The Knowledge Problem
An Elaboration on Points Raised in the Game B Discussion
In both “Notes on ‘Game B: A Dark Renaissance Response w/ Alexander Bard, Cadell Last, Owen Cox, and Raven Connolly’ ” and “The Four Arrows,” I discussed Hayek and the need for a “system for coordinating resources,” which I associated with “the pricing mechanism.” You can find those two works here:
Notes on "Game B: A Dark Renaissance Response w/ Alexander Bard, Cadell Last, Owen Cox, and Raven…
An Initiation to Game B premiered at The Stoa on Jan 17, 2022, and since then has inspired widespread discussion and…
The Four Arrows
(Photo by Daria from TaskArmy.nl) Yesterday, I posted a collection of notes, thoughts, and fragments on "The Dark…
I argued that the greater “the scale” a new social system wants to be applied on, the more it will have to address the arguments of Hayek, though at the same time I tried to acknowledge that I see no reason why Game B cannot work on a small scale. Also, I think the efforts of Game B are justified given the fragility of Game A caused by its radical complexity, as Jim Rutt recently discussed at Parallax, even if ultimately Game B fails. But that is another topic for another time…
In this short work, I will elaborate on what is called “The Knowledge Problem,” which for me is a staggeringly powerful argument. Hayek’s thinking is based on “The Calculation Problem” of Ludwig von Mises, which Lacan on Medium was correct to say I shouldn’t conflate. Lacan also pointed out that “The Calculation Problem” is stronger than “The Knowledge Problem,” even if Hayek’s argument holds. I find this point Lacan made very compelling, and I appreciate his comment to correct my error. Also, it is clear that Daniel Schmachtenberger, who associates with Game B, is well aware of the arguments made in this piece, so please do not mistake me as thinking to articulate something entirely unknown or new.
New Economic Series: Part 3 - Daniel Schmachtenberger
Insofar as economics plays a role in coordinating collective human activity, it can be thought of as a type of…
What is the Knowledge Problem? Personally, I like how Dr. Thomas Sowell explains it in his wonderful Intellectuals and Society, and please note that Hayek’s argument suggests that it can be better for a society to do nothing than something. Given the mass complexity of a social order, a small change in the fabric of society could radically alter it in immeasurable ways. At the same time, by doing nothing, Jim Rutt makes a fair point that we may then be accepting our ultimate vulnerability to a “black swan”-event that potentially destroys our “complex society.” The counter to that might be that “the free market” could generate a solution if left alone, but then why couldn’t Game B potentially be the solution which “the free market” is generating? That’s certainly a possibly, especially considering that Mr. Rutt doesn’t want to establish Game B “top-down,” rather being more experimental and “bottom-up.” For this reason, I’m still open to learning from Game B.
Anyway, Dr. Sowell tells us that ‘[t]he most fundamental fact of economics, without which there would be no economics, is that what everybody wants always adds up to more than there is.’¹ Every economy is ‘an economy with limited resources and unlimited desires,’ and addressing this problem while at the same time not causing social unrest is incredibly difficult.² But Dr. Sowell tells us something else, which makes it seem impossible for this problem to be addressed: he claims that ‘it is doubtful whether the most knowledgeable person on earth has even one percent of the total knowledge on earth.’³ Every household consists of thousands of pieces of information that need to be accounted for so that the household operates smoothly — when the laundry needs to be done, what time the kids need to be taken to school, the family budget — as does every business, every enterprise — on and on. The amount of information which composes the world is unfathomable, and yet all of it must be addressed and organized by someone. How could this be possible? Is there any hope? Well, this is where “the pricing mechanism” plays a critical role, which for Dr. Sowell also places bounds and limits on what an Intellectual Class can position itself as capable of accomplishing and “planning” (a topic we will expand on in “The Fire of Learners” by O.G. Rose).
Dr. Sowell writes:
‘But if no one has even one percent of all the knowledge in a society — in the larger sense in which many different kinds of knowledge are consequential — then it is crucial that the other 99 percent of knowledge, scattered in small and individually unimpressive amounts among the population at large, be allow the freedom to be used in working out mutual accommodations among the people themselves.’⁴
If no one can ever know, let alone effectively organize, the total sum of information which makes up a society, then it is not possible for one person or group of people to effectively organize the actions of a society. Instead, the task must be “broken up” across the entire population, with each person being granted the freedom and sovereignty to make decisions in their own respected spheres. ‘Economics is about the pattern that emerges,’ Dr. Sowell tells us, and here he describes a pattern which emerges thanks to decentralization, a pattern for which no single person, group of people, or even large group of people (say a million) can be deemed responsible.⁵ Is this chaos? No, it ‘is a systemically determined outcome with a pattern,’ similar to what emerges in a garden or forest.⁶ It seems random and chaotic, but logic and reasons permeates it, just not a logic that can be understand simply or according to linear thinking (it is what I call “high order complexity,” as expanded on in “Experiencing Thinking” by O.G. Rose).
In every society, there are millions of pieces of data and information that must be effectively coordinated and accounted for each day, and the best way to address that problem, according to Hayek, is across millions of people, each of whom handle a very small percent of the information, relative to what they know and can understand. John at the local hardware store takes responsibility for ordering nails next week relative to the demand and needs of the town, while Sarah can decide what time the kids need to eat lunch based on when they nap. Countless examples could be made, but the point is that society makes millions of decisions every day, and each decision is made relative to what people “think is best,” which is relative to the information they have available to them (all of which suggests that “the highest probability” for a good outcome rests with them).⁷ Note also that people often don’t like making decisions and don’t like being responsible, a point stressed by many psychoanalytical thinkers like Freud and Erich Fromm (a point which can be associated with the Dark Renaissance rebuttal, I think), suggesting the need for a system of incentives and social pressures so that people actually make the decisions that they in their particularity are best suited to make. Also, if the whole sum of information in society is broken up into millions of different decisions, the existential weight of each one becomes much less and bearable (not that it will be easy).⁸
Dr. Sowell believes a conflated view of “intellectuals” contributes to the mistake of thinking that Central Planning can work, expressing mystification at the idea that ‘the transfer of decisions from those with personal experience and a stake in the outcome to those with neither can [generate optimal results].’⁹ Regarding social organization, he writes:
‘These innumerable interactions and mutual accommodations are what bring the other 99 percent of knowledge into play — and generate new knowledge in the process of back and forth bids and offers, reflecting changes in supply and demand.’¹⁰
Hayek’s argument orbits around the critical distinction between “abstract knowledge” (“special knowledge”) which can be known indirectly, generally, and universally from any circumstance and “particular knowledge” (“mundane knowledge”) which can only be known in particularity, the concrete, and through experience. Dr. Sowell stresses this distinction so that we grasp the radical need for a system like “the price mechanism” (and also in order to place intellectuals in their “proper bounds,” alluding to Kant); Dr. Sowell writes:
‘The difference between special knowledge and mundane knowledge is not simply incidental or semantic. Its social implications are very consequential. For example, it is far easier to concentrate power than to concentrate knowledge. That is why so much social engineering backfires and why so many despots have led their countries into disasters.’¹¹
If we take seriously that the majority of information which composes society cannot be known outside the particular situations in which that information is encountered, the very way we design society will be radically different.
A few more extensive quotations from Dr. Sowell, I think, will complete the overarching point of this work:
‘Given the greater cost of correcting surrogate decisions, compared to correcting individual decisions, and the greater cost of persisting in mistaken decisions by those making decisions for themselves, compared to the lower cost of making mistaken decisions for others, the economic success of market economies is hardly surprising and neither are the counterproductive and often disastrous results of various forms of social engineering.’¹²
‘Where knowledge is conceived of as Hayek conceived of it, to include knowledge unarticulated even to ourselves, but expressed in our individual habits and social customs, then the transmission of such knowledge from millions of people to be concentrated in surrogate decision-makers becomes very problematic, if not impossible, since many of those operating with such knowledge have not fully articulated such knowledge even to themselves, and so can hardly transmit it to others, even if they might wish to.’¹³
‘For broader social decision-making […] experts are no substitute for systemic processes with engage innumerable factors on which no given individual can possibly be expert, and engage the 99 percent of consequential knowledge scattered in fragments among the population at large and coordinated systemically during the process of their mutual accommodations to one another’s demand and supply.’¹⁴
Dr. Thomas Sowell is a genius, and his elaborations on the thinking of Hayek invaluable. Basically, this short work was simply an excuse to quote Dr. Sowell at length, for I think he is masterful at articulating “The Knowledge Problem.”
Would the Knowledge Problem vanish if Capitalism was effaced? I’ve heard this argument, that the Knowledge Problem is only unsolvable in Capitalism, but if there was no Capitalism, there would be no Knowledge Problem. And sure, I’m not saying that humanity requires Capitalism to survive — for countless years, humanity got on by without it, after all — but the point Hayek and Sowell are making is that without “the pricing system,” our overall quality of life will decline profoundly. Technological innovation will lessen, leisure will become rarer — the consequences will be incalculable. If we don’t believe this, I would submit readers to the work of Deirdre McCloskey, where she makes a very compelling case that free markets were the main causers of our rapid increase in technological innovation.
There is strong reason to believe that removing Capitalism to remove the Knowledge Problem would solve “the formulation” of the problems presented to us by material and social realities themselves, but it would not solve those problems themselves. The moon is there even if no one is looking at it; the problems articulated by Hayek would exist even if Hayek was never born. For this reason, we must face the problem, not try to remove its articulation from our hopes and dreams.
As stressed in “The Four Arrows,” the severity of the Knowledge Problem is relative to “the scale” of the system in question, and on small enough of a scale the problem doesn’t arise. For this reason, if Game B remains small, it will not need to worry about the Knowledge Problem, which I will note that the solving of which is a prime reason for the existence of Game A (which has grown out of “the pricing system,” creation of the supply chain, establishment of incentives for people to work and manage the supply chain, and the like, all while managing and “directing to constructive ends” the pathologies of human beings). At the same time, the efforts of Game B, I think, are justified, given the fragility of our complex system due to its complexity, as discussed by Jim Rutt. That too is another topic for another time, one I hope to write on, but for now we will bring this elaboration on the Knowledge Problem to a close.
¹Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 46.
²Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 47.
³Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 15.
⁴Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 16.
⁵Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 51.
⁶Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 49.
⁷Even if it was somehow possible for a single organization to practically make these decisions, the likelihood they would do it effectively is very low. Also, if millions of people in their own lives want to use tools like computers to help them make decisions, that is very different from there being a single computer system in D.C. that makes all the decisions for everyone. Even if “the centralized computer system worked,” which I highly doubt since someone must program the system (or else we let the computer program itself, which seems dangerous), the public would likely experience the system as totalitarian. Even if the system always made good decisions, the public couldn’t “know” the system always made good decisions, and so there would be room for existential anxiety which could cause havoc. When people make decisions for themselves, they can at least be confident in the intentions behind them, thus making the decisions easier to live with. In a world where computers made all the decisions, even good decisions may alienate us.
⁸Another reason “centralized decision making” doesn’t work is because the responsibility simply becomes too great, suggesting why some Central Planners are interested in using computers to do the job. But that is another topic for another time…
⁹Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 17.
¹⁰Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 16.
¹¹Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 17.
¹²Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 17.
¹³Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 17–18.
¹⁴Sowell, Thomas. Intellectuals and Society. New York, NY: Basic Books, 2009: 24.