The Knowledge Society…

The Network Topology of Knowledge

“The current state of knowledge is a moment in history, changing just as rapidly as the state of knowledge in the past has ever changed and, in many instances, more rapidly”…

- Jean Piaget

“The basic economic resource — the means of production — is no longer capital, nor natural resources nor labour.

It is and will be knowledge”…

- Peter Drucker

In September 1945, Austrian-born Economist Friedrich Hayek[1] wrote several articles for The American Economic Review[2] in response to Polish Economist Oskar Lange[3] and his endorsement of a planned economy[4].

Hayek[5], during his childhood, had been deeply affected by his experience of the First World War and the turbulent decades that followed[6].

The impression was shaped by the increasing economic volatility[6] and instability arising from economic & political policy decisions starkly outlined in UK Historian and Academic Niall Ferguson’s Magnus opus The War of the World[6].

His decision to become an Economist and Social & Political Philosopher [5] emerged from these formative years and the tragedies[6] that unfolded during the first half of the 20th Century.

“We shall not grow wiser before we learn that much that we have done was very foolish”…

-Friedrich Hayek

Hayek recognised the complexity and uncertainty of the Material World we inhabit and the innate nature of our Human Condition.

Illuminating the limitations of a technocratic [7] bureaucratic intervention in complex & adaptive systems such as the Economy and Financial Markets.

“The quest for precision is analogous for the quest for certainty, and both should be abandoned”…

-Karl Popper

The Road to Serfdom[8], written in the early 1940s, highlighted the perils of such an approach — the idea that we could somehow view the Economy as a mechanical clock or machine from the Industrial Age where levers, pulleys, and cogs could be precisely adjusted[9][10] and optimised to drive and manufacture future prosperity.

The notion of a planned economy[8] colliding with all the emergent complexity & unpredictability of the Material World.

His Economic, Political & Social Theories were a return to a classical form of Liberalism.

Combining the liberal ideas of leading thinkers such as Hume[11] and Hobbes[12]pragmatismmaterialism naturalism, and the economic principles enunciated by 17th Century Economist Adam Smith[13] in his book — The Wealth of Nations[14].

The “invisible hand” of self-interest & personal agency, free trade, and the division of labour.

An unsentimental form of liberalism[14a].

The two articles written in 1945 for The American Economic Review[2] were anchored in this social, political, and economic philosophy but also extended the frontiers of liberal thought.

Exploring the nature of knowledge, human interactions & agency in solving problems[15], and re-imagining possible futures — forms of Innovation — in navigating a complex Material World.

He highlighted the role of knowledge as a fundamental concept that shapes and evolves an Economy.

A Knowledge Society[16].

“Work has always been the same and always will be: working means finding solutions to other people’s problems. What changes over time is the kind of problems to be solved and the way in which we solve them”…

- Esko Kilpi

New Knowledge

In “The Meaning of Competition”[17], he outlines how competition — a moving force of economic life — is anchored in the discovery of knowledge — forms of sensemaking [18] — that reveal information about cost, Innovation, and market preferences.

“Work starts from problems, and learning starts from questions.

Work is creating value, and learning is creating knowledge”…

- Esko Kilpi

This fresh perspective was supported through a completely different prism of Reality some three years later, in 1948 when US American mathematician, cryptographer, and electrical engineer Claude Shannon[19] published his Mathematical Theory of Communication[20].

A document that gave rise to Information Theory[19][20] and the subsequent birth and explosion of a Digital & Information Age.

Information was now measured and quantified by shifts in entropy[21] — or stated differently — information was essential in mitigating uncertainty in an emergent complex Material World.

Hayek intuitively understood the role that new information & knowledge played in an ever-changing fitness landscape[22] of the Economy — its pivotal role in shaping and driving competition.

Knowledge is applied in a bifocal[23] capacity by Organisations to optimise and to innovate, solve problems, and satisfy jobs to be done[24].

Sustainable and disruptive[25] forms of Innovation.

“Knowledge has to be improved, challenged, and increased constantly, or it vanishes”…

-Peter Drucker

The use of Knowledge in Society

In his second article — The Use of Knowledge in Society [26]Hayek’s views the Economy through the lens of an ever-evolving dynamic complex system.

The organic nature of market fluctuations highlights the self-adjusting [27] nature of the market price mechanism (as opposed to the Central Pricing Board advocated by Lange).

He also highlighted how a centrally planned economy could never match the resource allocation of an efficient open market given the nature of knowledge and information.

No single agent was able to synthesise a complete full picture of the Economy.

In other words, what was known by a single participant in the Economy was a small fraction of the total emergent nature of knowledge held by all members of Society.

Hayek begins the article with a simple question and a starting assumption that views the Economy as a closed ergodic system — where all possible future states could be determined — and — where risk could be quantified and predicted.

An imaginary fictional world of simplicity, certainty, and knowing.

A state of HyperNormalisation[28].

“What is the problem we wish to solve when we try to construct a rational economic order?

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.”

He then builds on this perspective by removing a key initial assumption by recognising the Economy is Non-Ergodic[29][30] — The Adjacent Possible, Knightian Uncertainty and the emergent nature of the Economy.

The Limits of Logic.

“not the economic problem which society faces. And the economic calculus which we have developed to solve this logical problem, though an important step toward the solution of the economic problem of society, does not yet provide an answer to it. 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.

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. The economic problem of society is thus not merely a problem of how to allocate “given” resources — if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilisation of knowledge that is not given to anyone in its totality.

This character of the fundamental problem has, I am afraid, been obscured rather than illuminated by many of the recent refinements of economic theory, particularly by many of the uses made of mathematics.”

The knowledge sits across the topology of the network.

Highlighting the need to harness Collective Intelligence[34] across Society.

A heterodoxy[35] bringing together a diversity of perspectives and the Wisdom of the Crowds[31].

In so many ways, Hayek’s observations in both of these articles were prescient in illuminating what was to follow — the emergence of Cybernetics & Complexity Science, the recognition that there were as many Clouds as Clocks[32] in our World, the birth of the Digital & Information Age, the relevance of Information Theory in making sense of Reality, the increasing importance of Innovation & Entrepreneurship, recognising that Organisations require Bifocal skills and a capacity to embrace change, highlighting the importance of new knowledge and beginning to re-position the Economy as a non-ergodic complex system of interrelationships and interdependencies rather than a discrete mechanical system of the Industrial Age.

A Theory of Spontaneous Order [33 ].

Will, we re-imagine the nature of Organisations and the Economy in the 21st Century?

Embracing Innovation, coordination, collaboration, problem-solving, cognitive diversity, open inquiry, epistemological humility, curiosity, creativity, and harnessing our Collective Intelligence[33].

A Society as patterns of relationships between living things.

An unfolding ecological complex dynamic system.

Footnotes:

[ 1 ] — Friedrich Hayek — friedrich-hayek

[2] American Economic Review — https://www.aeaweb.org/journals/aer

[3]Oscar Lange — https://www.econlib.org/library/Enc/bios/Lange.html

[4] Viktor Shvets On Why There’s No Going Back To Pre-COVID Capitalism — https://podcasts.apple.com/gb/podcast/viktor-shvets-on-why-theres-no-going-back-to-pre-covid/id1056200096?i=1000487280601

[5] Hayek and 20th Century Economic Thought — hayek_and_20th.html

[6] The War of the World — https://www.nytimes.com/2006/11/12/books/review/Montefiore.t.html

[7] A Modern Utopia — https://www.penguin.com.au/books/a-modern-utopia-9780141441122 — and — The limits of the Scientific Revolution and the end of Technocracy… — https://richardschutte.medium.com/the-limits-of-the-scientific-revolution-and-the-end-of-technocracy-e561408dc854 — and — Synthesis… — the-synthesis-of-two-cultures-90989cfb462e

[8] The Road to Serfdom — http://www.amazon.com/Road-Serfdom-Documents-Definitive-Collected/dp/0226320553/ref=sr_1_1?ie=UTF8&s=books&qid=1243613562&sr=1-1 — and — A new Road to Serfdom — https://www.epsilontheory.com/a-new-road-to-serfdom/

[9] What happens when Economics doesn’t reflect the Real World — https://www.youtube.com/watch?v=qIlhSSL3gbY

[10] Neo-Classical Economics — https://corporatefinanceinstitute.com/resources/knowledge/economics/neoclassical-economics/

[11] David Hume — https://plato.stanford.edu/entries/hume/

[12] Thomas Hobbes — hobbes

[13] Adam Smith — https://plato.stanford.edu/entries/smith-moral-political/

[14] The Wealth of Nations —https://www.adamsmith.org/the-wealth-of-nations

[14a] Unsentimental Liberalism — https://link.springer.com/chapter/10.1057%2F9781137354365_2

[15] What Clayton Christensen Taught Me — https://hbr.org/2020/01/what-clayton-christensen-taught-me

[16] The Knowledge Society — http://archive.wilsonquarterly.com/essays/rise-knowledge-society-0

[17] The Meaning of Competition — https://www.researchgate.net/publication/304887939_The_meaning_of_competition

[18]The Overlooked Key to Leading Through Chaos — https://sloanreview.mit.edu/article/the-overlooked-key-to-leading-through-chaos/

[19] Claude Shannon — How Claude Shannon Invented the Future — https://www.quantamagazine.org/how-claude-shannons-information-theory-invented-the-future-20201222/

[20] A Mathematical Theory of Communication — https://people.math.harvard.edu/~ctm/home/text/others/shannon/entropy/entropy.pdf

[21] Entropy — How Life (and Death) Spring From Disorder — https://www.quantamagazine.org/how-life-and-death-spring-from-disorder-20170126/

[22] Fitness Landscape — https://www.edge.org/response-detail/11843

[23] Organisational Ambidexterity — https://www.london.edu/think/organisational-ambidexterity

[24] Job to be done — https://hbr.org/2016/09/know-your-customers-jobs-to-be-done

[25] Disruptive Innovation — https://hbr.org/2015/12/what-is-disruptive-innovation

[26] The use of Knowledge in Society — https://www.econlib.org/library/Essays/hykKnw.html

[27] Price Discovery — https://en.wikipedia.org/wiki/Price_discovery

[28] HyperNormalisation — https://en.wikipedia.org/wiki/HyperNormalisation

[29] Non -Ergodic — https://www.edge.org/response-detail/27104

[30] Ergodicity — Ole Peters— https://josephnoelwalker.com/136-ergodicity/

[31] The Wisdom of the Crowds — https://www.penguinrandomhouse.com/books/175380/the-wisdom-of-crowds-by-james-surowiecki/

[32] Clouds & Clocks — https://richardschutte.medium.com/clocks-and-clouds-2889c9586ce3

[33 ] — The Theory of Spontaneous Order — https://www.econlib.org/library/Essays/LtrLbrty/bryTSO.html

[34] The emergence of Collective Intelligence — https://richardschutte.medium.com/the-emergence-of-collective-intelligence-1bd3f2e7a7c4

[35] Heterodoxy Academy — https://heterodoxacademy.org

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Innovation, Intrapreneurship, Entrepreneurship, Complexity, Leadership & Community Twitter: @complexityvoid

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