What Kind of Knowledge Matters Most in Economics?
Hayek's case for local wisdom
Welcome back to HayekGPT, where I use ChatGPT to translate Friedrich Hayek’s classic essays into plainspoken English — clear enough for a smart eighth grader, accurate enough to keep the ideas intact. This is Section III of The Use of Knowledge in Society.
In Section I, Hayek showed that the real challenge in economics isn’t dividing resources, but using knowledge no one person fully has. In Section II, he asked who should do the planning: a central authority or millions of individuals each using their own local knowledge.
Now in Section III, Hayek digs into the heart of that knowledge itself — not all knowledge is equal, and most of what really matters can’t be centralized or turned into rules.
You can find Section I here and Section II here.
III.
Not all knowledge is the same. Some kinds — like scientific formulas or general laws — can be taught in schools, written in textbooks, or passed from expert to expert. If that’s all we needed to run an economy, we might think a team of specialists could plan everything from the top.
But that kind of knowledge — general, rule-based, theoretical — is only one piece of the puzzle.
There’s another kind of knowledge that’s just as important. It doesn’t come from textbooks or degrees. It comes from being there — from knowing the small details of time, place, and situation. It’s the kind of know-how you build through experience, observation, and everyday work. And it’s this kind of local, real-time knowledge that most people overlook — especially economists.
Here’s the catch: only the people on the ground have this kind of knowledge. A factory worker knows that a machine is running hot today. A business owner knows one of her suppliers is shaky but reliable if you call on Mondays. A trucker knows there’s always a dead spot in the supply chain near Springfield, and he knows how to time his route to avoid it.
You can’t write that kind of stuff down. You can’t teach it in a classroom. But it’s real, and it’s powerful.
In fact, lots of people make a living by using this kind of knowledge. The person who arranges for a half-empty ship to carry freight instead of sailing light — that person is solving a real problem with local smarts. The estate agent who knows a landlord has a space coming open next month? Same thing. The trader who spots price gaps between cities? Same again.
And yet — here’s the strange part — we often look down on this kind of knowledge. We treat people who use it as if they’re just opportunists or sneaky middlemen. But they’re actually helping society make better use of its resources, just like a scientist or engineer does.
The problem is that most economists assume this kind of knowledge is just “given” — already out there and easy to find. But it’s not. That’s exactly the problem we need to solve: how do we build a system where people can use and share this scattered, practical knowledge without anyone needing to collect it all in one place?
Core Ideas from Section III
Not all knowledge is the same.
Scientific or expert knowledge is just one kind — and it’s not always the most important.Local, practical knowledge matters a lot.
People on the ground know things no central planner ever could — and they use it to solve real problems.You can’t teach this knowledge easily.
It comes from experience, timing, and details that can’t be captured in formulas.Society often looks down on people who use it.
But filling half-empty trucks or spotting short-term price gaps is not cheating — it’s smart use of what you know.Economists assume this knowledge is just “there.”
But it’s not. Making that knowledge useful — without putting it all in one place — is the real economic challenge.
Coming Up in Section IV
Next time, Hayek gets practical: How do we actually coordinate all this scattered knowledge? What system helps people use what they know without needing permission or direction from above? Hint: it's already in your wallet.
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