Economics Hayek Argues Against Economic Essay

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Producers do not want to produce too much, lest there be waste. Consumers do not want to spend too much, because their resources (for most people anyway) are inherently scarce.

Hayek makes the point about there being different types of knowledge. In his free market economy free from centralized planning, he argues that each individual has different knowledge -- each specializes. This allows the millions of people who are making economic decisions to have the ability to gather and process as much information as possible. With more information, better decisions are made. By delegating decision-making to millions of economic actors, each operating within their own specific area of expertise, decisions are going to be better. They will be based on more information and more specialized knowledge to interpret that information.

He argues that economic planning inherently must be based on cycles, such that there is day-to-day adjustments. Such a situation requires stability, therefore, but in the real world that stability does not exist. Conditions in which the economy operates vary, and if economic decision-making is centralized then it is going to be impossible to make the necessary adjustments that will improve economic decision-making. Under a free market, economic actors are free to respond to market signals as frequently as they like, and the result will be more efficient decision-making, and ultimately more efficient allocation of resources.

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This intimate knowledge of everyone's own area of the economy and the freedom to make decisions with respect to this is central to Hayek's argument. He believes that the central "economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place," and therefore that the decisions should be made by the people who are the most familiar with those circumstances. Any form of central planning is going to be inherently less efficient. "Prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan.

At the heart of Hayek's argument is that more people having a little bit of knowledge will collectively have much more knowledge that a concentrated group of people removed from daily life could possibly have. Thus, centralizing economic decision making is inherently less efficient than decentralizing it, and economic planning is thus a futile exercise, destined to underperform a free market.

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