Hayek Essay

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Discussion Questions: “The Use of Knowledge in Society”, Hayek, Friedrich A.

1. “The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess (H.3)”

a. What does Hayek mean by a “rational economic order”?

Hayek “rational economic order” refers to the use of knowledge in a rational form. According to Hayek “data”, from which the economic calculus starts, are not “given” for the whole society. Knowledge is limited when given to us, therefore the
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He meant that although mathematical methods are important for economics, they do not solve the problem related to knowledge. This is because “data” used do not reflect all the knowledge the whole of society possesses. Information is “dispersed” and “contradictory”, since individuals and planners both possess diverse types of knowledge.

2. What, according to Hayek, is the information needed to operate effectively in a complex market economy?

The information needed to operate effectively in a complex market is that of the supply and demand. To illustrate Hayek presents a disruption in the tin market. If there is disruption of tin on the global market, this will lead to less tin to be supplied. This disruption will spread through information into the markets and consumers will economize tin, without knowing the causes of the disruption. This will lead to an increase in the price of tin, and because consumers economized they will eventually look for substitutes, instead of tin cans they might buy in bulks. Relevant information was communicated by the tin’s price which led the complex market economy operate effectively.

a. What does Hayek mean by “planning”?

According to Hayek planning refers to a complex decision on how to allocate available resources, and must be based on knowledge. However, since information is given by different means a problem of economic resources arises on how to communicate the plan. For planning to work we should ask if

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