The Internet and F.A. Hayek

(Note: The following was first posted as a blog entry on the Students for a Free Economy Web site. SFE is a nonpartisan campus outreach project of the Mackinac Center that promotes the benefits of free markets, civil society and individual liberty.)

Economist F.A. Hayek, most famous for his book "The Road to Serfdom," developed a theory typically called the "knowledge problem."

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Essentially, Hayek argued that no one individual, or even group of well-informed individuals, could ever have enough knowledge to plan a market. Hayek said that knowledge was localized, meaning every individual has the best knowledge about their specific place, condition, needs and resources, but no one had enough knowledge about anyone else’s to make decisions for them.

Hayek’s free-market ideas were seen as sound reasons why government cannot, and should not, attempt to control economies. I wonder if Hayek could have predicted the other ways in which his theories have improved the world.

Jimmy Wales, founder of Wikipedia, explicitly set out to implement Hayekian knowledge theory in everyday life. If governments never have enough knowledge to plan an economy, why should we assume a group of experts at a publishing company have enough knowledge to explain everything in an encyclopedia? Wales acted on the premise that knowledge is dispersed throughout the community in such a way that any small group could never compile it all. Add to that the problem of time — encyclopedias take time to edit and update, and most often the edition on your shelf has facts and figures that are already out of date and can never keep up with the rapidly changing world.

Wales launched Wikipedia, a user-created reference to anything and everything. While some might find the editable structure of Wikipedia entries frustrating, the opportunity to criticize and revise information is open to all. This allows for a tremendous quantity of information — more than could be crammed into an on-the-shelf encyclopedia. Articles can be changed in real-time, and there are separate pages for ongoing debates and discussions over content, allowing readers to get a feel for multiple angles on each topic. It also conveniently provides links and references aplenty.

The application of Hayek’s ideas doesn’t end with Wikipedia. Open source software, such as Wikia, Flickr and many other internet tools, are based on the premise that millions of individuals’ localized knowledge freely pooled together is greater than any central authority could compile alone. Even social networking sites like Facebook are driven largely by the wants and ideas of its diverse users. Blogs have taken on, and often broken, stories before traditional news media by letting users spread across the globe instantly post their localized info.

When considering government economic policies that try to "invest" our money for us, or direct prices, wages, production or distribution, we would be wise to consider the many ways which we implicitly acknowledge the shortcomings of central planning everyday on the Web. When I look something up on Wikipedia, there is nothing scary or chaotic about free individuals exchanging knowledge in a largely unplanned and undirected manner. I wish I could say the same for government attempts to plan the world.


Isaac M. Morehouse is director of campus leadership for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

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