Thomas Sowell hits a home run with Knowledge and Decisions. Although slightly dated (e.g., USSR), the book is presented in a principled manner. Well worth the time!

I'd pay a lot to get his personal commentary on current events.

This was chewable. Now I just wish I had someone to discuss it with---because we do disagree sometimes and dissecting the studies, the measures, my own and his potential bias is usually a catalyst for understanding a bit more where I might be wrong and where I'm still right. The last chapter, in particular, seemed quite prophetic. It is badly in need of an update, though.

I'm having some trouble judging this in the sense that with my love of EconTalk, I'm already so familiar with the paradigm of prices as information and the other ideas from The Use of Knowledge in Society that I'm already very much on Sowell's wavelength. It's interesting how topical this book seems, given that it was published almost 40 years ago.

With these caveats out of the way, I'd definitely recommend reading this book. Sowell does a great job of explaining in a common-sense way about why who chooses rather than what is chosen is often the right way to think about things. There were some things in here that I'm not sure I 100% agreed with Sowell on, and I am generally suspicious of most social science research, but if anything the high quality of his reasoning has made me question the source of my disagreement rather than dismissing Sowell as some sort of an intellectual sucker.

I will say it is fortuitious that I've moved on so quickly to n  The Blank Slaten, as the books pair well together. Both deal with the undercurrent of anathema topics and research results that is rampant among anything determined to be politically relevant (race, psychology, biology, etc). I find across the entire political and ideological spectrum, there is a disturbing trend of "thoughts that must not be thought" and the idea of "dangerous research topics". It seems that both Sowell and Pinker have the same concerns.

A great book for an undistorted and rigorous account of the importance of markets and their analogues in the legal and political fields. The book's central thesis - that knowledge is costly, argues forcefully the importance of economising on knowledge so that it may be used most effectively and ultimately aims to show how interference in transactions that are normally left free to respond to supply and demand will result in misallocations of scarce resources (with knowledge itself being among those scarce resources). Many critics against the free-market and decentralised decision making in general either attack strawmen or try to moralise what is inherently amoral. Those critics would do well to read this book.

Thomas Sowell has great insights into how people, companies and governments operate and how incentives, the cost of knowledge affect how decisions are made.

Interesting Quotes:

"What then is the intellectual advantage of civilization over primitive savagery? It is not necessarily that each civilized man has more knowledge but that he *requires* far *less.* A primitive savage must be able to produce a wide variety of goods and services for himself, and a primitive community must repeatedly duplicate his knowledge and experience in innumerable contemporaries. By contrast, the civilized accountant or electronics expert, etc., need know little beyond his accounting or electronics. Food reaches his local supermarket through processes of which he is probably ignorant, it not misinformed . . . A primitive savage could never survive knowing so little about the production and use of spears, grass huts, or with such utter naivete about which berries are poisonous, which snakes dangerous, or the ways and means of coexistence in the same jungle with the lions, tigers, and gorillas.

"Civilization is an enormous device for economizing on knowledge. The time and effort (including costly mistakes) necessary to acquire knowledge are minimized through specialization, which is to say through drastic limitations on the amount of duplication of knowledge among the members of society."

-Thomas Sowell, Knowledge and Decisions

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"Agriculture has its general principles and statistics, but agricultural production involves much highly specific knowledge about the characteristics and contours of particular plots of land, and about the freshness, flavor, and keeping qualities of specific batches of fruits, vegetables, and dairy products - all of which are changing by the hour. No expert can say from 100 miles away, and sight unseen, that this year's grape crop is good, or even that last week's good grapes are still good this week. By contrast, an expert on the manufacture of steel can specify the exact quality of steel that can be produced by given combinations of iron ore and coal at given temperatures. For these reasons, steel production has been successfully centrally planned and controlled in various countries, whereas agricultural production has had such chronic problems and periodic disasters in centrally planned economic systems that even the most centralized communist governments have had to make major exceptions in agriculture, allowing decentralized decision-making of various sorts."

-Thomas Sowell, Knowledge and Decisions

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"The transaction costs of choosing a new emperor of the Roman Empire often included tens of thousands of lives and the destruction of whole cities and surrounding countrysides in battles among contenders. The devotion of many rational and public-spirited men of later times to the principle of royal succession, which might seem at first to be only an irrational special privilege, is more easily understood against an historical background of astronomical transactions costs in choosing national leaders. Even one who felt that a given king (or kings in general) had only average intelligence, or even somewhat below average intelligence, might still reasonably choose to bear with royal succession if he felt that the likely differences in leadership were not worth the carnage involved in alternative political processes available at the time."

-Thomas Sowell, Knowledge and Decisions

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"Much of the Marxian *tableau* (and related social visions) depend, in a crucial way, on analyzing in retrospect only surviving and successful businesses. In this approach, the whole market process - risks, estimates, consumer validation, etc. - all evaporates, while the analysis concentrates on selected results in terms of theoretical examples of survivors. Because firms can survive only insofar as prices cover costs, this vision of survivors-only can proceed as if it is axiomatic that prices are somehow automatically suspended above costs, with the gap between them containing a profit to be siphoned off by those who happen to hold the legal title to the means of production - this arbitrary title being the economic cause as well as the institutional mechanism behind their proceeds. To generalize about any group from the experience of its successful survivors alone is often to miss the whole point of the process in which the group as a whole is involved. Using such an approach, one could, for example, prove that no one was killed in World War II.

"Where such a vision of the market economy proceeds empirically rather than theoretically, it can appear plausible only for relatively brief historical periods. The great successes of one era tend to disappear into oblivion in subsequent eras - witness Life magazine, the Graflex Corporation, and W.T. Grant, all of whom were once giants dominating their respective fields. The disappearance of these once dominating enterprises within the past generation is part of a longer history of such disappearances. Virtually none of the top industrial giants of a hundred years ago are still with us today. Such disappearances are perfectly understandable in a vision of a risky process of estimation and subsequent validation. They are hard to explain in a vision of prices mysteriously suspended above costs for the convenience of 'capitalists.' "

-Thomas Sowell, Knowledge and Decisions

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"Perhaps the most widespread misunderstanding in economics is that it applies solely to financial transactions. Frequently this leads to statements that 'there are noneconomic values' to consider. There are, of course, noneconomic value. Indeed, there are *only* noneconomic values. Economics is not a value itself but merely a method of trading off one value against another. If statements about 'noneconomic values' (or, more specifically, 'social values' or 'human values') are meant to deny the inherent reality of trade-offs, or to exempt some particular value from trade-off process, then such propositions need to be made explicit and confronted. Dedication to high and selfless ideals can be no more effectively demonstrated than by trading off financial gains in the interest of such ideals. This is an economic trade-off."

-Thomas Sowell, Knowledge and Decisions

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"From the point of view of career criminals, there is some optimal quantity of violence associated with economic crimes, such as robbery. With zero violence and zero threat of violence, no one would turn over his economic assets to the criminal. But beyond some point, violence causes public outcries which bring more police power to bear in a given sector, reducing crime opportunity for other criminals as well as for the one who committed some 'senseless' violence against an economic crime victim. Where each criminal is a separate decision-making unit, these external costs of his crime have no deterrent effect on his conduct. When crime is organized into larger units, however, these larger units have an incentive to minimize public outcry per unit of economic crime, which usually means reducing the amount of 'senseless' violence against the victims. In short, with organized crimes . . . internalizing the external costs created by individuals means greater social control and greater responsiveness to public reactions which might safely be ignored by an individual malefactor whose identity was unknown to authorities or whose guilt would be difficult to establish through formal legal processes. In both cases, the source of this greater control is the lower cost of knowledge by those with whom he is closely associated. The relative abandon with which organized rime figures kill each other only reinforces the point; there is little or no public outcry at the death of a mobster."

-Knowledge and Decision, Thomas Sowell

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"Choice through the ballot box has often been equated with choice through the market. But inherent constraints mean that democratic governments have no wider array of options to offer than anyone else - regardless of what options many may believe to exist - and that one crucial difference between ballots and prices is that prices convey effective knowledge of inherent constraints, while ballots do not. If I desire a Rolls Royce and simultaneously a normal standard of living, the price tag on the automobile immediately informs, convinces, and virtually coerces me to the conclusion that these two things are inconsistent. But if I believe simultaneously in a large military arsenal, low taxes, a balanced budget, and massive social programs, there are no constraints on my voting that way. Some time after a voting decision, it may become apparent that what was asked or promised did not in fact materialize, but this can easily be blamed on the dishonesty of political candidates, with no greater public awareness that the set of options simultaneously desired was inherently unrealizable from the outset. Instead of feedback to the voters to reduce their desired set of options to what is simultaneously realizable, the message may be to choose different persons as leaders, or different ideologies, movements, etc., in order to continue pursuing the same set of options. Indeed, when social progress is viewed retrospectively, it is often regarded as axiomatically attributable to such insistence on better things, rather than to technological and organizational advances over time which create wider arrays of options from which to choose. It is as if the historic increase in the Gross National Product was incidental to the rising living standard caused by political activity."

-Thomas Sowell, Knowledge and Decisions

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"Specific governmental organizations do not simply administer to some generalized well-being of the public, as various social or economic units are free to do. That is, nongovernmental units are usually free to determine their own respective degrees of specialization, and to change these over time as they see fit. Wells Fargo used to run the 'pony express,' but now they have abandoned this and conduct more or less conventional banking activities instead. A baby food manufacturer may diversify its activities to include life insurance, and a bowling equipment manufacturer can produce motor vehicles as well. A typical mother changes her whole routine and role several times as a child proceeds from infancy to adulthood. By contrast, a governmental agency has a specific set of assigned activities to pursue, rather than a general goal to maximize, such as profit making or family well-being. Governmental agencies are generally authorized to carry on *processes* rather than to achieve *results.* If the postal officials were to become convinced that communications could be vastly improved by a large-scale shift from the use of letters to the use of telephones, telegraph, and various forms of person-to-person radios, it would still have no authority to use the money at its disposal to subsidize these latter activities instead of carrying the mail. If there were a government baby food producing agency, it could not decide on its own that a point had been reached at which some of its money should be incrementally redirected toward life insurance, as Gerbers has done; a government photographic agency could not decide to produce raincoats, as Eastman Kodak has done . . .

"A nongovernmental organizations, such as the March of Dimes, could - as it did, after conquering polio - turn its attention to other serious diseases, but if it had a government mandate strictly limited to polio, it would have little choice but to continue into such activities as writing the history of polio, collecting old polio posters, etc., while children were still dying from birth defects or other maladies. The point here is not that the leaders of the March of Dimes were either more intelligent or morally superior to the leaders of the government agencies. The point is that a non-governmental organization subject to feedback from donors or customers has incentives and constraints that lead to institutional decisions more attuned to rational social trade-offs."

-Thomas Sowell, Knowledge and Decisions

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"One of the more dramatic recent examples of the effect of forcibly keeping prices below the market level has been the so-called 'gasoline crisis' of 1979. Because of the complexities in long-standing government regulations controlling the price of gasoline, their full effects began to be felt in the spring of 1979. As in the case of rent control, the effects were *not* primarily on the quantity of the physically defined product - gallons of gasoline in this case - but on the auxiliary services not articulated in the law. Just as rent control tends to reduce such auxiliary services as maintenance, heat, and hot water, so controlling the price of gasoline reduced such auxiliary services as hours of service at filling stations, credit card acceptance, and checking under the hood. Indeed, what was called a 'gasoline shortage' was *primarily* a shortage of hours of services at filling stations, and the traumatic effects of this indicate that unarticulated aspects of the physically defined product are by no means incidental. In New York City, for example, the average filling station was open 110 hours a week in September 1978 and only 27 hours a week in June 1979. The actual amount of gasoline pumped declined only a few percentage points, while the hours of service decline 75 percent. That is, filling stations tried to recoup the losses from price control by reducing the man-hours of labor they paid for, while the motorists' losses of man-hours waiting in gasoline lines went up by many times what the filling stations had saved. Moreover, the motorists suffered from increased risks in planning long distance trips, given the unpredictability of filling station hours en route. This prospective psychic loss to motorists was reflected in dramatically declining business at vacation resorts, for example, but retrospective data on the actual amount of gasoline sold showed only small percentage declines. In short, the real cost of the so-called gasoline shortage was not simply the small statistical change in the quantity of the physical product, but the large prospective change in the ability to get it when and where it was wanted. AS in so many other cases, objective retrospective data do not capture the economic reality."

-Thomas Sowell, Knowledge and Decisions


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"Once a rationale for regulation has been created, the actual behavior of regulatory agencies does not follow that rationale or its hoped-for results, but adjusts to the institutional incentives and constraints facing the agencies. For example, the scope of the regulation extends far beyond 'natural monopolies,' even where it was initially applied only to such firms. The broadcast-interference rationale for the creation of the Federal Communications Commission in no way explains why it extended its control to cable television. The 'natural monopoly' that railroads possessed in some nineteenth century markets led to the creation of the Interstate Commerce Commission, but when trucks and buses began to compete in the twentieth century, the regulation was discarded but extended to them. Airplanes have never been a 'natural monopoly' but the Civil Aeronautics Board has following policies completely parallel with the policies of other regulatory agencies. It has protected incumbents from newcomers, just as the FCC has protected broadcast networks from cable TV, as the ICC has tried to protect railroads from trucking, or municipal regulatory commissions have protected existing transit lines from jitneys or other unrestricted automobile-sharing operations. As a leading authority has summarized CAB policy: 'Despite a 4,000 percent increase in demand between 1938 and 1956, not a single new passenger truck line carrier was allowed to enter the industry."

-Thomas Sowell, Knowledge and Decisions

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"Examples [of the problems a central planner has trying to articulate specifically what should be produced] abound in the Soviet press, where economists and other decry particularly glaring instances and demand 'better' specification - rather than raising the more politically dangerous question of whether *any* articulated specification by central planners can substitute for monitoring by actual users, as in price-coordinated economies. For example, when Soviet nail factories had their output measured by weight, they tended to make big, heavy nails, even if many of these big nails sat unsold on the shelves while the country was 'crying for small nails.' When output is measured in value terms, the individual firm tends to produce fewer and more expensive units - whether clothing or steel, and regardless of the users' preferences. Where the articulated measurements are in units of gross output, the firm tends to buy unnecessarily large amounts of parts from other firms, receiving credit in its final product statistics for things produced by others; where the articulated measurements are in units of *net* output, then the firm tends to make as much as possible itself, even where the cost of parts produced by specialized subcontractors is lower. All of these are perfectly rational decisions from the standpoint of the individual Soviet firm, maximizing its own well-being, however perverse the results may be from the standpoint of the Soviet economy. Even terror under Stalin did not make the individual producer adopt the economy-wide viewpoint. On the contrary, where imprisonment or death were among the penalties for failure to fulfill the task assigned by the central planners in Moscow, the individual firm manager was even more prone to fulfill the letter of the law, without regard to larger economic considerations. In one tragi-comic episode, badly needed mining equipment was produced but not delivered to the mines because the equipment was supposed to be painted with red, oil-resistant paint - and the equipment manufacturer had on hand only oil-resistant *green* paint and non-oil-resistant red paint. The unpainted equipment continued to pile up in the factory despite the desperate need in the mines, because - in the producer's words - 'I don't want to get eight years.' To the actual users, the color of the paint made no difference, but the incidental characteristic carried as much weight as *articulation* as the most important technical specification . . .

"In price-coordinated decision making, the user can monitor *results* with little or no articulation by either himself or the producers. The kind of mails that are incrementally preferable will become more saleable or saleable at a higher price, and the producer will automatically emphasize their production, even if he has not the faintest idea why they are more in demand. If a certain color of paint makes mining equipment more saleable, the producer will tend to use that color of paint, but he will hardly forego, or needlessly postpone, sales until he can get the particular color of paint, if the demand for the equipment is such that it sells almost as fast with a different color."

-Thomas Sowell, Knowledge and Decisions.

La primera parte de este libro desarrolla una interpretación del conocimiento en la formulación de políticas públicas, distinta del enfoque convencional económico basado en la idea de asimetrías de información. La segunda parte aplica el concepto a distintas áreas de política pública evidencianfo limitaciones de los burócratas para entender la complejidad del contexto que regulan o pretenden intervenir. El autor se basa en el ensayo de F.A.Hayek "Economics and Knowledge" de 1936. Es un libro exhaustivo por la materia y creativo en el enfoque. Ideal para hacer reflexionar sobre límites del intervencionismo estatal.

The most fundamental question about decision making in the real world is not what decision to make but who makes it, and the attendant decision making processes, incentives/constraints, and feedback mechanisms. When decision makers insulate themselves from feedback in economic, legal, political, and social spheres, this lead to counterproductive consequences and a steady erosion of individual freedom.

The first part of the book discusses production, authentication, and application of knowledge in economic, social, and political institutions and how organizations coordinate and mobilize dispersed knowledge to guide and influence decisions. As Sowell points out, no given decision maker has perfect (let alone sufficient) knowledge to be consistently right or fully understand the ramifications of their decision making. Organizations should set up processes for knowledge to be easily collected, validated, and coordinated, and filter out ideas which lack logical, empirical, or general consensual support. Decisions made from acquired knowledge should be incremental and reversible, and not categorical and precedential. Most importantly, decisions must be subject to continuous feedback to allow decision makers to adjust implemented policies and procedures.

Applying Sowell's framework of knowledge and decision making within the marketplace, economies are simply variable and dynamic systems of rationing inadequate supplies in the present and transferring risk across time. Artificial pricing, quotas, trade restrictions, or constraints, reduce the potential set of voluntary economic transactions and lead to sub-optimal allocation of resources. Within society-at-large, decision making attempts to maximize societal well-being is subject to time, experience, and available economic resources. Social values are only incrementally valuable, and subject to diminishing returns, as more of one social good must be traded off against another. However, effective social decision making does not necessarily depend of the rationality or expertise of the decision makers, as knowledge is cheaper to acquire and more effectively transmitted at a local level. Government, as a decision making entity, is not an monolithic entity, but rather an overlapping montage of autonomous branches, agencies, and power centers - each responsible to different outside groups and having various incentives for justify their expansion and scope of bureaucracy.

The second part of the book discusses how these decision making organizations and processes have evolved in business, law, and politics. The general trend over the past hundred years has moved the locus of decision making locus from the home and the marketplace to the government and courts. The increase in their scope and bureaucracy has unfortunately insulated these organizations from accurate and scope of feedback, and reduced the individual's freedom to decide.

I am not really sure this book is what its description says it is, in that it doesn't really discuss a theory of knowledge or its transmission in a philosophical sense. It really is a book of historical economics. Essentially explaining economic principles through past historical examples. While I like the book overall, I don't think that the reasoning and thoughts that he classifies as "knowledge" can be so readily imputed to his historical situations. Anything can be explained in a multiplicity of ways retrospectively. So his post-hoc rationalizations, while plausible and conformant, are really only on equal ground with almost unlimited amount of any other ideas. Good place to start to get you thinking but should be taken with a grain of, mostly speculation, salt.

This book is so good. Thomas Sowell is a brilliant man that can eplain difficult topics and subjects in ways that anyone can understand. This book is needed today so that we can keep our economy and nation free. If you want to understand some of the reasons we face things we are facing in the economy today this book walks you through them. I read the revised 1996 version and it was amazing how spot on he was even in predicting some things for today (though this isn't a book about predictions). Everyone should read this book. We need more people like Mr. Sowell and that understand these concepts.

This insightful book details information, incentives, and institutions. Sowell expands on many points previously explored by FA Hayek, including how these subjects shape our everyday lives, and how the governments of various countries have often aimed for lofty goals only to disrupt relatively efficient systems which have evolved over millennia.

Wow, always impressed by Thomas Sowell. One of the greatest thinkers of our time. I appreciate his insights especially into culture and race, and public intellectuals. This book essentially focused on how knowledge is passed and utilized, and how decisions are made in our society through certain influences and historical trends. A poignant quote from the book... "Even within democratic nations, the locus of decision-making has drifted away from the individual, the family, and voluntary associations of various sorts, and toward government. And within government, it has moved away from elected officials subject to voter feedback and toward more insulated governmental institutions, such as bureaucracies and the appointed judiciary. These trends have grave implications, not only for individual freedom, but also for the social ways in which knowledge is used, distorted, or made ineffective."