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The Market & Inarticulate Knowledge

Don Lavoie

• Department of Economics, George Mason University

“The Market as a Procedure for the Discovery and Conveyance of Inarticulate Knowledge.” Paper Presented at the Liberty Fund Conference on Thomas Sowell's Knowledge and Decisions. Savannah, Georgia; April, 1982.

The author elaborates on the spontaneous order argument of Friedrich Hayek (with the aid of Michael Polanyi's concept of inarticulate knowledge in Personal Knowledge) that the market is a procedure for discovering and conveying the dispersed knowledge of market participants. With the notable exception of Thomas Sowell's study, Knowledge and Decisions (1980), contemporary economic literature has not appreciated the inarticulate nature of the knowledge which the market communicates.

Professor Sowell's appreciation of Hayek's insight into the function of the competitive market system as a knowledge-dispersal mechanism derived from his reading of Hayek's 1945 seminal essay, “The Use of Knowledge in Society.” That essay, in turn, developed out of Hayek's attempt to answer such “market socialists” as Fred Taylor and Oskar Lange in the socialist “Calculation Debate” in the 1930s. The market socialists claimed that a socialist Central Planning Board (CPB) could achieve the allocative efficiency and beneficial results of competitive capitalist markets without relying on the private property rights institutions and free market price system that underlie free exchange. The market-socialist model, built as it is on the assumption of complete and articulate knowledge available to central planners, is an excellent foil for the market model of communicating inarticulate knowledge through the price mechanism.

Market-socialist theory and models claim to have overcome Hayek's critique of the Lange-type market-socialist models of the 1930s. But even if the central planners had the use of a super-computer capable of co-ordinating the myriads of quantities and prices available, they could not duplicate the efficiency of the free market since the relevant market knowledge is inarticulate. “The producers know more than they can explicitly communicate to others. While the market marshalls this dispersed knowledge without requiring its articulation, all these market-socialist models necessarily require the full articulation of the localized knowledge to the CPB during the ‘dialogue.’”

Lavoie discusses the philosophy of knowledge implied in saying that “We know more than we can articulate.” He gives a critique of the ‘objectivist’ epistemological belief that denies any legitimacy to knowledge that is not fully articulated. The thought of Whitehead, Sowell, Hayek, Polanyi, and Gödel's mathematical response to the Entscheidungsproblem is surveyed to show that no fully formalized system can possibly be ‘complete’, and that the ‘certitude’ and ‘rigor’ of any such system have to be established from outside the formal framework itself. Polanyi and Hayek (both modern exponents of the related idea of a spontaneous order which evolves without articulate, conscious purpose by invisible hand processess) have shown from such examples as the child's ability to speak that inarticulate knowledge (such as the “unconscious” rules of grammar and syntax) underlies all articulated knowledge.

Lavoie concludes by outlining the particular role which inarticulate knowledge plays in the market process. In effect, the price system is a telecommunications device for conveying knowledge which market participants would be unable to articulate.