"This view of capitalism as a spontaneous information-processing machine—as a 'telecommunications system'—was one of the great insights of the century."

Cartoon from The Essential Hayek (p.7)

"Hayek’s most lasting contribution to economics [is] the notion that free markets and free prices are a means of conveying and exploiting information.
    "In any society, the central economic problem is how to best organise production and employ available resources in order to satisfy the needs and desires of millions of different people. Many of Hayek’s contemporaries believed that the best way forward was via central planning, which would allow resources to be directed to [allegedly] socially useful areas while avoiding the chronic instability of capitalism. Hayek begged to differ.
    "Centralised systems may look attractive on paper, he argued, but they suffered from a basic and incurable ailment: the 'division of knowledge' problem.
    "In order to know where resources should be directed, the central planner needs to know both what goods people want to buy and how they can most cheaply be produced. But this knowledge is held in the minds of individual consumers and businesspeople, not in the filing cabinets (or, later, computers) of a government planning agency, and the only practical way for customers and firms to relay this knowledge to each other, Hayek argued, is through a system of market-determined prices.
    "'We must look at the price system as such a mechanism for communicating information if we want to understand its real function,' he wrote in his 1945 paper, 'The Use of Knowledge in Society.' In a market system, people simply go out and buy the things they like, leaving unwanted goods on the shelves. If they want more of something—say, heating oil—it becomes scarce and its price rises, thereby prompting oil companies to increase production and consumers to economize. If people decide to use less oil, say, because natural gas has become cheaper, the price of oil will fall, and its production will be scaled back—all this taking place without any orders being issued by a government agency. 'I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind,' Hayek wrote.
    "This view of capitalism as a spontaneous information-processing machine—a 'telecommunications system' was how Hayek referred to it—was one of the great insights of the century. It may have been implicit in the work of some previous economists, notably Adam Smith, but Hayek was the first to spell it out."

~ John Cassidy from his article 'The Hayek Century'