The distribution of resources within a society inevitably affects all its members, which is why it is unsurprising that the question of what constitutes the best measure through which to allocate these resources generates great controversy and debate. Arguments in support of either market-driven or government-centered economic decision-making follow various threads of reasoning, some of which based on ethical stances, concerning equity and social justice, and others on ideals of efficiency and maximizing a society’s wealth. Numerous scholars follow elements of instrumental rationality in their defense of specific institutional arrangements. The advocacy of government involvement mostly relies on its alleged ability to rectify market failures and distributional problems, while public choice theories, for instance, place great emphasis on the power of incentives to justify the superiority of markets in leading to desirable outcomes (Pennington, 2001). This essay will be focusing on Friedrich Hayek’s remarkable defense of the market, which diverges entirely from instrumental logic and relies on purely epistemological reason. It will be argued that what Hayek termed the ‘knowledge problem’ of society offers a compelling argument for the use of private markets to overcome epistemological obstacles to efficient decision-making and that it thereby presents a strong case for market economies as opposed to forms of central planning. The strength of the knowledge problem in defending private property orders, however, will be argued to rest solely on economic efficiency as the most desirable objective, which allows extensive scope for criticism and the vindication of alternative economic value judgments, especially egalitarian ideals.

The Knowledge Problem
Before considering the extent to which Hayek’s ‘knowledge problem’ lends itself to a defense of private property, it is necessary to discuss what this prominent theory entails. In his essay ‘The Use of Knowledge in Society’, which was first published in 1945, Hayek starts by identifying the existence of a type of knowledge that is separate from scientific knowledge and that, he argues, is impossible to be held in its totality by any one entity at any given time. This knowledge is that of “the circumstances of time and place”, which is not universal but dynamic in nature, since circumstances are bound to change constantly and can be highly unpredictable. Only the few individuals who are directly affected by the circumstances will possess that knowledge, meaning that each individual will always have an advantage over others in terms of information about specific factors (Hayek, 1984). If I need to buy a new pair of sunglasses because I have accidentally sat on my old ones, this information is likely to be only known to me, and, essentially, each individual in society holds similar personal information. Such circumstantial knowledge extends to virtually all spheres of life and productivity. For instance, how well a certain crop is growing will entirely depend on circumstances such as that season’s weather conditions, and this knowledge will be usually possessed by those who are directly involved with that specific crop. Knowledge, to Hayek, is not just dispersed and changeable, but it can also be ‘tacit’. The actions of individuals are not merely affected and driven by the knowledge of their circumstances, but also by subconscious factors, such as beliefs, customs, etc., that cannot simply be broken into discursive knowledge (Pleasants, 1997). The aggregate of these either consciously or subconsciously held pieces of information form together the knowledge that is fundamental to economic decision-making, in terms of price-setting and choices about what is to be produced in what quantity. Hence, from a Hayekian point of view, the problem society is faced with is “a problem of the utilization of knowledge which is not given to anyone in its totality” (Hayek, 1984, p. 212).

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