The Knowledge Economy and (Ab)use of Symbols

I’m taking a Network Economics class this semester, and we’ve reasonably begun by reading The Use Knowledge in Society – in which Hayek addresses the economic problem of information scarcity.

The economic problem faced by society, Hayek argues, is that “the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” That is, the problem is “how to secure the best use of resources known to any members of society, for ends whose relative importance only these individuals know.”

Hayek, of course, sees this problem as one which is best solved by the free market – by decentralization of economic decisions. On its face, his argument makes a lot of sense: “If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We can’t expect that this problem will be solved by first communicated all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some process of decentralization.”

There is a lot of Hayek’s argument that I agree with. In the civic space, we often talk about the danger of expertise – technical knowledge is valuable and important, but reducing a community problem to a technocratic solution overlooks the expertise of the people themselves. No expert, no matter how well educated, can parachute into a community they know nothing about and successfully solve it’s problems without engaging community solutions.

But I don’t follow Hayek’s jump – just because a purely technocratic solution is clearly bad it does not necessarily follow that a purely populist solution is therefore good.

Hayek praises the pricing system of the open market as a mechanistic marvel – as an emergent behavior which continually tends towards the equilibrium of an instantaneous time and context. In other words, pricing becomes a tool for coordination, a “mechanism for communicating information.” It operates as “a kind of symbol” ensuring that “only the most essential information is passed on and only to those concerned.”

This is a inspiring description of market pricing, but it obscures the problems with such an approach – namely, it is unclear just how much people know and how much of that information is accurate.

Hayek’s invocation of ‘symbols’ immediately makes me think of Lippmann’s work – symbols can be powerful tools for coordination, but they are also props for propaganda and manipulation.

John Dewey describes the positive impact of symbols, writing, “Events cannot be passed from one to another, but meanings may be shared by means of signs. Wants and impulses are then attached to common meanings. They are thereby transformed into desires and purposes, which, since they implicate a common or mutually understood meaning, present new ties, converting a joint activity into a community of interest and endeavor. Thus there is generated what, metaphorically, may be termed a general will and social consciousness: desire and choice on the part of individuals in behalf of activities that, by means of symbols, are communicable and shared by all concerned.”

The problem, as Lippmann points out, is that elites are too easily able to manipulate those signs and symbols – to manufacture a shared experience and expectation which comes, not truly from the knowledge possessed by individuals, but which are myths designed solely to fulfill elite’s goals.

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