“Friedrich Hayek” subsection ‘Work’ – Wikipedia Entry

Here’s the section of Friedrich Hayek’s Wikipedia entry subheaded “Work”.  Correct it, expand it, or improve it as you see appropriate:

[edit] The economic calculation problem

Hayek was one of the leading academic critics of collectivism in the 20th century. Hayek believed that all forms of collectivism (even those theoretically based on voluntary cooperation) could only be maintained by a central authority of some kind. In his popular book, The Road to Serfdom (1944) and in subsequent works, Hayek claimed that socialism required central economic planning and that such planning in turn had a risk of leading towards totalitarianism, because the central authority would have to be endowed with powers that would have an impact on social life as well, and because the knowledge required for central planning is inherently decentralized.

Building on the earlier work of Mises and others, Hayek also argued that while, in centrally planned economies, an individual or a select group of individuals must determine the distribution of resources, these planners will never have enough information to carry out this allocation reliably. The efficient exchange and use of resources, Hayek claimed, can be maintained only through the price mechanism in free markets (see economic calculation problem). 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. He used the term catallaxy to describe a “self-organizing system of voluntary co-operation.”

In Hayek’s view, the central role of the state should be to maintain the rule of law, with as little arbitrary intervention as possible.

[edit] Spontaneous order

Hayek 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. Such thinking led him to speculate on how the human brain could accommodate this evolved behavior. In The Sensory Order (1952), he proposed, independently of Donald Hebb, the connectionist hypothesis that forms the basis of the technology of neural networks and of much of modern neurophysiology¹.

Hayek attributed the birth of civilization to private property in his book The Fatal Conceit (1988). He explained that price signals are the only means of enabling each economic decision maker to communicate tacit knowledge or dispersed knowledge to each other, in order to solve the economic calculation problem.

[edit] Investment and choice

Perhaps more fully than any other economist, Hayek investigated the choice theory of investment involving the inter-relations between non-permanent production goods and “latent” or potentially economic permanent resources, building on the choice theoretical insight that, “processes that take more time will evidently not be adopted unless they yield a greater return than those that take less time.”[34] Hayek’s work on the microeconomics of the choice theoretics of investment, non-permanent goods, potential permanent resources, and economically adapted permanent resources mark a central dividing point between Hayek’s work on central planning, trade cycle theory, the division of knowledge, and entrepreneurial adaptation and that of most all other economists, most especially that of the macroeconomic “Marshallian” economists in the tradition of John Maynard Keynes and the microeconomic “Walrasian” economists in the tradition of Abba Lerner.

[edit] The business cycle

Capital, money, and the business cycle are prominent topics in Hayek’s early contributions to economics. Mises had earlier explained monetary and banking theory in his Theory of Money and Credit (1912), applying the marginal utility principle to the value of money and then proposing a new theory of industrial fluctuations based on the concepts of the British Currency School and the ideas of the Swedish economist Knut Wicksell. Hayek used this body of work as a starting point for his own interpretation of the business cycle, which defended what later became known as the “Austrian Theory of the Business Cycle“. In his Prices and Production (1931) and The Pure Theory of Capital (1941), he explained the origin of the business cycle in terms of central bank credit expansion and its transmission over time in terms of capital misallocation caused by artificially low interest rates. Hayek claimed that: The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process. In accordance with arguments outlined in his essay The Use of Knowledge in Society, he argued that a monopolistic governmental agency like a central bank can neither possess the relevant information which should govern supply of money, nor have the ability to use it correctly. [35]

[edit] Social and political philosophy

In the latter half of his career Hayek made a number of contributions to social and political philosophy, which he based on his views on the limits of human knowledge[36], and the idea of spontaneous order in social institutions. He argues in favor of a society organized around a market order, in which the apparatus of state is employed almost (though not entirely) exclusively to enforce the legal order (consisting of abstract rules, and not particular commands) necessary for a market of free individuals to function. These ideas were informed by a moral philosophy derived from epistemological concerns regarding the inherent limits of human knowledge.

In his philosophy of science, which has much in common with that of his good friend Karl Popper, Hayek was highly critical of what he termed scientism: a false understanding of the methods of science that has been mistakenly forced upon the social sciences, but that is contrary to the practices of genuine science. Usually scientism involves combining the philosophers’ ancient demand for demonstrative justification with the associationists’ false view that all scientific explanations are simple two-variable linear relationships. Hayek points out that much of science involves the explanation of complex multi-variable and non-linear phenomena, and that the social science of economics and undesigned order compares favourably with such complex sciences as Darwinian biology. These ideas were developed in The Counter-Revolution of Science: Studies in the Abuse of Reason, 1952 and in some of Hayek’s later essays in the philosophy of science such as “Degrees of Explanation” and “The Theory of Complex Phenomena”.

In The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology (1952), Hayek independently developed a “Hebbian learning” model of learning and memory – an idea which he first conceived in 1920, prior to his study of economics. Hayek’s expansion of the “Hebbian synapse” construction into a global brain theory has received continued attention[citation needed] in neuroscience, cognitive science, computer science, behavioral science, and evolutionary psychology.

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2 Responses to “Friedrich Hayek” subsection ‘Work’ – Wikipedia Entry

  1. Roger McKinney says:

    Greg, On the business cycles section, I prefer Hayek’s “Monetary Theory and the Trade Cycle” and “Profits, Interest and Investment” to “Prices and Production.” MTTC lays the foundation for how credit changes. PII is a restatement of PP but I think it is better written and easier to understand.

    And don’t you think you should say something about the Ricardo Effect? Maybe that’s getting too technical, but it seems to be the heart of his business cycle theory and important enough to write an essay on it after publishing “Pure Theory.” A note about why the next generation of Austrians have ignored the effect would interest me, but then I’m a wonk.

  2. Roger McKinney says:

    PS, the entry is great! You won’t have too many comments because not many people know more about Hayek than you.

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