Thus far, we have identified and responded to three possible objections to Hayek’s conception of knowledge. Among other things, we have explored the “social construction” of knowledge (see here) and the “commodification” of knowledge (here), but we have not yet defined what we mean by “knowledge”. Here, I will conclude this series by presenting a specific conception of knowledge: knowledge as belief.
Where should we draw the line between knowledge and belief, between objective and subjective truth, and why does this distinction matter? (As an aside, philosophers, going back to Plato, have debated the knowledge-belief distinction for centuries; for reference, here is a helpful summary of the difference between knowledge and belief.) However this line is drawn, unless you are a Platonist knowledge is not always about truth or some Platonic ideal; sometimes knowledge is based on one’s beliefs, i.e. what one believes to be true, and beliefs (unlike absolute truths) are always tentative. Moreover, this “belief conception of knowledge” has radical implications for Hayek’s defense of the price system. In fact, it totally undermines Hayek’s argument! Let me explain:
For Hayek, prices reflect hidden information–information that is spread out over many dispersed individuals. But what if the price of an asset is based on people’s beliefs? In that case, if the price of an asset merely reflects the aggregate beliefs of people about what they think that good is worth, then the price of a particular asset may or may not reflect its true underlying value but rather what people think the asset is worth. So what? The problem here is that people might be basing their estimate of an asset’s value on what they think other people think the asset worth, and if those other people are doing the same, then we will find ourselves in an infinite loop or regress!
This is the “Keynesian beauty contest” or “beliefs about beliefs” problem that I have blogged about before (see here and here, for example), and to my mind, this potential infinite regress poses the most serious challenge–not only to my proposed “truth market” idea but also to Hayek’s defense of markets more generally. For now, I just want to shout out my colleague and friend David Schraub, who first brought this problem to my attention last month when I presented my truth market idea at a colloquium. (See also his thoughtful comments to my 17 November 2022 blog post (here).) Suffice it to say that this problem is a potentially devastating one to Hayek and me, so I promise to reflect further on David’s comments and respond soon …