Prices Without Markets or Markets Without Prices? Insights for the Climate Debate from Friedrich Hayek

As far as I know, Friedrich Hayek, the Nobel Prize winning economist and philosopher, never wrote a word about climate change. He did, however, have strong ideas on the role of science in public policy that bear directly on the twenty-first century debate over climate change. Judging from what he wrote about the role of science in public policy and the use of knowledge in society, I think that if Hayek had lived on into the twenty-first century, he would have supported a carbon tax. Let me explain why, using his own words and ideas.

Two kinds of knowledge

Hayek famously drew a distinction between two kinds of knowledge. One is “knowledge of the particular circumstances of time and place.” The other is scientific knowledge.

By its nature, knowledge of time and place is widely distributed among individuals, each of whom sees only a small part of the whole picture. Scientific knowledge, in contrast, is less widely dispersed. As Hayek puts it in a 1945 article, “The Use of Knowledge in Society,”

… as far as scientific knowledge is concerned, a body of suitably chosen experts may be in the best position to command all the best knowledge available — although this is of course merely shifting the…