for the social or moral
2 hayek’s argument out- sciences is that society must be understood in
lined terms of men’s conscious reflected actions, it
being as- sumed that people are constantly
2.1 The philosophical consciously choosing between different
possible courses of action. Any collective
background phenomena must thus be conceived of as the
In The Counter Revolution of Science Hayek unintended outcome of the decisions of
is concerned to contrast the natural and social individual conscious actors.
sciences, whose relation to their subject mat- This imposes a fundamental dichotomy be-
ter, he claims, is fundamentally different. In tween the study of nature and of society, since
the natural sciences, advances involve recog- in dealing with natural phenomena it may be
nising that things are not what they seem. reasonable to suppose that the individual sci-
Science dissolves the immediate categories of entist can know all the relevant information,
subjective experience and replaces them with while in the social context this condition can-
underlying, often hidden, causes. The study of not possibly be met.
society on the other hand has to take as its
raw material the ideas and beliefs of people in 2.2 The basic economic problem
society. The facts studied by social science
From this philosophical ground Hayek (1945)
poses the question: ‘What is the problem we
differ from the facts of the physical sci-
wish to solve when we try to construct a ra-
ences in being beliefs or opinions held by
particular people, beliefs which as such tional economic order?’
are our data, irrespective of whether He continues:
they are true or false, and which, more-
On certain familiar assumptions the an-
over, we cannot directly observe in the
swer is simple enough. If we possess all
minds of people but which we can recog-
the relevant information, if we can
nise from what they say or do merely be-
start out from a given system of
cause we have ourselves a mind similar
preferences and if we command
to theirs. (Hayek, 1955, p. 28)
complete knowledge of available
means, the problem which remains is
2
, 3
purely one of logic. That is,
3
INFORMATION AND ECONOMICS:
A CRITIqUE OF HAYEK
Allin F. Cottrell and W. Paul Cockshott
October, 1994
1 introduction ning put forward by Hayek in his classic arti-
cle ‘The Use of Knowledge in Society’ (1945).
Neither the theoretical arguments put forward The relevance of such an argument to the
in the West, nor the fact of the collapse of read- ership of this journal might be
Soviet socialism, historic landmark as it un- questioned. Doesn’t Hayek lie outside of the
doubtedly is, warrant the belief that socialist mainstream of British (increasingly, Anglo-
economic planning tout court is an untenable American) pro- fessional economics, with its
notion whose time has passed. Indeed, mod- dual roots in Mar- shallian pragmatism and
ern developments in information technology the formal general equilibrium theory of the
open up the possibility of a planning system Lausanne school? Wasn’t Hayek’s defence of
that could outperform the market in terms of the market always a bit too strident and
efficiency (in meeting human needs) as well doctrinaire to suit the sensibilities of a
as equity. Such are the claims that we have profession that (in Britain at any rate) has
defended in a number of recent publications, traditionally had a broadly social-democratic
designed to re-open a debate over socialist outlook? Maybe so, but it is our impression
economics.1 We do not expect that our ideas that Hayek’s star is on the rise in the post-
will meet with immediate political success, Communist world, and that even those who
but we do venture to hope that open-minded baulk at his extreme enthusiasm for the
economists will consider our economic argu- unfettered market are often quite ready to see
ments on their merits. his arguments used to bury any form of
We do not intend to reiterate our general thorough-going socialism.
arguments in favour of planning here. Our ob- And so to business. We offer below an expo-
ject is to refute the objections to socialist plan- sition and point-by-point contestation of the
ideas in Hayek (1945). We should make it
1
Our ideas were first presented in Cockshott and clear that some, though by no means all, of our
Cottrell (1989), and are set out most fully in Cockshott
and Cottrell (1993). Cottrell and Cockshott (1993a) re- criti- cisms of Hayek are anachronistic—that
examines the historic socialist calculation debate, with is, they depend on advances in information
emphasis on the arguments of Mises and Lange. In technology that have taken place since Hayek
Cottrell and Cockshott (1993b) we stress the dif-
wrote. We think this is justified for two
ferences between our proposals and the system that
existed in the Soviet Union. Technical details of the reasons. First, Hayek clearly thought he was
algorithm we propose for short- to medium-term plan- putting for- ward a very general argument,
ning are spelled out in Cockshott (1990). which he did not expect to see undermined by
technological change. Second, Hayek’s
followers (e.g. Lavoie,
1
,2
1985) continue to support his arguments of
He argues that there is an irreducible sub-
several decades ago, and to assert that devel-
jective element to the subject mater of the so-
opments in information technology are largely
cial sciences which was absent in the physical
beside the point.
sciences.
In our exposition of Hayek we try to bal-
ance concision with the need to produce a suf- [M]ost of the objects of social or human
ficiently full and fair account to obviate the action are not “objective facts” in the
suspicion that we may be attacking a straw special narrow sense in which the term
man. We begin with a brief summary of the is used in the Sciences and contrasted
philosophical views that inform the argument to “opinions”, and they cannot at all be
of ‘The Use of Knowledge in Society’, which defined in physical terms. So far as hu-
are spelled out more fully in The Counter- man actions are concerned, things are
Revolution of Science (Hayek, 1955). what the acting people think they are.
(Hayek, 1955, pp. 27–27)
His paradigm for the social or moral
2 hayek’s argument out- sciences is that society must be understood in
lined terms of men’s conscious reflected actions, it
being as- sumed that people are constantly
2.1 The philosophical consciously choosing between different
possible courses of action. Any collective
background phenomena must thus be conceived of as the
In The Counter Revolution of Science Hayek unintended outcome of the decisions of
is concerned to contrast the natural and social individual conscious actors.
sciences, whose relation to their subject mat- This imposes a fundamental dichotomy be-
ter, he claims, is fundamentally different. In tween the study of nature and of society, since
the natural sciences, advances involve recog- in dealing with natural phenomena it may be
nising that things are not what they seem. reasonable to suppose that the individual sci-
Science dissolves the immediate categories of entist can know all the relevant information,
subjective experience and replaces them with while in the social context this condition can-
underlying, often hidden, causes. The study of not possibly be met.
society on the other hand has to take as its
raw material the ideas and beliefs of people in 2.2 The basic economic problem
society. The facts studied by social science
From this philosophical ground Hayek (1945)
poses the question: ‘What is the problem we
differ from the facts of the physical sci-
wish to solve when we try to construct a ra-
ences in being beliefs or opinions held by
particular people, beliefs which as such tional economic order?’
are our data, irrespective of whether He continues:
they are true or false, and which, more-
On certain familiar assumptions the an-
over, we cannot directly observe in the
swer is simple enough. If we possess all
minds of people but which we can recog-
the relevant information, if we can
nise from what they say or do merely be-
start out from a given system of
cause we have ourselves a mind similar
preferences and if we command
to theirs. (Hayek, 1955, p. 28)
complete knowledge of available
means, the problem which remains is
2
, 3
purely one of logic. That is,
3
