The basic economic problem

From this philosophical ground Hayek (1945) poses the question: `What is the problem we wish to solve when we try to construct a rational economic order?'

He continues:

<#83#>

On certain familiar assumptions the answer is simple enough. If we possess all the relevant information, if we can start out from a given system of preferences and if we command complete knowledge of available means, the problem which remains is purely one of logic. That is, the answer to the question of what is the best use of the available means is implicit in our assumptions. The conditions which the solution of this optimum problem must satisfy have been fully worked out and can be stated best in mathematical form: put at their briefest, they are that the marginal rates of substitution between any two commodities or factors must be the same in all their different uses. (Hayek, 1945, p. 519)

He immediately makes it clear, however, that the `familiar assumptions' upon which the above approach is predicated are quite unreal.

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This, however, is emphatically not the economic problem which society faces #tex2html_wrap_inline95# The reason for this is that the data from which the economic calculus starts are never for the whole society given to a single mind which could work out the implications, and can never be so given. (<#42#>ibid<#42#>.)

Hayek then spells out his own perspective on the nature of the problem:

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The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. (<#45#>ibid<#45#>.)

The true problem is therefore ``how to secure the best use of resources known to <#47#>any of the members of society<#47#>, for ends whose relative importance <#48#>only these individuals know<#48#>'' (Hayek, 1945, p. 520, emphasis added). That this is not generally understood, Hayek claims, is an effect of naturalism or scientism, that is ``the erroneous transfer to social phenomena of the habits of thought we have developed in dealing with the phenomena of nature'' (<#49#>ibid<#49#>.).