I, Pencil: My Family Tree as Told to Leonard E. Read

Austrian-British economist Friedrich Hayek introduced the concept of “dispersed knowledge” in his 1945 article “The Use of Knowledge in Society.” In the article, Hayek determined that there are two types of knowledge: “scientific knowledge” and “knowledge of the particular circumstances of time and place.” Hayek was a proponent of the free market, and his categorization of knowledge founded his argument that social planning is ineffective:

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. […] Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality (Hayek, Friedrich. “The Use of Knowledge in Society.” Foundation for Economic Education, 1 May 1996).

He argued against centralized authority because he maintained that knowledge is decentralized, or dispersed among many. As a result, those with specialized knowledge are better positioned to make informed decisions rather than a central government. As it relates to economics, the term “dispersed knowledge” underscores that no one person is aware of all the factors that influence the market.