Before The Sensory Order

Hayek studied psychology very early on and wrote an essay on the nature of consciousness and mind in 1920.Footnote ⁸ It prepared the ground for The Sensory Order and contributed to his critique of socialism (Vaughn, Reference Vaughn1994: 121n). However, Hayek did not have an understanding of tacit knowledge at that time, given the state of psychology (Caldwell, Reference Caldwell2004: 136–139).

Hayek, then, turned to economics for practical reasons. Until the mid 1930s, his work on psychology and cognition did not play a role in his work in economics. Apparently, Hayek was not aware of the radical implications of his views on psychology over economics.Footnote ⁹

Inarticulate knowledge, without any emphasis on the possibility of articulation, plays an important role in Hayek's thinking since his early writings on the role of knowledge in economic processes. His 1935 essay, ‘The Socialist Calculation II: The State of the Debate’ (Reference Hayek1948c), offers one of the first discussions of local knowledge and inference to inarticulate knowledge. Here, Hayek argues that no single person has all the knowledge necessary for economic calculation inside her head at any time, including practical ability to do things. He writes:

The phrase ‘techniques of thought’ gives the impression that Hayek had some practical ability in mind. However, it refers to techniques of production, which is a repertoire of alternative ways of doing things (Vaughn, Reference Vaughn1994: 53). Don Lavoie interprets ‘techniques of thought’ as knowing how, or skill (Lavoie, Reference Lavoie1985: 162; see also, Ioannides, Reference Ioannides2000). A similar concept is ‘relevant knowledge’ as Hayek used in ‘Economics and Knowledge’.

Two years later, in ‘Economics and Knowledge’ (Reference Hayek1948b), Hayek argues that dispersed knowledge is crucial in disequilibrium situations. This work brings up a new understanding of what economics is all about. Hayek claims that the dissemination of knowledge is central to economic phenomena. Economics is more than the pure logic of choice. His conception of ‘relevant knowledge’ refers to dispersed knowledge in the sense that different people have access to different bits of knowledge implicitly (p. 51). Hayek does not push forward the impossibility of articulation at this point.

This provides the ground for the achievement to spontaneous order. By the use of practical and ‘relevant’ knowledge, which also includes ‘skills’,Footnote ¹⁰ it becomes possible to reach equilibrium through disequilibrium processes. Spontaneous interactions of people in the society make adaptation into change possible. This kind of knowledge is local in its essence rather than ‘tacit’. Although Hayek refers to skills in a footnote (p. 51), he makes no use of it.

Hayek refers to subjective and dispersed knowledge of individuals with ‘relevant knowledge’ (Caldwell, Reference Caldwell2004: 213). It does not necessarily refer to non-conscious knowledge. Hayek states that individuals ‘possess’ or ‘acquire’ this knowledge and implies that an individual is consciously aware of this knowledge, even though it is dispersed and subjective (see particularly, pp. 52–53).

A more explicit discussion of ‘the knowledge of the particular circumstances of time and place’ takes place in the 1945 paper, ‘The Use of Knowledge in Society’ (Reference Hayek1948a). This essay shows that the success of the market comes from its effectiveness to bring private and local knowledge into use as opposed to scientific and propositional knowledge. The efficient use of the details of everyday economic life, or the knowledge of ‘the man on the spot’, makes the market system superior to any kind of planning. In his own words (Reference Hayek1948a: 80):

This passage, and many others in the text, refers to local, but essentially codifiable, knowledge. Hayek makes it clear that his intention is not to bring subjective knowledge under conscious and central control. He emphasizes the ability to make best use of dispersed knowledge, without distinguishing between local and tacit knowledge.

In a dynamic market environment, this kind of knowledge is too costly to profitably transform into information, but not impossible. Local knowledge does not necessarily have the connotations of ‘knowing one's way around’, or indwelling, which is valid for all knowers. Local and codifiable knowledge is also based on practical understanding of the situation. Hayek, here, explicitly argues that much of economic knowledge is embedded in practices, shared skills, institutions, and habits. Existing knowledge, thus, is not limited to statistical ‘data’. However, he does not say anything about the primacy of this knowledge. What Hayek has in mind is ‘dispersed’ knowledge, without any allusion to the role of consciousness. Dispersed knowledge can become part of skillful coping. It may become, as Hayek states, embedded in skills. Yet, it is different from skills. Hayek advances his analysis on inarticulate knowledge in The Counterrevolution of Science (Reference Hayek1952a). His distinction between social and individual knowledge refers to the domain of tacit knowledge, even though he does not explicitly refer to the concept yet. For example, he writes:

The Sensory Order

The Sensory Order includes Hayek's most elaborate discussion of non-conscious ways of knowing. Although published in 1952, it developed themes of a paper he wrote in 1920. This book shows the limitations of explicit knowledge and its dependency on tacit knowing, even though Hayek did not use these concepts.Footnote ¹¹

The book deals with the interpretation and constraints of knowledge. Knowing the world is a classification of sensory qualities by the mind. The way one knows the reality is based on the mind's abstraction. In Hayek's approach, mind's ability to organize its own activity, by following some abstract rules, refers to a mental order. One understands external reality through this construction. In this view, experiences are based on ‘a set of relations by which our nervous system classifies them’ (Hayek, Reference Hayek1952: 142).

Hayek uses a map-model structure to explain learning. Experience shapes the map. It is an active memory and represents the individual's past (Smith, Reference Smith and Frowen1997). However, the map does not provide any guidance to the future. Model refers to the current interpretation of the environment (Butos, Reference Butos, Keizer, Tieben and van Zijp1997: 228). The map-model framework appears to be similar to experience-based behavior models.

Hayek argues that one cannot state abstract rules of the mind explicitly. As one learns, a new interpretation of reality takes over the old one through reclassification. Both Polanyi and Hayek would accept that one's experience in the world shapes mind's classificatory structure. However, Polanyi does not follow the mind–body dichotomy. For Hayek, the rule-based structure enables one to act coherently in new situations. This is fundamentally different from the phenomenological account of skills.

Both Merleau-Ponty and Polanyi use skill-acquiring as a practical and tacit process (Polanyi, Reference Polanyi and Greene1969: 144; Merleau-Ponty, Reference Merleau-Ponty1962: 143). Like Polanyi, Merleau-Ponty argues that experience is not represented in the mind. The individual finds himself in different situations. Experience is a circular flow between the person and the world. He calls this an intentional arc. One does not take perceptions and then process them. Rather, things already have a perspective when they are received. This creates an intentional arc between the person and experienced reality.Footnote ¹² Rules no longer stay there as separately describable entities. Rather, the experience is holistic. It is part of being in the world. Hayek (Reference Hayek1952: 142) would put it as ‘perception is thus always interpretation, the placing of something into one of several classes of objects’. In a similar vein, Hayek has a model of how the mind works through the analysis of map and model.

Hayek's discussions are closer to Polanyi in some parts of The Sensory Order. The following, for example, is his rendering of ‘we can know more than we can tell’:

Hayek refers to this set of relations as ‘knowing how’, which may not be explicitly stated (p. 39). He is cautious about the domain of tacit knowledge at this point and prefers to use words like ‘probably’. Hayek accepts the ‘logical possibility’ of replicating brain's activities with a machine (Reference Hayek1952: 189). His reluctance to give evolutionary views a more prominent role reflects that he still has some belief in the possibility of ‘building of a machine fully reproducing the action of the brain and capable of predicting how the brain will act in different circumstances’ (Reference Hayek1952: 189). Hayek does not seem to give priority to unconscious experience against conscious action. They seem to be on the same level (e.g., 1952: 23–24). It is, in a sense, a two-part classification (Butos and McQuade, Reference Butos, McQuade, Birner, Garrouste and Aimar2002: 116).

This takes us to the distinction between two characteristics of tacit knowledge: inarticulability and pervasiveness. Since 1935, Hayek is expressly aware of the fundamental role of skills. The inarticulate nature of skills and local knowledge is central to his many arguments. However, the pervasiveness of tacit knowledge is new.

Toward the end, he explicitly states that:

This passage implies that our ability to know the external world is the result of some kind of tacit understanding of how the world works. It is impossible to state explicitly the classificatory rules that shape mind's activity. In a sense, ‘knowing that’ stems from ‘knowing how’, often called as ‘private knowledge’ (Butos and McQuade, Reference Butos, McQuade, Birner, Garrouste and Aimar2002; O'Driscoll and Rizzo, Reference O'Driscoll and Rizzo1996).

The Sensory Order reflects a shift in Hayek's thinking.Footnote ¹³ Philosophy begins to shape his thinking more extensively. The themes that permeates his later writings can be found in this least cited of Hayek's works. We begin to see Ryle and knowing-how in this book (e.g., pp. 19, 39).

It is very difficult to measure the ‘influence’ of Ryle and Polanyi on Hayek.Footnote ¹⁴ We also do not know to what extent Wittgenstein's texts were among the resources Hayek used in his explication of the tacit domain. Hayek did not go further in his analysis of practical knowledge, maybe because he, like Wittgenstein (Dreyfus, Reference Dreyfus1991: 7), saw practices as a ‘hopeless tangle’.

After The Sensory Order

The 1950s were the turning point in terms of Hayek's use of ‘tacit knowledge’.Footnote ¹⁵ He went to Chicago in 1950 and remained there until 1962. He gave seminars and wrote The Constitution of Liberty (Reference Hayek1960) there in the second half of the 1950s. An unpublished paper, ‘Within Systems and about Systems’, reflects the change in Hayek's thinking during his stay at Chicago. Hayek published some parts of the paper in ‘Degrees of Explanation’ (Hayek, Reference Hayek1967a). The concept of ‘evolution’ became more central to Hayek during this decade.

Around the same time, in 1951, the Committee on Social Thought at the University of Chicago offered a position to Michael Polanyi. However, he could not obtain a visa, and finally withdrew his application. While he gave lectures at the University of Chicago from time to time, he was not a full time researcher there.Footnote ¹⁶

Hayek makes tacit knowing part of his social theory in The Constitution of Liberty. He notes the transformation of his thinking in the 1950s in a letter to Chester Bernard (Caldwell, Reference Caldwell2004: 302n). The evolutionary view becomes more dominant in Hayek's thinking, and tacit knowledge, naturally, takes a more central place. In terms of the role of tacit knowledge, The Sensory Order shows the shift in Hayek's thinking and contains both traces of the old thinking and the beginning of a new understanding.

Hayek focuses on the important role of ‘ignorance’ in the advancement of civilization in The Constitution of Liberty. Hayek writes:

Later he offers a more explicit presentation of ‘knowing more than one can tell’:

Even when we accomplish a simply activity we implicitly use a huge amount of knowledge and this knowledge remains in the background. As the above quotation implies, Hayek's reference to unarticulated knowledge remains in the form of a different realm of knowledge.Footnote ¹⁷ We may not even know whether we have it; but still make use of it. We do not know the whole of knowledge that is necessary in order to do anything (p. 27). It is another realm of knowledge, like propositional knowledge. A good example of this is the knowledge of the expert. Hayek reminds us that what makes someone an expert is not the substantive and scientific knowledge, but the practical knowledge of skillfully using the right kind of information (Reference Hayek1960: 25).

In The Constitution of Liberty, Hayek makes a distinction among three kinds of knowledge: scientific knowledge, non-scientific explicit (localized) knowledge, and expert knowledge. He describes expert knowledge as ‘knowledge of where and how to find the needed information’ (p. 25). Hayek differentiates ‘conscious knowledge’ and expert knowledge, which includes ‘our habits and skills, our emotional attitudes, our tools and our institutions’. Conscious knowledge means, roughly, codified and codifiable knowledge (i.e., knowledge that can be transformed into information) and expert knowledge refers to tacit knowledge, without a distinction on the possibility of articulation.

The distinction between propositional and inarticulate knowledge becomes a central point of the discussion in his 1962 paper (Hayek, Reference Hayek1967) and later in Law, Legislation and Liberty (Reference Hayek1973).

Hayek offers one of the most detailed discussions of issues relevant to inarticulate knowledge in ‘Rules, Perception and Intelligibility’. Here, he defines ‘know-how’ in the following way:

A few pages later, he writes:

He seems to make a distinction between tacit knowing and knowing-how, but presents no explicit discussion of the distinction. Hayek does not use the concept of ‘tacit knowledge’ in the text. However, his discussion comes as close as possible to Polanyi in this paper.Footnote ¹⁸

In this paper, tacit dimension refers to a certain realm of phenomena that one knows how to deal with, but does not know what this realm is exactly. In the case of skills, we may not be able to state explicitly how we act. For example, a child can speak his native language flawlessly without any apparent knowledge of its grammar. He can even correct grammatical errors. Then, Hayek asks, why should we not be following social rules without knowing anything about the rules that we follow? This question takes us to the role of tacit knowledge in social coordination. Inarticulate rules not only help us follow formal rules, but also shape our perception of other people's actions. This means that the way we see the world is also rule-shaped. Having a non-conscious understanding of these rules, we can grasp the meaning of following a rule, and notice, intuitively or instinctually, when we see an irregular act.

Toward the end of the article, Hayek asks whether inarticulate rules always guide our mental activity. A positive answer shows the limitation of explicit knowledge in understanding the world (p. 60). He seems to accept this as reasonable, and potentially true. He argues that if we understand others because we share with them some unexplained common rules of understanding, then it means that we always know more than we can say. Any attempt to formalize these rules will necessarily presuppose a higher level of rules since explicit statements require some presupposed rules of conduct. This creates an infinite regress in explanation. Articulated knowledge becomes meaningful because of the unarticulated background.Footnote ¹⁹ Hayek, thus, brings in another dimension to the discussion of tacit knowing. As Polanyi puts it, ‘all knowledge is either tacit or embedded in tacit knowing’.

This takes us to Gödel's proof, which is a common theme in both Hayek and Polanyi.Footnote ²⁰ Hayek uses Gödel's theorem to show that since mind cannot contain itself, we cannot know our mind. This argument has implications for the role of rules. It also helps us to make a distinction between Hayek and Polanyi on the source of incompleteness of any mathematical statement. For Polanyi, understanding a statement, mathematical or verbal, requires pre-understanding and background knowledge. A tacit ‘interpretation’ gives its meaning to the statement. In Polanyi's terms, subsidiary awareness makes any formula understandable (Polanyi, Reference Polanyi1958: 94, 260). On the other hand, in Hayek's words:

While Polanyi (Reference Polanyi1958: 259) sees the fundamental place of ‘personal judgment’ on the formulation of any formal statement, Hayek remains short of attaching the personal dimension. He rather emphasizes the role of inarticulate or unconscious rules that govern the conscious and rational processes (Reference Hayek1967: 62). This seems to be a crucial difference between Hayek and Polanyi's renditions of tacit knowledge. In both cases, a tacit ‘component’ takes over the formal statement and makes it meaningful. Yet, their understanding of ‘tacit knowing’ remains at odds.

‘The Primacy of the Abstract’ is another place where we find a detailed discussion of inarticulate and explicit knowledge, although with a different accent. Here, Hayek argues that it is the mind that ‘possesses’ [the ability of] abstraction (Reference Hayek1978a: 37).Footnote ²¹ He mentions Ryle and Polanyi on the role of ‘mental factors which govern all our acting and thinking without being known to us, and which can be described only as abstract rules guiding without our knowledge’. Hayek seems to be in opposition to Polanyi here. For Polanyi, everyday world is the origin of explicit knowledge. By contrast, Hayek thinks that everyday world may entangle our understanding of abstract rules and abstract rules make our understanding of ‘concrete’ possible.

Hayek's late addendum (Reference Hayek1978) to his early essays on knowledge and competition presents an explicit discussion of local knowledge in the context of competition and discovery. For him, economic competition ‘is a method of discovering particular facts relevant to the achievement of specific, temporary purposes’. He later explains what he means by this kind of knowledge (p. 182):

‘The capacity to find out particular circumstances’ requires a unique combination of individual knowledge and skills. This capacity remains tacit most of the time (Reference Hayek1978: 182). Hayek does not refer to ‘tacit knowledge’ in this paper, except this brief mention. He takes it as an instrumental factor in the background and does not bring it to the forefront until Law, Legislation and Liberty, where he distinguishes orders and organizations in terms of the role of tacit knowing in their structure. Here, Hayek relates tacit knowledge and practical learning to the evolution of rules (Hayek, Reference Hayek1973: 17). In his words:

Hayek does not present a discussion of the possibility of articulation. Yet, he seems to accept the possibility of articulation, even though this is not necessary for social action. He makes a distinction between primitive and advanced societies, in terms of the nature of rules. While in the primitive society ‘inarticulate rules’ dominate, in the advanced society they are only part of the rules set (p. 19).

According to Hayek, human mind cannot control which aspects of the reality to be singled out. Non-rational abstraction, as he puts it, creates the environment where reasoning takes place. Therefore, articulate and codified knowledge is a product of practical understanding of the situation (pp. 30–1). Hayek pays particular attention not to imply psychological connotations about practical action and avoids using ‘intuition’.

In his last work (Fatal Conceit), this distinction shows itself. Here he writes (Reference Hayek and Bartley III1988: 78):

A clarification comes some pages later (Reference Hayek and Bartley III1988: 89):

Hayek thinks that it is not impossible to articulate tacit knowledge.Footnote ²² He takes a practical path and uses tacit knowledge in the sense of any inarticulate knowledge as opposed to articulated (or, codified) knowledge. This does not necessarily indicate the impossibility of codification. In this sense, Hayek does not take tacit knowledge as background knowledge and skills that shapes both ‘knowing how’ and ‘knowing that’.

In sum, Hayek refers to two different kinds of ‘practical knowledge’ in his early economic writings and later more philosophical works. On the one hand, he refers to non-tacit local knowledge, which is not primordial, as in the case of an entrepreneur's knowledge of some particular localities of the market, as ‘the man on the spot’. We may describe this kind of knowledge as subjectively held objective information. On the other hand, tacit knowledge resists articulation and is not subject to cost–benefit calculation. An entrepreneur's experience-based understanding of what distinguishes a profit opportunity from mere price differences is a good example of this kind of knowledge.

Non-tacit local knowledge can be a substitute for articulated knowledge. However, tacit knowledge is complementary to all other kinds of knowing, local or articulated. Without a primary understanding of the world, or indwelling, local or articulate knowledge would not be possible. Hayek comes to this conclusion gradually.

In earlier writings, before Polanyi's Personal Knowledge, Hayek’ sources were Ryle on the distinction between ‘knowing how’ and ‘knowing that’. After 1960, Hayek began to cite Polanyi in a larger context. Tacit knowledge became a central element of a liberal order for him. Inarticulate knowledge provided a reason why a liberal order is superior to alternatives. Moreover, a liberal order creates a ‘perfect’ environment for making use of tacit knowledge. Spontaneous order is a means and an end because of the dispersed and tacit nature of most knowledge that keeps a society together.