Hayek’s “Know How”

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In April, Nobel Laureate and Columbia University economist Edmund Phelps published an Op-Ed in the Financial Times related to uncertainty and the economic crisis.  In his piece, references to Friedrich Hayek’s soup of “know-how” piqued my interest in their web application.  In the 1930s, Hayek claimed that modern economies –capitalist or centralized– muddled about in what Phelps calls “a great soup of private ‘know-how’ dispersed among the specialised participants.” Today, given the advent of decentralized content creation –albeit not always by experts– and the increasing facility with which knowledge is aggregated and broadcast, perhaps Phelps was remiss not to mention the Internet’s new-found ability to collate Hayek’s “know-how.”  The Internet allows users access to diverse and specialized information that facilitates what David Hume called “imagining” a commercial departure from what one knows best, toward what is innovative.  While such commercial departure would traditionally lead to Schumpterian “creative destruction,” or the iterative process of innovation, online this is not always true. With minimal cost and few structural impediments to expansion, the Internet fosters “creative proliferation.” The web consolidates Hayek’s “know how,” accelerates Hume’s “commercial departure,” and substitutes “creative expansion” for Schumpeter’s “creative destruction.”

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1 Comment

  1. Greg Ransom

    June 18, 2009 @ 9:37 pm

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    The founder of _Wired_ magazine has remarked on this parallel:

    “Phelps was remiss not to mention the Internet’s new-found ability to collate Hayek’s “know-how.””

    Hayek’s account of “local knowledge” is, additionally, deeper than this — it includes what Polanyi called “tacit knowledge”, acquired skills, years of honed judgment, intuitions about where to go to find things, etc. The application of this sort of “local knowledge” to the internet domain is by necessity limited.