Almost eighty years ago, economist and philosopher Friedrich Hayek published what is now considered to be one of the most important essays in all of economics, “The Use of Knowledge in Society.” In it, he detailed what is known as “the knowledge problem,” which he describes as, “a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only those individuals know.”
In other words, the knowledge problem is the problem of how to ensure the most productive and efficient use of society’s resources, when the sum total of knowledge of what the most efficient and cost-effective resources, methods, and products to use and create is fragmented among an entire population with highly specialized and localized knowledge, instead of being possessed by a single mind or group.
What’s important to know about the knowledge problem is that it shows why central planning is a poor alternative to the free market. That’s because in a market, changes in the efficiency of different resources, methods, and processes as well as changes in the demand for different products are all reflected through changes in prices. In turn, because individuals want to maximize profits and minimize costs, changes in prices will guide individuals toward choosing efficient alternatives and producing more valued products, an optimal use of resources.
Contrast this with a centrally planned economy, where the state replaces prices and property to determine economic outcomes. Yet without private property, there are no prices to convey changes in the efficiency and scarcity of resources and methods or their demand. Instead, central planners must blindly choose between a limitless number of options with no way of determining the most efficient inputs and outputs. Whereas the market draws on the dispersed nature of knowledge through prices, central planning simply ignores this and thus finds its task impossible.
With this in mind, fast-forward to the present day, a moment of unprecedented inflation, broken supply chains, and the looming prospect of a recession. Preceding this crisis, however, was an equally unprecedented expansion of the money supply by the US’s central bank, the Fed. Yet while the Fed’s role in current inflation is steadily becoming more recognized, the world nonetheless remains faithful that Fed chair Jerome Powell can, through monetary policy, rescue the world from a crisis it sizably caused.
The fact of the matter is, however, that the Fed cannot rescue the global economy from the embroiling crisis for much the same reason why it helped to cause this crisis in the first place; that is, as the governmental monopoly over the supply of money, the Fed also suffers from the knowledge problem that Hayek described. Just as central planners are unable to compute the efficiency of competing resources because of the abolition of property and thus prices, we’ll see that the central bank is just as incompetent in computing the ideal money supply because of the dispersed knowledge it does not possess.
This is because central banks like the Fed are actually an example of central planning, as they’re the state monopoly over the production and supply of a certain good, in this case money. While the central planner is tasked with finding the demand for different products and adjusting their supply accordingly, it’s the role of the central bank to match the supply of money with the demand for money, which in turn allows inflation to be minimal and for prices to coordinate the economy into full capacity.
The problem is, however, that the Fed or any central bank is unable to rationally calculate the demand for money, as it’s, in the words of economist Alexander William Salter, “the kind of information that cannot be harnessed in top-down fashion” but rather “can only be generated bottom-up.” Money is one half of all economic exchanges, so finding its demand would require impossibly detailed insight into a limitless number of factors, including changes in specific incomes, inequalities, prices of different goods, different interest rates, market expectations, and fluctuations in a boundless number of markets.
Often behind changes in money demand are supply shocks and demand shocks. While inflation in the short run can be caused by a decrease in aggregate supply or an increase in aggregate demand, deflation can be caused by an increase in aggregate supply or a decrease in aggregate demand. In order to effectively counteract inflation or deflation, the Fed has to know whether it’s being caused by a supply shock or a demand shock, but from its position as a central bank it’s unable to do so in real time.
Behind changes in “aggregate demand” and “aggregate supply” are the combined changes of a multitude of different markets, prices, and expectations. While monetary systems devoid of central planning such as free banking or a full-reserve system may allow these factors to naturally determine interest rates and the value of money, a central bank must sort through this seemingly endless list of factors and guess their impact on inflation or deflation.
For example, the years following the early 2000s recession saw the United States experience both sluggish economic growth, a sign of a decrease in aggregate demand, and a productivity boom, an increase in aggregate supply. The Fed understood the risk of deflation during this time, but while a demand decrease would prescribe loosening monetary policy, a supply increase usually doesn’t change the central bank’s course of action.
Unable to distinguish between catalysts, the Fed opted to address the former and slash interest rates to unprecedentedly low levels. This proved to be the wrong decision, however, as such unnaturally low rates began to fuel a massive housing bubble whose subsequent burst helped to trigger the Great Recession.
In the end, while it may seem like a relic from foreign times and countries, the centrally planned economy and its fatal shortcomings live on in the institution of the central bank. As the Fed continues in its struggle to reign in high inflation alongside a faltering economy, another idea of Friedrich Hayek’s remains prescient as ever, that “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
About the Author
Nathaniel Brown is a high school senior living in northern New Jersey interested in economics, political theory, and history. Article cross-posted from Mises.
Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.
