Individualism and Economic Order

Hayek was one of the most important economists and social philosophers of the 20th century. This book contains his most important papers (the first five papers of the book, where he starts to build a new social and economic theory), with were perhaps the most important economic articles of the 20th century (yes, I am serious about this claim). Even today, most economists are under equipped to deal with the problems that these papers grabbed and even solved about seven decades ago. Many of the fundamental problems of modern macroeconomics come from a lack of understanding of what Hayek already knew in the 40's, that macroeconomic problems are the result of intertemporal discoordination of production plans with consumption plans. While his paper on the meaning of competition makes the modern take on the theory of competition and industrial organization naive and immature by comparison: Most modern authors simply doesn't understand what economic competition is. Hayek shows what competition is all about and integrates the economics of information with it. As with industrial organization, the modern approach on information, mechanism design and games with imperfect information is inferior and unsatisfactory if compared to Hayek's treatment of these same problems, with he does in this book in a few dozen pages. Hayek goes straight to the point and reveals to the reader what are the real problems of economics and what economics is supposed to do: Explain why individuals, acting in their 'little worlds' (their problem sets, or means/ends frameworks), produce social orders beyond their conscious design. That task was already set by Adam Smith in a crude form more than 200 years ago, Hayek sets the problem in its definitive form. The market is a process of competition between individuals that produces tendencies to integrate the knowledge discovered by millions of minds into a consistent set of action plans, this integration is brought by the price system and it is competition the process that produces the knowledge that the prices transmit. If you wish to know about why Hayek is the most important classical liberal social scientist in the 20th century (well, I would say: THE most important social scientist), you must read this. If you want to know what's really behind the modern libertarian positions, you must be familiar with these papers. If you want to know what Austrian economics really is about, you must read this book. Absolutely obligatory for anybody who wishes to understand the world in with he or she lives.

Individualism and Economic Order contains several classic essays. Chapter two (Economics and Knowledge) examines decentralized economic planning by individuals. Plan coordination among individuals requires each to form plans that contain relevant data from the plans of others. We each acquire this data through competition in markets. Every time someone adjusts their plans, others must also change their plans. So, initial plan coordination requires each to fully anticipate the actions of others. Since this is impossible, order will emerge as a result of successive trials by individuals in markets. The price system enables individuals to adjust their plans with each other through time. This is the foundation of Hayek's theories of spontaneous order and social evolution. Hayek was far ahead of his peers in examining expectations formation.Chapter four (The Use of Knowledge in Society) is another classic. Hayek contends that the economic problem is really one how to make use of fragmented and widely dispersed data. As he indicated in chapter two, full knowledge of economic conditions reduces the economic problem to one of pure logic. Markets increase our ability to take advantage of division of labor and capital formation by extending the span of our utilization of resources beyond the span of any individual mind. The price system in markets does this by acting as a communications network. We can then each dispense with the need for conscious control over resources and rely on our own intimate knowledge of local economic conditions, and price information regarding general economic conditions. This proves that decentralized competitive systems will vastly outperform centrally planned systems.Chapter five looks at the process of competition. Data regarding the least cost methods of satisfying consumer demand comes through the process of competition. The notion of competition as an end state, where we have attained perfect resource allocation, overlooks the importance of the actual processes by which market participants actually compete. Competition is a process of forming opinions and spreading information. It informs us regarding which alternatives are best and cheapest. Those who judge actual market outcomes with theoretical models that assume perfect information are putting the cart before the horse. Competition is the only means by which we can each acquire data on general economic conditions. Governmental bureaucrats do not simply know what the final outcomes of competition are supposed to be. This data is particular to the process of competition itself. We should therefore be wary of those who complain that markets do not deliver perfect competition based on perfect information. Markets are our best source on the data in question, albeit an imperfect one.In chapter seven Hayek lays out the arguments that some make in favor of Socialism. Some claim that greater equality in incomes is worth the loss of efficiency that is inherent to Socialism. Othe

own this book, please, if only for the essay "the use of knowledge in society". in a few short pages, hayek explores how to think about how people use and spread knowledge, and how that affects everyday economic behavior.

F.A. Hayek, well-deserved recipient of the Nobel Prize in Economics, 1976, wrote several other deep books on political economy. This book is about how individuals are better decision-makers when it comes to their own lives, and that a "Committee" of "Planners" cannot possibly do a better job (How can you tell that someone else is happy? What they need? What they want?). It is no accident that countries with relative freedom on economics are more productive and wealthier overall (US/Hong Kong) than countries with little or no economic freedom (India/sub-Sahara Africa) and lots of gov't planning. It can't be mere exploitation or culture, as India has the largest middle-class and a great population of educated people. India has more college-degree persons than the US, yet is significantly poorer. Hayek investigates this. A good book, especially for leftists and right-wing oligarchs. I used to be a commie too, but open your mind and put the rhetoric on hold, just for a moment.