KNOWLEDGE MANAGEMENT

APRIL 2011

THE PRICE SYSTEM OF

F.A. HAYEK

Università degli Studi

Andreea V. Avasi
di Trento, Italy
 FRIEDRICH A. HAYEK
(1899-1992)

Austrian economist and philosopher

defense of classical liberalism, free-market capitalism
against socialist and collectivist
Nobel Memorial Prize in Economic Sciences in 1974.
No concentrated
No integrated
No complete
…

KNOWLEDGE
 Decision
Planning (allocation of available
resources)

KNOWLEDGE

Planning by one authority

Competition - decentralized planning
Delegation - half way between two
 Decision
Planning (allocation of available
resources)

KNOWLEDGE

Dynamic economic
 Significant and frequency of changes system
 Alteration of plans
(eg.: new process introduced, new tecnologies,
raw materials price increase )
 Decision
Planning (allocation of available
resources)

KNOWLEDGE

Requiring
adjusments Dynamic economic
system
 QUESTION

?
How does knowledge
influence the price system?
 THE PRICE SYSTEM
 Communication system
 Consider quantitative indices or values
 Coordinate separate actions as subjective values
 Influence substitutes
 “Machinery “ for registering changes
 Provides :
 information
 incentive
 choice
 efficiency
 flexibility

 Division of labour
 Coordinate utilization of resources
 Rational calculation in a complex society
 THE PRICE SYSTEM
ADVANTAGES:
The
market gives producers an
incentive to produce goods that
consumers want.
The market provides an incentive to
acquire useful skills.
The price system encourages producers
and consumers to conserve scarce
resources.
Competition pushes businesses to be
efficient: keeping costs down and
production high.
The market system involves a high
degree of economic freedom.
DISADVANTAGES:
A private market economy may be quite unstable
(unemployment, inflation, growth)
Business may simply satisfy the wants they have
created through advertising.
 Prices may give false or inadequate signals to
producers and consumers (externalities, like
pollution).
Markets just do not work in some areas (public
goods, such as national defense).
Monopolistic industries may restrict output and
drive up prices.
Market economies tend to produce a skewed
distribution of income (large gap between the rich
and the poor).
 FRIEDRICH A. HAYEK

“He viewed the free price system, not as a conscious invention

(that which is intentionally designed by man), but as spontaneous
order, or what is referred to as "that which is the result of human
action but not of human design".
Thus, Hayek put the price mechanism on the same level as, for
example, language. Finally, Hayek believed that government
intervention distorted the price system that was required for
sustainable economic growth.”
 FRIEDRICH A. HAYEK

In The Use of Knowledge in Society (1945)

Hayek argued that the price mechanism serves to share and

synchronize local and personal knowledge, allowing society's
members to achieve diverse, complicated ends through a principle
of spontaneous self- organization.
 REFERENCES
•The American Economic Review – Vol 35 (september 1945) , No 4 pp 519-530

•The Social Science of Hayek's the Sensory Order  by William N. Butos

•Hayek's journey: the mind of Friedrich Hayek  by Alan O. Ebenstein