My article in the American Thinker. An excerpt:
This emphasis on dispersed knowledge was one of Hayek’s key contributions to the debate over socialism during the 1930s. Specifically, Hayek argued that one of the key functions of private property and market prices was to allow individuals to communicate information to each other in an economical manner. For example, if a tin mine collapses, then everyone around the world needs to cut back on their usage of tin. Some speculators will hear about the collapse and will push up the price of tin, hoping to profit from their knowledge. It is the rise in price that induces all consumers of tin to consider alternatives; they don’t need to know why tin is scarcer, they just need to know that it is.
Yet without the communication network provided by free market prices, socialist planners could not effectively mobilize the dispersed knowledge held by millions of citizens in their country. There would be no practical way to transmit the localized “knowledge of time and place” from various farmers, factory operators, truck drivers, retail outlet managers, and so on, up through the chain of command, so that the central planners could draw up an efficient use of resources. The socialist economists who thought otherwise were relying on unrealistic mathematical models of the economy which completely ignored the true economic problem, because they assumed all of the relevant information was “given” to the central planner.