At the end of "The Use of Knowledge in Society," Hayek was doubtless
responding to Schumpeter's discussion of socialism in Capitalism,
Socialism and Democracy, first published in 1942, and perhaps especially
to the chapters titled Clearing Decks and The Socialist Blueprint, where
Schumpeter states "Can socialism work? Of course it can." and "There is
nothing wrong with the pure logic of socialism." Schumpter reached these
conclusions by noting that from the perspective of static general
equilibrium theory, there is no difference between a pure market system
and a pure socialist system. From Hayek's perspective, Schumpter was
misled by his theoretical tools.
Bruce Caldwell