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The Use of Knowledge in the Modern World

Friedrich Hayek, an influential figure in the world of economics, wrote a paper describing the
mistaken use of knowledge in society and therefore the reason a planned economy could never work.
In his paper, he argues that society has an issue of rational economic organization and that there are
systematic errors in the methodologies to collect data for a central entity to produce economic
policies. He argued that knowledge in society was dispersed as bits of information across many
individual actors and that it consequently could never be in its totality. Trying to gather a concentrated
form of this knowledge would therefore be prone to erroneous transfer due to the social phenomena
created by human nature. Gathering this knowledge for a central authority would in itself isolate the
initial problem due to the small fluctuations that would be simplified. Because of the lack of
technology to gather all knowledge equally, he believed that decentralizing decision making would
leave all the communication needed to the marvel of price mechanism. However, given today’s day
and age --accompanied by the massive technological improvements-- has this theory changed? This
essay will focus on the possibility of a government to plan supply chains for the agricultural sector.

The advantage that society today has over the society that Hayek writes about --almost 80
years ago-- is the sheer improvement in technology available. Today, machine learning (ML) and
artificial intelligence (AI) use absurd amounts of data to properly predict better than any method
developed beforehand. In addition to this, agricultural industries are capturing more data than ever; on
agronomy, weather, logistics, market price volatility, crop and soil monitoring, disease and fertility
control with an increase in data storage capacity and decrease in storage cost (Denis N. 2020). This
creates a perfect environment for data analysis, and with an increase in computational power, sees
companies use ‘digital twins’, which simulate a company’s real life supply chain, and where
parameters can be adjusted and simulations can be run to predict the demand given different scenarios
(De Clercq, 2020). Digital twins replace Hayek’s marvel, because with enough data and time, ML will
perfect the flow of information and automatically communicate all necessary information to an
individual to make the best decision for themselves. The data collected will adjust the real-time
parameters of the digital twins and answer the supply chain issues through price. It solves the issue of
dispersed knowledge by taking into account the place, time and circumstance at all moments with the
data collected; not available during Hayek’s time.

Although realistic and in-use, there are 2 major assumptions that limit the scope of usage on
data analysis in agriculture. First, is an assumption of connectivity. ML can use data of crop area,
production, land use, irrigation, agricultural prices, weather forecasts, and crop diseases to produce
and plan for demand and supply spikes, but this cannot happen in the absence of technologies like 5G,
LPWAN, or satellite-based communication (Singh 2022). This shows a tremendous obstacle in nations
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that cannot support such advanced technology, to the point where even in the United States, only
one-quarter of the total farm area uses connected devices for accessing such data (Singh 2022).

Secondly, the use of AI in the agricultural industry only really solves supply side
imperfections. The ML simulations assume that demand responds only to the parameters in the model,
which are all metrics collected from suppliers (crop yields, soil, weather etc.), and so a shift in
demand caused by external factors not measurable cannot be taken into account. Data can only be
collected by measurable metrics (e.g. soil moisture) or accurate predictions (e.g. weather), but factors
like human influence and irrational thought are difficult to predict (e.g. a diet becomes trendy on
social media and a good never demanded becomes viral and explodes demand). This comes back to
Hayek’s idea that scientific knowledge is not a sum of all knowledge; that AI and ML have only
evolved to understand the place, time and circumstance of data collected, but not the knowledge of a
particular circumstance, time and place that each unique individual possesses (Hayek 1945).

To conclude, I would argue that the improvements in technology have allowed a closer
possibility to plan the supply chain of an industry such as agriculture, but majoritarily on the supply
side; and lacks the ability to plan the demand side of this supply chain due to the circumstantial nature
of human decision making. As Hayek, I believe that scientific knowledge has not progressed enough
to encompass all knowledge, and that we therefore need human communication through the means of
price mechanism for an economy to work most efficiently; which cannot support a planned supply and
demand for agriculture.

Word Count: 764

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Reference List

De Clercq, D. (2022, July 4). How advanced analytics can address agricultural supply chain shocks.

McKinsey & Company. Retrieved September 18, 2022, from

https://www.mckinsey.com/industries/agriculture/our-insights/how-advanced-analytics-can-ad

dress-agricultural-supply-chain-shocks

Denis, N., Dilda, V., Kalouche, R., & Sabah, R. (2020, October 15). Agriculture supply-chain

optimization and Value Creation. McKinsey & Company. Retrieved September 18, 2022,

from

https://www.mckinsey.com/industries/agriculture/our-insights/agriculture-supply-chain-optimi

zation-and-value-creation

Hayek, F. A. (1945). The use of knowledge in society. The American economic review, 35(4),

519-530.

Singh, S. (2022, August 31). How technology advancements are continuing to transform the

Agriculture Industry. Appinventiv. Retrieved September 18, 2022, from

https://appinventiv.com/blog/technological-advancements-in-agriculture/