Hayek

In: Business and Management

Submitted By argento1077
Words 1382
Pages 6
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 need for the best allocation of resources in order to be economically efficient.

b. What does Hayek mean by “dispersed bits of incomplete and frequently contradictory knowledge”?

It means that people of different spheres of life will have a specific knowledge that they will utilize when needed. For example, business managers possess knowledge in regard to management and profit maximization, whereas a worker might have the knowledge on how to economize in the way he makes product, which perhaps the business manager does not know about it.

c. Why is Hayek critical of the common assumptions in economic analysis that buyers, sellers, producers and the economist all know every relevant thing about the economy?

Because according to Hayek, Economic theory has been refined through the use of mathematics. For example, economists rely extensively on statistical aggregates, but this data leaves out small variations that, although important, cannot be transmitted to those planning the best allocation of available resources. For Hayek social phenomena thought should not adopt a thought that deals with phenomena of nature, he…...

Similar Documents

Keynes Versus Hayek

...Keynes versus Hayek There are differences between Keynes and Hayek on the role of savings in the economy. Keynes believed that it was a waste to save money, it only lead to destruction and prevent economic growth. He didn’t agree with private investment. He felt by keeping money in your pocket is senseless because soon we will all be dead. You can’t take the money with you. He also felt that the government should increase spending during times of recessions. In contrast, Hayek believed that you must save money so that you could later invest the money wisely. He felt time would multiply your interest. He felt that time did not matter. He believed the same principles of the economy that applied in the 1920 still applied in 2005. The solution was not to print more money, but to invest the money the money saved. These views are expressed in the lyrics below: {Keynes} So forget about saving, get it straight out of your head. Like I said, in the long run-we’re all dead. Savings is destruction, that’s the paradox of thrift. Don’t keep money in your pocket, or that growth will never lift. [Hayek] Real savings come first if you want to invest. The market coordinates time with interest. Your focus on spending is pushing on thread. In the long run, my friend, it your theory that dead. Whether it’s the late twenties or two thousand and five Booming bad investments, seems like they’d thrive. You must save to invest, don’t use the printing press Or a bust will surely......

Words: 950 - Pages: 4

Common Heights

...economists by the name of John Meynard Keynes and Friederich Hayek commence to solve the economic difficulties the world was currently situated in. Each economist had a different vision about the approach the world should therefore take to resolve the world’s economic dilemmas. John Meynard Keynes who first suggested the argument that the economy should be a government controlled. Keynes contemplated the idea that in an event of economic despair the government should allocate their economic resources and go into a state of paucity in order to restore the economy back to normal, “ Keynes felt that the market economy would go to excesses, and when things were in difficulty the market wouldn’t work. Therefore the government had to step in”, (Chapter 2, The Old Order Fails). Therefore, when the economy began to amplify and become stable, a surplus would arise. A profuse amount of people and governments supported this principle. The President of the United States, Franklin Roosevelt when establishing his New Deal, used Keynes theory during the Great Depression. He constituted new government agencies to put the unemployed citizens back to work, “Keynes’s solution to unemployment was for the government to spend its money to restore and maintain full employment”, (Chapter 5, Global Depression). Hayek alternatively believed that for an economy to endure capitalism it must be allowed the constant fluctuations. “Hayek felt that the market would eventually take care......

Words: 687 - Pages: 3

Politics

...Friedrich von Hayek: Neoliberalism's prophet By Thomas Ponniah | November 28, 2012 * Print * Write to editor * Support rabble * Corrections * Share on facebook Share on twitter Share on email More Sharing Services 11 As the economic boom of the post-war period ended in the early 1970s, neoliberal ideology emerged as a rebellion against the statist strategies of the previous era. While neoliberalism was critical of Keynes it was also a further development of themes present in classical and neoclassical economic thought. Its most famous proponent was the economist-philosopher Friedrich von Hayek (1899-1992). His theory till the 2012 U.S. elections constituted the central intellectual adversary for the global justice movements, the leftist states in Latin America and other critics of corporate capitalism. Hayek won the Nobel Prize for Economics in 1974. The argument that he had propounded since the 1930s was that civilization was built on the liberty of individual members of society to pursue their own ends in the context of a free market and private property rights. Hayek's argument for the market as the central economic mechanism rested on his epistemological belief, interestingly analogous to Michel Foucault's views from the left, that the scientific pursuit of knowledge was inherently incapable of understanding the particular. For Hayek, the economic challenge was that knowledge is inherently decentralized; knowledge of the local is best......

Words: 816 - Pages: 4

Kynes vs Hayek

...Student’s Name Instructor’s Name Course Date Keynes and Hayek Introduction In 1929, the stock market has crashed. John Maynard Keynes, a Cambridge University economist and a government advisor, and Friedrich von Hayek, an Australian professor of economics, introduced two contrasting view points on the economy. Since the end of World War II, their ideas have dominated in the economic science up to date. After World War II, a major question on the government’s appropriate role in the economy has erupted. Keynes established concepts that called for a large role of the government in the economy. He alleged that the government had an obligation to use an approach of boosting the economy during a depression. On the other hand, Hayek felt that the government did not have to intervene during an economic depression because the forces of demand and supply and laissez-faire would bring equilibrium. Keynes’ book called Treatise on Money created a basis on his policies. Hayek, together with Gunnar Myrdal, received the Nobel Prize for economics in 1974 for their pioneering effort on the theory of money and economic variations. Haynes has criticized Keynes’ work in many of his books standing by his principles; for example, in his famous book called Against Keynesian Inflation published in 1974 (Hoover 86). Keynes based his argument on the presence of a central body that could use monetary, fiscal, and other physical mechanisms carefully to ensure a balance in the economy....

Words: 1295 - Pages: 6

Evaluating the Market

...influential aspects of the market in its evaluation. Friedrich Hayek and Karl Polanyi, two economists, elaborate on their beliefs of the market and how though it is the most functional system there are other variables that influence the market. Hayek discusses multiple positive traits of a free market system. For example, the idea that multiple individuals aspiring to achieve their own goals creates competition advocating the best product for society at an optimum price. Hayek elaborates that he concurs with the market vision to an extent but describes the market as not one big ambiguous entity but a catallaxy of multiple markets effecting one another. A catallaxy is “brought about by the mutual adjustment of many individual economies in a market. A catallaxy is thus the special kind of spontaneous order produced by the market through people….” (Hayek 1937, 109). Hayek displays that with this catallaxy our free market system requires little regulation as the market brings about the best goods and research to obtain the most optimal prices for consumers through competition. Hayek also believes because of this phenomenon of the quality of life being improved through individuals self-interest that there is no reason to understand the ends of a transaction just one’s own means for the transaction that transpires. He admits that others would view this perspective of mutually beneficial exchange as a moral defect of society but Hayek argues “Most of the knowledge on which we......

Words: 860 - Pages: 4

Boom and Bust

...British journalist Nicholas Wapshott’s new book, Keynes Hayek: The Clash That Defined Modern Economics is about a heated debate, eight decades past, between two of the most influential economists in modern history. That debate, which took place in the midst of the Great Depression, concerned the causes and cures of business cycle downturns. The book comes out at a propitious time. The ongoing economic crisis raises many of the same questions that fueled the intellectual duel between the British-born liberal lion John Maynard Keynes and F.A. Hayek, his free market Austrian friend and opponent. The confluence between subject matter and current events surely helped Wapshott sell his book to a publisher and likely will sell many copies to readers. But potential buyers should be aware that the book says nothing about how the economic dispute between Keynes and Hayek might apply to today’s economic situation. This omission proves fatal. Wapshott does not ignore the present in favor of the distant past, although the bulk of the book’s narrative is set in the 1930s. But he seems to think his subjects’ contemporary relevance is best reduced to the big-picture conflict between government intervention (Keynes) and free markets (Hayek). Wapshott focuses on the disagreements the two had over political philosophy and practice rather than the technical specifics of their economics. Those political disagreements are important, but they arose from crucial differences in economic theory...

Words: 293 - Pages: 2

Blah

...Frederick Von Hayek, stand on opposite sides of the battle lines drawn between the two positions. Keynes is a staunch believer of the government intervention and regulation of the economy, whereas his personnel friend and ideological rival Hayek believes in the markets ability to control the economy. The differences in economic theory have spilled over into political debates, heated division within countries, and war. The battle between these two ideologies goes beyond sheer economic theory and spills over into individuals beliefs on how the world should be run and organized. John Maynard Keynes was an English economist who was educated at Cambridge University. He was considered by his peers and elders to have incredible potential as an influential world leader in the field of economics. During the First World War he served as an advisor to the government of the United Kingdom on how to organize their economy in the time of war. Keynes economic theory was based on the fact that in order to be successful an economy needed to be regulated and planned, to an extent, by the government. Based on his theory slight inflation was good, and necessary in order to keep unemployment down. The economy should be mixed between a free market economy for regular businesses and government regulation for the large industries such as coal, oil, and flight. His theories and beliefs became known nationally through his publications of The General Theory. His friend and rival, Hayek, strongly......

Words: 630 - Pages: 3

Hayek vs Keynes

...Friedrich August von Hayek and John Maynard Keynes have been the focus of a near 100 year long battle regarding how . Time and again, the ideas and theories of Keynes and Hayek have been used to argue for and against the involvement that government has in the fiscal policy making process in the US. Both of them have played roles in the development of American economic policy. Only one of these two men, though, has been accepted as knowledgeable in the halls of government power. And that man is Keynes. As shown in history the theory of the role that government should play in the marketplace from Hayek has been long overlooked. Beginning in the Great Depression era, policy makers in Washington latched on to Keynes’ new theories of stimulating the economy through high levels of government spending. Keynes believed that the government should increase public works projects and stimulus spending which would increase the nation’s aggregate demand, meaning an increase of the total demand for final goods and services. The Great Depression continued on as project after project and program after program failed to yield the results that Keynesians had hoped for. Even when faced with the data that proved the Keynesian theory incorrect, the policy makers argued that spending was just not high enough. On the other side of the argument was Friedrich Hayek, who argued that government planning the economy would never work. As Hayek argued in his book The Fatal Conceit, “the curious task of...

Words: 782 - Pages: 4

Keynes vs. Hayek

...Keynes VS. Hayek John Maynard Keynes developed an economic theory that argues, the government can borrow money. Then spends the means to create jobs and purchasing power. The concept is based on the circular flow of money and the government should step in and increase the money supply or start buying things themselves. Trying to balance the budget during a poor economy would make matters worse not better. The government Keynes beliefs were the government would spend more during a poor economy and cut back during better ones. Friedrich Von Hayek theory states that the problem is under central planning, and that there is no financial calculation that would help make the right resource to spend money. Under his theory, Central planner would make a decision based on accurate information, not economic ones. Less government intervention and more financial freedom are Hayek beliefs to turn around a poor economy. As I read into the two theories, I am finding out that the US economy is most like the Keynes. One point I believe this is because of the massive deficits that are government is occurring. Another example is because Keynes theories consider tariffs and bailout, which we have seen this over the last few years in the auto industries and the financial district. I believe in Hayek theory of the free trade and letting the economy do its part. In my opinion when the government plays a prominent role in the economy, then it is going to be the best decision for......

Words: 362 - Pages: 2

Annotated Bibliography

...Fredrich Hayek Shacorra Hall ECO 561 May 22, 2015 Dr. Robert Dratwa Friedrich August Hayek: The Concise Encyclopedia of Economics. (2008). Retrieved from http://www.econlib.org/library/Enc/bios/Hayek.html In this online article exerted from the Library of Economics and Liberty, the economic theories of Friedrich Hayek are glorified and explained. Hayek is the best-known advocate of Austrian Economics. This writing focuses on the idea that the market is a spontaneous order. The belief that the free market was not designed by anyone, but evolves slowly as a result of human actions. It is stressed that the market is imperfect, and reasons for this imperfection are given. The question Hayek asked was “What causes the market to fail to fail to coordinate people’s plans, so that at times large numbers of people are unemployed?” One explanation given was the increase in money supply by the central bank. Increases by the central bank have the capability to drive down interest rates, inevitably making credit artificially cheap. Contributing to this issue, is business men making capital investments, unknowingly receiving distorted price signals from the credit market. Capital investments are inconsistent. Long-term investments are more sensitive to interest rates. Hayek came to the conclusion that artificially low interest rates causes investments to be high, which in turn causes too much investment in long-term projects. Instances like this turn the boom into a bust. Hayek......

Words: 1044 - Pages: 5

Hayek -the Use of Knowledge in Society

...Hayek: The Use of Knowledge in Society Discussion Questions 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)” i. What does Hayek mean by a “rational economic order”? a. The economic problem of society is thus not merely a problem of how to allocate "given" resources—if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality. ii. What does Hayek mean by “dispersed bits of incomplete and frequently contradictory knowledge”? b. The economic problem of society is thus not merely a problem of how to allocate "given" resources—if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it......

Words: 1531 - Pages: 7

Commanding Heights Part 1 and 2 Q/a

...functions. The phrase “the City of London” or just “the City” very often means the stock market. 1. The question is: which would control the commanding heights of the world’s economies: governments or markets. 2. In the 1940's, the two most important economists of the age are: John Maynard Keynes and Friedrich von Hayek. 3. WWI ended the first global conflict and it would be 21 years before it returned. 4. Friedrich Von Hayek served in the Austrian artillery during WWI, and he sensed the problems of political organization. 5. In 1917, the Russian revolution was based on the economic theories of Karl and Lenin sought to smash capitalism. 6. Keynes was a delegate to the Versailles peace negotiations and when he saw the level of crippling social, political, and economic reparations demanded by the victors he resigned and predicted the final war would destroy the civilization and progress of their generation. 7. After the study of economics, Hayek described himself as a socialist but as a ____________________________. 8. Much of Vienna’s intellectual life took place outside the university, in the coffee houses across the Ringstrasse. 9. Hayek joined the circle of a passionate libertarian Ludwig von Mises,who thought that markets should be free from government meddling. And the distinguishing hallmark of the Austrian school that markets work and governments don’t. 10. Von Mises said that the great flaw of socialism was it doesn't have a......

Words: 1481 - Pages: 6

Hayek

...FRIEDRICH AUGUST von HAYEK S-a născut la 8 mai 1899 într-o distinsă familie de intelectuali din Viena. A servit pentru scurtă vreme pe frontul italian în timpul primului război mondial. În 1918 a început studiile de drept la Universitatea din Viena, unde în 1921 obţine şi doctoratul în acest domeniu. Cu toate acestea Hayek era interesat mai ales de economie şi psihologie. De aceea, el urmează cursurile lui Friedrich von Wieser, unul dintre membrii renumiţi ai şcolii austriece de economie. În 1923 îşi ia doctoratul în ştiinţe sociale. În 1921, Hayek a contribuit la constituirea unui grup de intelectuali, care se reuneau pentru a discuta texte despre probleme de interes comun. Disciplinele reprezentate erau numeroase şi variate: economia, sociologia, istoria, psihologia, istoria artei, muzica, psihanaliza, fizica şi matematica. Mulţi dintre aceştia se vor reîntâlni la seminarul lui Ludwig von Mises, fondat în 1922. Ca exponent de seamă al şcolii austriece Hayek va împărtăşi ideile acestei şcoli, le va amplifica şi rafina, căutând totodată să atenueze formalizarea extremă, deşi perfectă logic şi matematic, dar neoperaţională în economia reală. După opinia lui Hayek, opinie împărtăşită şi de adepţii săi, ştiinţa economică este un tip de cunoaştere economică şi în acest mod trebuie abordată metodologia economică. Într-o idee mai largă Hayek susţine că metodologia economică îşi asumă sarcina complexă de reflecţie asupra limitelor iminente ale ştiinţei economice. ......

Words: 1478 - Pages: 6

History of Thuoght

...What Would Hayek Say Today? As the economic crisis continues, the less believable are sticking plaster solution. Four years in, Europe is moving forward toward a nasty recession, China is heading for a hard landing, the governor of the Bank of England is talking about a systemic banking crisis and George Osborne has annunciated spending cuts that will continue on the next six years. The United States is the only place where the news has been a little better, as the housing market is improving and unemployment is falling. What’s happening in America is that the Federal Reserve decided to use two rounds of quantitative easing to increase the money supply and enunciated its intent to keep interest rates low. This has helped people to believe that resurgence will eventually arrive, if the policy response is large enough for a long time. It is not known yet if this is indeed the case, since there have been many false starts after the financial system began failing in 2007. An authentic strength of the US economy will be divulged early next year, when tax breaks supporting consumption and investment expire, not to mention, when the world’s biggest economy begins to feel the influence of stagnation on this side of the Atlantic. There is another way of looking at the crisis. We are inhabiting a world of the living dead: a eurozone which will not collapse, but cannot be reformed; banks that are kept going by colossal amounts of electronically generated cash, yet......

Words: 853 - Pages: 4

Change Management Concept

...passengers thanks to the car's tall stance. Assessment and Diagnosis In the late 1980s, SMH (makers of the Swatch brand of watches) CEO Nicolas Hayek began developing an idea for a new car using the same type of manufacturing strategies and personalization features used to popularize Swatch watches. He believed that the automotive industry had ignored a sector of potential customers who wanted a small and stylish city car. This idea soon became known as the "Swatchmobile". Hayek's private company Hayek Engineering AG began designing the new car for SMH, with seating for two and a hybrid drive train. Analysis of Change Strategy: Nicolas Hayek, the CEO used a transformational Change strategy which involves radically rethinking and redesigning a major business process with the objective of achieving large-scale improvements in overall business performance quickly - and the product development process is a prime target. He also used merger with another company as a change strategy for his company and product. While design of the car was proceeding, Hayek feared existing manufacturers would feel threatened by the Swatchmobile. Thus, rather than directly competing, he preferred to cooperate with another company in the automotive industry. This would also relieve SMH of the cost burden in setting up a distribution network. Hayek approached several automotive manufacturers and on July 3, 1991 he reached an agreement with Volkswagen to share development of the new......

Words: 462 - Pages: 2