Frank, I had to look up Schumpeter's argument before I could answer your question about a disagreement between Schumpeter and Hayek. As I see it, the disagreement is huge. Schumpeter believed that a central planning bureau could rationally determine how much of each resource to allocate to the production of each consumer good without a system in which the resources would be priced. In other words, the central planners had the task of assigning those resources to the various employments. Now in thinking of this problem, one must appreciate the length and complexity of the supply chain for each fundamental resource -- each mineral in the earth and each "piece of human capital." Not only must the central planners decide to which consumer goods industry the resources should be allocated, the central planner in each industry must also know where, among the complex and lengthy supply chains for the various resources used to produce the consumer good he is charged with producing, to place the resource. For the Austrians, to determine where resources should go in order to cause a particular configuration of consumer goods to be produced would require knowledge of opportunity costs. Such knowledge is obviously used in a market economy. Its use occurs as a consequence of responses to price signals. These signals and responses reflect each resource owner's willingness and ability to supply and each resource producer's willingness to demand. This set of willingnesses are based mainly on the private knowledge of each of the parties. The knowledge in question is not just about how to supply a particular resource or consumer good. It is often knowledge about how the resource can be used to help produce a variety of different other resources and other consumer goods. It transcends a particular industry. There is a complex network of communication on the part of independent possessors of "knowledge of particular circumstances of time and place" (to use Hayek's term). This network involves virtually every actor at each position in what Hayek called a structure of production. Absent this communication, no one could determine how to assign the resources to each industrial category and, more importantly, to the proper assignment of a resource in the complete structure of production that lies behind each consumer good's production. (It is not enough to assign a resource to the industry planner, as if this could be done rationally. The planner must know where and how to use it.) No single individual in the market economy knows the opportunity costs of using resources to help in the production of each of the consumer goods. Many of them only know the prices announced by others in a way that is similar to the way that the automobile driver knows that the "engine oil" indicator light is shining. The driver doesn't know why the light is shining. He only knows that a wise choice is to take his car to the repair shop. Similarly, the supplier of resources in a market economy does not know why the price of his resource is higher in employment A than in employment B. He only knows that he can make more money if he chooses A. In short, the knowledge needed for central planning of all production is not in the mind of any individual. It is dispersed through many minds, none of which grasps the reason that opportunity costs, as reflected in resource prices, are what they are. If the central planners do not have a capitalist system to copy -- and in the passage where Schumpeter deals with the problem (about the 4th page of chapter 16), he assumes that they do not -- they would not know how to allocate given resources as among the various industries. It is wise to remember that the Austrians have in mind long supply chains for each resource. Resources are used to produce other resources, which were used to produce other resources. And most of the resources at each level could be used to help produce a wide range of different other resources and consumer goods. At each juncture in the structure of production, there are opportunity costs that are observed by those to whom they are relevant but for which no one knows why they are what they are. Why did Schumpeter say such a dumb thing? Obviously, he did not appreciate the socialist calculation problem that is so important in the history of Austrian economics. This, indeed, was dumb in my opinion; since he had so many brilliant minds from whom he could have learned. Best wishes, Pat Gunning