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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 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…...

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