Best known work of Friedrich von Hayek It was influential and controversial easement way, published in 1944; But his most famous writings on economics are Use of knowledge in societya fairly short essay on how society obtains and uses sparse information about basic economic variables such as preferences, priorities, and productivity.
The article develops a strong critique of central planning, arguing that central authorities are unable to synthesize and process “the scattered elements of incomplete and contradictory knowledge possessed by different individuals”. Because they don’t know what each person likes best out of millions of products—not to mention their ideas of where to apply their talents more productively and creatively—central planners are doomed.
By contrast, market economies can efficiently and effectively process and aggregate that information: price signals seamlessly convey information about the priorities and preferences of market participants. As tin becomes scarce, its price rises, and, as Hayek explains, “All tin consumers need to know is that some of the tin which they used to consume is now used more profitably elsewhere, and therefore they must economize on its use.”
This is not limited to the processing of existing data. Hayek argues that the market system is also better at detecting—and even producing—new, relevant signals: “The data about the whole of society from which the economic calculation arises are never given to a single mind so that it can deduce its consequences, nor can it be.”
Although he is glorified for creating a knowledge-based (“computational”) critique of planning, his arguments are best understood as a call for decentralization in broader terms. He asserts that “If we accept that the economic problem of society is basically the rapid adaptation to change […] The final decisions should be left to those who are familiar with those conditions.” In the end, Hayek concludes, “we have to reform it through some kind of decentralization,” that is, a market economy and a price system.
For decades, Hayek’s arguments have served to dismiss regulations of all kinds. If the regulation of economic activity (such as measures governing the launch of new products) or prices (such as price ceilings or price fixing) interfere with the functioning of the price system, they will make it difficult for the decentralization process to adapt to a constantly changing world.
But now artificial intelligence Generative AI models that encode, process, and use vast amounts of pre-existing information (through hundreds of billions of parameters) present two challenges to this argument.
First, given AI’s ability to ingest, organize, and interpret data on a large scale, we might wonder if it will be able to achieve greater efficiency through centralized planning than existing market systems. This is the hope behind “AI socialism” (or “fully automated communism”): AI will give central planners the means to determine the (supposedly) optimal economic charitable allocations.
But while AI Socialism is an interesting thought experiment, it offers only a cursory critique of Hayek. Even if AI could do all the calculations and collect data that a market economy already handles (and that’s a very big assumption), the concentration of power is in the hands of the central authority. It will be a big cause for concern.
The famine from which five million Ukrainians died in the early 1930s was not due to Stalin’s inability to calculate proper provisions. On the contrary, he had enough information and used it to get as much grain as possible from the region (because of greater political motives and perhaps the desire to destroy Ukraine). Furthermore, Hayek’s critique of central planning goes beyond the use of existing data. As we have seen, it mainly focuses on adapting to change and thus emphasizes the creation of information as much as its use. Hayek writes: “The kind of knowledge to which I am devoted myself is the kind which by its very nature cannot be part of statistics.” This means that even the powerful Large Forms Language (MGL) cannot handle the true nature of sparse information.
But artificial intelligence presents another challenge.More deeply than Hayek’s arguments: In an age of generative AI such as ChatGPT-4, can we even assume that markets will facilitate the decentralized use of information? Alphabet (Google) and Microsoft are leading the development of this technology, two giant companies that are largely dedicated to the centralization of information. Even if other firms can compete against this duopoly, MGLs, due to their nature, may require a high degree of centralization. It is easy to imagine a scenario in which a large part of humanity gets its information thanks to the same model.
Of course, Google and Microsoft’s control of information is different from that of the Chinese Communist Party, but as we argue with Simon Johnson in our new book Strength and Progress: Our Millennium Struggle for Technology and Prosperity (Power and Progress: A Thousand Years of Trouble in the Face of Technology and Prosperity) Even seemingly benign forms of decentralization carry myriad economic and political costs that depend on who is ultimately in control. In the United States, these costs include the growing monopoly of the technology sector, as control of data creates barriers to entry, and the development of business models based on continuous online engagement and personalized digital advertising, which generate emotional outrage, extremism, and digital echo chambers, with deleterious effects on democratic participation.
Decentralization is therefore still desirable, but to advance it in the age of artificial intelligence, we may need to completely reverse Hayek’s arguments—or at least partially change them—by embracing regulation rather than simply focusing on its potential costs.
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