Ikeda, Sanford. “Urban interventionism and local knowledge,” Review
of Austrian Economics, 17(2/3), 2004, forthcoming.
In this paper I argue that not only do government interventions tend
to compromise the knowledge-utilizing properties of the price system,
they also impinge directly and in important ways on local knowledge,
or “knowledge of the particular circumstances of time and place” (Hayek
1948: 80). This local knowledge includes norms and trust levels that
promote impersonal market interactions and complement more familiar
forms of production-related skills and know-how. Thus, along with
the well-known Hayekian lesson that the effective use of local knowledge
depends on an extensively used and well-functioning price system,
it is equally important to appreciate the reverse: i.e., the role
of certain kinds of local knowledge in enabling the extensive use
and smooth functioning of the price system to occur. In this way,
interventionism can diminish the price system’s effectiveness
not only by directly distorting relative prices, but also indirectly
by undermining local knowledge. As is generally true of interventionism,
these consequences tend to reinforce the interventionist propensities
of public choosers.
Keywords: Dynamics on interventionism, Austrian political economy, public choice
