European Central Bank President Mario Draghi told The Wall Street Journal last month that the “European social model has already gone.” If his fellow Europeans have read Friedrich Hayek, they would also understand why.
Friedrich August Hayek, who passed away 20 years ago this week, was one of the foremost social scientists of the last century. A Nobel laureate in economics, Hayek is often associated with his critique of socialist systems. There is, in society, a “knowledge problem”: Economic life requires the coordination of individual planning. The relevant knowledge for economic planning is dispersed rather than concentrated in society. If this makes coordination challenging enough in a market system, it also makes coordination a virtual impossibility under central planning: The planner can never secure and process all the necessary information to provide detailed guidance to any given development in society.