Hayek's theory of knowledge is his most distinctive contribution both to economics and to social science. Its foundation is ‘our irremediable ignorance’, both as social actors and as social theorists. ‘The dispersion and imperfection of all knowledge are two of the basic facts from which the social sciences have to start.’ The knowledge which members of modern societies possess is necessarily imperfect and incomplete, and can never be perfected. This is so for several reasons which are all interlinked; first, because in any modern society knowledge is fragmented and dispersed among millions of individuals; second, because the limits of human reason mean that many things remain unknown and unknowable to individual members of society, whether in their roles as social actors or social theorists; and third, because the unintended consequences of human action and the tacit nature of so much of the knowledge that individuals do possess mean that modern societies have to be understood as organisms evolving through time, representing extremely complex phenomena which defy the normal methods of science either to explain or to control.

Understanding these characteristics of knowledge in society was for Hayek the principal task of all social and economic theory, and although reason had a key role to play in reforming institutions and guiding policy, it was an extremely limited one and had to be exercised with caution. ‘To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.’ His theory of knowledge provides a thread which runs through almost all his work, the organising idea which he spent fifty years exploring through a variety of intellectual projects, and to which he returned again in his final work, The Fatal Conceit. No other idea is as important for understanding Hayek, his intellectual system and his mental world. Much of his work is an extended meditation on the problem of knowledge. Hayek's originality has never been properly appreciated beyond a relatively small circle, partly because Hayek continues to be read through ideological spectacles, and partly too perhaps because were his theory taken seriously much of the approach to the study of society in general and economics in particular would be turned upside down.