Knowledge and Power: Hayek’s Dual Problems with Planning

Abstract

This paper explores the connection between Hayek’s dual problems of planning. Following Hayek we begin from the premise that the knowledge problem is ubiquitous. As Hayek argued, markets are effective at resolving the knowledge problem. However, where markets are absent, the knowledge problem requires a search for alternative mechanisms to determine the allocation of scarce resource. Political planning is one such coordination mechanism. Reliance on political planning, however, inevitably leads to the power problem as significant discretionary power is granted to those tasked with planning. If one was to read only Hayek’s work on the knowledge problem, or only his popular writings, such as The Road to Serfdom, they might miss the important connection between these dual problems.

Keywords: F.A. Hayek, knowledge problem, power problem