Liberty Matters

SELECT Knowledge


Peter Boettke makes a fundamental point about Hayek's supposed movement away from economics.  "Hayek didn't move away from economics in the decades after his disputes with Keynes and the market socialists.  He was instead delving deeper into the institutional conditions that would permit the sort of mutual learning required for social cooperation under the division of labor and the complex coordination which constitutes a modern economy."  The key word here is "learning."  In his famous 1937 article on "Economics and Knowledge," Hayek identified learning as a problem of economic theory.  "Clearly," Hayek said, "there is here a problem of the division of knowledge, which is quite analogous to, and at least as important as, the problem of the division of labor."  If Hayek was right about the division of knowledge in society, then economics is at least as much about how economizers learn as it is about how they allocate resources.  Economics is – or at least should be – largely about how people acquire the knowledge that guides and informs their concrete choices as participants in the division of labor.  The theory of such knowledge acquisition processes is a kind economic theory of learning that Boettke has dubbed "epistemic institutionalism." 
Epistemic institutionalism is quite distinct from the sort of thing many readers may think of as a "theory of learning."  The issue is not what's going on in one person's head when "learning" occurs.  That sort of question is important in general, and it can be important in economics too as McCabe et al. (2001) nicely illustrates.  But epistemic institutionalism is more often concerned with processes that are robust to particular models of individual cognition.  Israel Kirzner's theory of entrepreneurship illustrates this property of epistemic institutionalism.
Kirzner (1973) has shown that entrepreneurial discovery drives equilibration in more or less competitive markets.  It is a story about learning.  But it requires essentially no cognitive psychology.  All we need assume is a general propensity to discover and act on opportunities.  This assumption is empirical.  As Hayek notes in "Economics and Knowledge," the "empirical element in economic theory -- the only part which is concerned not merely with implications but with causes and effects and which leads therefore to conclusions which, at any rate in principle, are capable of verification -- consists of propositions about the acquisition of knowledge."  Presumably, we could imagine a world with people who have zero "alertness" in Kirzner's sense without thereby falling into logical contradictions.  Such a world would be so different from that of our ordinary experience, however, that we would have to doubt our guesses about what it would look like.  Thus, while the existence of Kirznerian alertness is an empirical assumption, Kirzner's arguments are robust across models of human cognition.  And that robustness is characteristic of epistemic institutionalism. 
The issue in epistemic institutionalism is how different social arrangements (institutions) affect the way dispersed knowledge is used, what sorts of facts people are likely to discover, and so on.  How do alternative institutions influence the epistemic performance of the social system?  Boettke discussed the salient example of socialism.  Without a stock market, the economy cannot allocate capital well and things will go badly.  Socialism is perfectly possible, but rational economic calculation under socialism is quite impossible.  So-called capitalism, on the other hand, has a stock market.  It has, therefore, market prices for capital goods and capital combinations.  Rational economic calculation is therefore possible under "capitalism."  Under "capitalism" people can learn which capital combinations have greater value and which have less value.  Capital therefore tends to move toward higher valued used and away from lower valued uses. 
Hayek seems to have only slowly arrived at a full understanding of the importance of epistemic institutionalism.  Late in his career he said, "Together with some later related papers reprinted with it in Individualism and Economic Order, ['Economics and Knowledge'] seems to me in retrospect the most original contribution I have made to the theory of economics (Hayek 1994, p. 68)."  But in his 1937 paper he says, curiously, "I do not mean to suggest that there opens here and now a wide field for empirical research. I very much doubt whether such investigation would teach us anything new."  I think, instead, that his insights into dispersed knowledge open many wide fields for empirical research.  Any of the standard sub-disciplines within economics can be studied from the perspective of epistemic institutionalism.  The Mises-Hayek argument on socialist calculation should be at the center of comparative systems theory (Boettke 2001).  Easterly (2013) has brought Hayekian epistemics to development economics.  Kirzner (1973) showed the centrality of epistemic institutionalism to the core of microeconomic theory.  And so on. Coyne (2008) studies war from just this perspective.  Horwitz (2015) has brought this perspective to the study of the family.  My coauthors and I have looked at criminal justice (Koppl and Sacks 2013), forensic science (Koppl 2005, 2010) and experts (Koppl 2012, 2015, 2018) as problems in epistemic institutionalism.  We should be bold and creative in applying Austrian epistemics to diverse topics such as art history, the administrative state, child protective services, medicine, and espionage.
For such empirical research to teach us anything new, however, we need a reasonable idea of what "dispersed knowledge" means.  The business and economics literature is thick with references to Hayek and dispersed knowledge. But it seems to me that relatively few of these references get beyond the banality that different people know different things.  This rather obvious fact is understood by children as young as three or four (Lutz and Keil 2003, Keil et al. 2008).  Hayek's insight was not just that different people know different things, but that this humble fact is of central importance to social science.
Hayek also gave us some insight into the nature of the knowledge that is dispersed in the economy.  Rather than citing chapter and verse, I will offer my own description without worrying if I have, perhaps, deviated in some way from Hayek's own vision.
The knowledge guiding economizers is embedded in the system and in practice.  Such "knowledge" is not necessarily justified or even true in some philosophical sense.  It may be flat wrong, demonstrably false. But if it in fact guides action, then is it "knowledge" in the sense of epistemic institutionalism.  It is knowledge existing within the division of knowledge and emergent from the division of labor.  The knowledge guiding the actions of participants in the division of labor co-evolved with the division of labor.  Each refinement in the division of labor produces new specialized knowledge that, in turn, enables further changes and refinements in the division of knowledge propelling the co-evolutionary process forward. The division of knowledge co-evolves with the division of labor such that each enables the other. 
Such knowledge is "constitutive" in more or less Hayek's sense (1952 pp. 36-37).  It is "constitutive" because it constitutes a part of the phenomenon.  The fisher's knowledge is constitutive of fishing, for example, no matter how much or little of it can be found in books propounding theories of fishing.  Constitutive knowledge is often tacit, because it exists in our habits and practices rather than in any formula or recipe.  We "know how" to ride a bicycle without "knowing that" we are following this or that rule to keep our balance.  We often use external objects to help us "know" what to do and when to do it.  The indicators on an automobile's dashboard tell us when to change the oil, get gas, or slow down.  I don't know when to remove the eggs from the boiling pot.  That knowledge exists "exosomatically" in the egg timer.  Finally, knowledge is synecological if the knowing unit is not an individual, but a collection of interacting individuals.  As Leonard Read (1958) taught us, no one person knows how to make a pencil.  The pencil-making knowledge exists in the system; it is synecological.  I borrow the term "synecological" from ecology, where "synecology" means "The study of the relationships between the environment and a community of organisms occupying it. Also: the relationships themselves." (That's from the OED.)  Etymologically, the root "syn" means "same." Thus, etymologically, the word means "same ecology."  The interacting elements are in the same ecology.  The term "synecological" is meant to suggest that knowledge is generated by the interactions of elements in an environment and is not separable from these elements, their interactions, or their environment.
The knowledge corresponding to the division of labor is evolutionary and "constitutive."  It may also be tacit, exosomatic, and synecological.  When put in the right order these labels give us the acronym SELECT, which represents the idea that knowledge may be Synecological, EvoLutionary, Exosomatic, Constitutive, and Tacit. 
The epistemic institutionalism Boettke advocates should, of course, build on Hayek's notion of "dispersed knowledge."  But this notion should not be restricted to the rather obvious idea that different people know different things.  Rather, we should embrace the larger vision of Austrian epistemics, which includes the idea of SELECT knowledge.  This bottom-up model of knowledge contrasts with the top-down epistemics of so many of today's scholars and intellectuals.  This bottom-up epistemics supports the view that knowledge should emerge from the system. If knowledge is imposed on the system, it is imposed by someone who thereby imposes upon and dominates others. The persons imposed upon are not in a relation of equality with those imposing a knowledge scheme on society. The view of emergent knowledge I develop in Expert Failure (Koppl 2018) shows, I think, that we need not impose a unitary scheme of knowledge on society. We can let knowledge emerge and flourish without attempting to control or systematize it. If we are to be free, we must let knowledge emerge freely. And we cannot be free unless we are free of the domination and tyrannizing of those who would impose a uniform system of knowledge on others.  In other words, we cannot be free unless we are equal.
Boettke, Peter J. 2001. Calculation and Coordination: Essays on Socialism and Transitional Political Economy, London: Routledge.
Coyne, Christopher. 2008. After War: The Political Economy of Exporting Democracy. Stanford: Stanford University Press.
Easterly, William. 2013. The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor.  New York: Basic Books.
Hayek, F.A. 1952. The Counter Revolution of Science: Studies in the Abuse of Reason, Chicago: University of Chicago Press.
_________. 1937 [1948]. "Economics and Knowledge," in Hayek, F. A.  Individualism and Economic Order. Chicago: The University of Chicago Press, pp. 33-56.
Horwitz, Steven. 2015. Hayek's Modern Family: Classical Liberalism and the Evolution of Social Institutions, New York: Palgrave Macmillan.
Keil, Frank C., Courtney Stein, Lisa Webb, Van Dyke Billings, and Leonid Rozenblit. 2008. "Discerning the Division of Cognitive Labor: An Emerging Understanding of How Knowledge Is Clustered in Other Minds," Cognitive Science, 32(2): 259-300.
Kirzner, I. M. 1973. Competition and entrepreneurship. Chicago: University of Chicago Press.
Koppl, Roger. 2018. Expert Failure, Cambridge, UK: Cambridge University Press, forthcoming.
_________. 2015. "The Rule of Experts," in Boettke, Peter and Christopher Coyne (eds.) Oxford Handbook of Austrian Economics, Oxford: Oxford University Press.
_________. 2012. "Information Choice Theory," Advances in Austrian Economics, 17: 171-202.
_________. 2010. "Organization economics explains many forensic science errors," Journal of Institutional Economics, 2010, 6(1): 71-81.
_________. 2005. "How to Improve Forensic Science," European Journal of Law and Economics, 20(3): 255-86.
Koppl, Roger and Meghan Sacks. 2013. "The Criminal Justice System Creates Incentives for False Convictions," Criminal Justice Ethics, 32(2): 126-162.
Lutz, Donna J. and Frank C. Keil. 2003. "Early Understanding of the Division of Cognitive Labor," Child Development 73(4): 1073-84.
McCabe, Kevin, Daniel Houser, Lee Ryan, Vernon Smith, and Theodore Trouard. 2001. "A functional imaging study of cooperation in two-person reciprocal exchange," Proceedings of the National Academy of Sciences, 98(20): 11832-35.
Read, Leonard E. [1958] 1999. I, Pencil: My Family Tree as told to Leonard. E. Read, Irvington-on-Hudson, NY: The Foundation for Economic Education, Inc.  Online version: Leonard E. Read, I Pencil: My Family Tree as told to Leonard E. Reed (Irvington-on-Hudson, New York: Foundation for Economic Education, Inc., 1999). </titles/112>.