This is simply the best book I have ever read abut the relationship between economics and knowledge. It should be read in conjunction with Hayek's book 'the Road to Serfdom' and the work of Karl Popper, in particular 'Conjectures and Refutations', 'the Myth of the Framework', 'The Poverty of Historicism' and 'The Open Society and its Enemies' (both volumes). The point Hayek makes is that free societies and free markets give rise to a spontaneous, extended order that arranges the world far better than any amount of government planning ever could, since a government is composed of people who do not grasp more than a tiny fraction of all the knowledge that is out there in the world and so cannot use this knowledge. Hayek is rather conservative, possibly because radicalism at that time was giving birth to totalitarian monsters like the USSR and Nazi Germany, but I think the ideas in this volume have deep implications for what sort of political institutions are best. See David Friedman's book 'The Machinery of Freedom' for the best account of the political institutions that should be adopted in my opinion.