...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...
Words: 1382 - Pages: 6
...Evaluating the Market Since the industrial revolution the role of markets in society has been heavily scrutinized. The standard market vision alludes to a market where values and relationships are external to the exchange of commodities. The foundation of this market vision is based off individual’s self-interest and the idea that individuals aspiring to obtain their own goals will create a beneficial outcome for society as a whole. Unfortunately, this early conception of markets was too primitive in its ideals and did not include influential aspects of the market in its evaluation. Friedrich Hayek and Karl Polanyi, two economists, elaborate on their beliefs of the market and how though it is the most functional system there are other variables that influence the market. Hayek discusses multiple positive traits of a free market system. For example, the idea that multiple individuals aspiring to achieve their own goals creates competition advocating the best product for society at an optimum price. Hayek elaborates that he concurs with the market vision to an extent but describes the market as not one big ambiguous entity but a catallaxy of multiple markets effecting one another. A catallaxy is “brought about by the mutual adjustment of many individual economies in a market. A catallaxy is thus the special kind of spontaneous order produced by the market through people….” (Hayek 1937, 109). Hayek displays that with this catallaxy our free market system requires little regulation...
Words: 860 - Pages: 4
...The Reader’s Digest condensed version of The Road to Serfdom The Road to Serfdom FRIEDRICH A. HAYEK The condensed version of The Road to Serfdom by F. A. Hayek as it appeared in the April 1945 edition of Reader’s Digest The Institute of Economic Affairs First published in Great Britain in 1999 in the ‘Rediscovered Riches’ series by The Institute of Economic Affairs 2 Lord North Street Westminster London sw1p 3lb Reissued in the ‘Occasional Paper’ series in 2001 This condensed version of The Road to Serfdom © Reader’s Digest, reproduced by kind permission The Road to Serfdom is published in all territories outside the USA by Routledge. This version is published by kind permission. All other material copyright © The Institute of Economic Affairs 1999, 2001 Every effort has been made to contact the copyright holders associated with this edition. In some cases this has not been possible. The IEA will be pleased to include any corrections in the next edition. All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the publisher of this book. A CIP catalogue record for this book is available from the British Library. isbn 0 255 36530 6 Many IEA publications are translated into...
Words: 16475 - Pages: 66
...Mathematical economics and finance: good or bad? Pareto and Walras were the first to use mathematics in economics and finance at the end of the nineteenth century. They created classical models of the free markets and explained these mathematically. After these models were created, other famous economists came up with mathematical economical ideas, such as Schumpeter and Keynes. Mathematics was used to simplify and clarify various complicated theories. This use resulted in both advantages and disadvantages. This essay will evaluate the uncritical use of mathematics in economics and finance on multiple aspects. Firstly, if one uses mathematics in economics and finance uncritically, one needs to know all the numerical values and other variables to actually explain and predict certain events and its mutual interdependencies. This knowledge is never entirely available, because the values depend on too many particular circumstances. What’s more, the succession of events in the history of the economics does not show any internal coherence, which makes predicting harder. Moreover, there is no controlled experiment in the economic research field and no falsifiable hypotheses are made (Von Hayek, 1989). Furthermore, different economic models have different implications, thus are applicable to according situations. Hence, not one mathematical model could be implemented (Rodrik, 2015). In addition, human beings and their behaviour should be included in the theories of economics. This...
Words: 790 - Pages: 4
...Introduction Arguably, researchers are increasingly acknowledging the importance of entrepreneurship in economic growth. Entrepreneurship in any society is influenced by various environments. Whilst entrepreneurship supports economic growth by turning knowledge into new products, new jobs and new firms, the entrepreneurial process is not full of roses; it comes with its own challenges. The writer will discuss about entrepreneurship, define concepts and sum up the discussion through a conclusion. Definition of key terms Entrepreneurship Timmons (2000), believes entrepreneurship is the process of creating or seizing an opportunity and pursuing it, regardless of the resources currently controlled. Wennekers and Thurik (2001) argued that entrepreneurship is the ability and willingness of individuals, on their own, in teams within and outside existing organizations, to perceive and create new economic opportunities (new products, new production methods, new organizational schemes and new product-market combinations) and to introduce their ideas in the market, in the face of uncertainty and other obstacles, by making decisions on location, form and the use of resources and institutions. Unlike Timmons (ibid), Wennekers and Thurik believe that entrepreneurship is not limited to creating or seizing a business opportunity, there has to be willingness and ability to perceive new economic opportunities(new products, new production methods, new organizational schemes and new...
Words: 2070 - Pages: 9
...ics Economics as a Science and its relevance to Law Economics is the branch of knowledge concerned with the production, consumption, and transfer of wealth. It is the condition of a region or group as regards material prosperity. It is the social science that analyzes the production, distribution, and consumption of goods and services. Now the Question is whether Economics is a science or not? Economics is a science that treats of those social phenomena that are due to wealth getting and wealth using activities of Man. The word ―Economics‖ is derived from the Greeks word ―Oikonomos‖ which means to manage the house. So it means the management of a household especially in those matters, which are relating to the income and expenses of the family. After sometime, political economy term was also used for this topic and slowly political economy adopted the shape of Economics. There are numerous definitions of Economics offered from time to time but there is no clear and concise definition. Keeping in view this situation J.M. Keynes has rightly, stated ―Political Economy is said to have strangled itself with definition.‖ However, Economics is considered to be a science as well as an art. Some of its features like, self corrective nature, systematic body of knowledge, own laws and theories, universal validity of its laws (law of demand, marginal utility, law of diminishing returns etc) support economics to be a science, but its other features like lack of predictability and lack of...
Words: 2838 - Pages: 12
...book “The Use of Knowledge in Society”, on how to solve the economic problems and how to make the best possible decisions with the given information, which we will see in this paper. The economist Friedrich Hayek has explained in his papers on how to find an economic order with a few considerations and assumptions. According to him, there is a solution to all economic problems if we possess all the relevant information, if we can start from a given system of preference and if we had the complete knowledge of available means. From his view the mathematical equations, which is used to solve the problem gives the best emphatic solution but does not solve the economic problem of the society. This is because the economic calculus never gets the data from the macro level but from a single mind. And this in return will help us on how to allocate the given resources but not how to secure the best of the resources. One of the major points that Friedrich talks about in his paper is knowledge transfer and how the inefficiency in the transfer could hurt the economy in a long term. The “planning” is the word he prefers for the decisions to solve the problem and he debates on which level the panning should be to avoid the data misinterpretation. He thinks there is no blind answer of whether to follow a centralized or decentralized decision making because that is influenced by factors like the place, time, and size of the product. All his solutions are based on how good the knowledge on the...
Words: 738 - Pages: 3
...and contrasts the idea of utopian economics with reality based economics. Reality based economics encompass people’s behaviors and thinking identifying irrational self-interests (Cassidy, 9). Cassidy then explains in detail how economic theory and practice influenced the “Great Crunch” (i.e. collapse in sub-prime mortgage lending during last decade). The timeliness of Cassidy’s publication of a book to address how markets fail is certainly ideal in light of the recent crash in sub-prime mortgages. The financial impact of this economic crisis continues to dictate the pace of the current economy. Not only is the topic stimulating to a graduate MBA student, but has value to inform and enlighten individuals in all disciplines. Cassidy uses the history of economics over the last few decades to demonstrate that his idea of utopian economics versus reality based economics is not new, but has been forgotten and/or consciously overlooked in the interest of other gains causing historical cycles of economic crisis. Cassidy’s political views are evident and he does not...
Words: 2844 - Pages: 12
...FRATERNITY INVOLVEMENT AMONG BSMT STUDENTS A Research Paper Presented toMr. Bernie S. Bayogos Mentor, Research and Evaluation Iloilo State College of Fisheries College of Maritime Studies TiwiBarotac Nuevo,Iloilo In Partial Fulfillment of the Requirements for the subject Research 311 -Research and Evaluation By: Ezekiel A. Majano 1stsemester, S.Y. 2012-2013 APPROVAL SHEET A research paper entitled “FRATERNITY INVOLVEMENT AMONG BSMT STUDENTS”, prepared and submitted by Ezekiel A. Majano in partial fulfillment of the requirements for the subject Research 311-Research and Evaluation is hereby accepted. Bernie S. Bayogos, MAEM Subject –Teacher BOOTS D. Arroz, MAEd. Reader –Critic AMALIA D. Dohina,MILE-Soc. Sci. Reader-Critic Accepted in partial fulfillment of the requirements for the subject Research 311- Research and Evaluation. Bernie S. Bayogos, MAEM Subject –Teacher Date TABLE OF CONTENTS Chapter Page TITTLE PAGE i APPROVAL SHEET ii ACKNOWLEDGMENT iii DEDICATION iv ABSTRACT v LIST OF TABLES vi LIST OF FIGURES vii LIST OF APPENDICES viii I INTRODUCTION Background of the Study Statement of the Problem Hypothesis Theoretical and Conceptual Framework Significance of...
Words: 6081 - Pages: 25
...------------------------------------------------- About This Blog * ------------------------------------------------- This morning, as part of an independent study, a cohort-mate and I discussed Talcott Parson’s The Structure of Social Action. The book is a bit surreal – the entire thing is almost a shaggy dog story in the Sociology of Knowledge, wherein the theorists he reviews (Marshall, Pareto, Durkheim and Weber) are proven to be correct simply because they said vaguely similar things at the same time in different places. Let’s just say the strengths of the book, and its enduring legacy, are neither in its style nor the logical strength of its main conclusions. I don’t mean to be too harsh – there was a lot of interest in the sections we read, especially on the development of liberal political thought and Sociology’s emergence as a reaction against it. But none of that has much to do with the thrust of this post – the free market. Somewhere in his exposition of liberal theory from Hobbes to Marshall (my copy is elsewhere at the moment [EDIT: Page 104, about Malthus' idea that competition served as a social regulation mechanism, Parsons doesn't actually use the phrase free market]), Parsons notes that the importance of the free market for liberal* theory has a lot to do with the way it prevents anyone from exercising power over anyone else, and less to do with the way it maximizes productivity. Parsons is not the only one to make this argument – it shows up also in a lot of the work...
Words: 876 - Pages: 4
...liberalism is individualism. Classical liberals believe in egoism, that individuals are rational self-interested creatures who have a pronounced capacity for self-reliance. Thus, they are influenced by Jeremy Bentham and utilitarianism which is the idea that individuals take decisions and moral action based on self-interest; that which maximises the individuals pleasure and minimises pain. He argued that ‘it is the greatest happiness of the greatest number that is the measure of right and wrong’. They view society as atomistic, the idea that it is simply a composition of largely self-sufficient individuals. Thus, they disagree with paternalistic conservatism strongly as each individual can perceive their interests and its consequence. In practise, Classical liberals have supported a free market with minimum government intervention as advocated by Libertarian Adam Smith and Hayek to promote choice for employees, employers and consumers and self-reliance. This approach rejects the use of protectionism and government policies to ‘manage’ the economy. Modern Liberals however believe in individuality. This means to achieve self-fulfilment through the realisation of one’s potential and unique abilities. They believe that...
Words: 698 - Pages: 3
...to one view. Social institutions [government, the rule of law, the social division of labor connoting production activities, markets (credit, labor, commodities, etc.), money, languages, mores (morals and values), et. al.] are determined not simply by preceding causes but as part of a process of unconscious self-organization of a structure or a pattern. These social institutions spontaneously come into existence. They are complex and self-maintaining mass phenomena. Reinforcing this point, Adam Smith wrote in The Theory of Moral Sentiments that men aiming at the “gratification of their own vain and insatiable desires” are “led by an invisible hand” in such a way that they “without intending it, without knowing it, advance the interest of society and afford means for the multiplication of the species.” The Origin of Money Theory, formulated by economist Carl Menger, in 1871, provides an account of the evolution of the social institution of money. Money, according to the Theory, is not a creation of the state as many think it is today. Rather it came into existence spontaneously through an unconscious, self-organizing, self-maintaining, evolutionary process. An outline of the theory is presented below. A. The Seven Steps of Carl Menger’s Origin of Money Theory: * The seven (7) steps below explain the emergence of a commodity money like gold or silver in the fifteenth through the early twentieth centuries and of the fiat moneys that predominate today like the U.S. Dollar, the Swiss...
Words: 2436 - Pages: 10
...you do what your parents do * ex: India in a way because of the caste system * Market economy- based on supply and demand, prices * Command economy- based on the government * Markets need homogenous goods, no barriers to entry or exit, perfect information and many buyers and sellers problem is that this is not the case, markets are not perfect List and describe the classification of economic systems based on forms of ownership * Capitalism- people privately own inputs (land, labor, capital) and will use them in their best interests more production more goods and services * Socialism- deals with ownership instead of allocation, distribution based on how much you work, etc., want to be more equal but isn’t efficient because government doesn’t work in same interest as private List and describe the classification of economic systems based on income redistribution and safety nets * Free markets * Maximum criterion- society equalizes everyone’s income, reciprocity- don’t know what will happen tomorrow * Pure communism- government distributes/allocates goods and services * Social safety nets (social market economies)- Germany-very large percent of income goes to taxes free healthcare with good quality * socialism- ownership of goods and services, communism—how goods and services are distributed List and describe the characteristics of perfectly competitive markets * homogenous goods * m any buyers and sellers * no barrier...
Words: 940 - Pages: 4
...Journal of Management and Social Sciences Vol. 3, No. 1, (Spring 2007) 11-21 Applicability of the Theories of Monopoly and Perfect Competition -Some Implications Ravinder Rena * College of Arts and Social Sciences Eritrea Institute of Technology Gobind M. Herani * Indus Institute of Higher Education (IIHE) ABSTRACT This paper addresses the concern that monopolies arise naturally out of the free market. An attempt is made to compare and contrast two theories of monopoly economic and political monopoly that this is not true. This paper further demonstrates that the two theories of monopoly have their separate roots in two opposite theories of competition: perfect competition and competition as rivalry. Hence the paper discusses only one of these theories of competition accurately describes the nature of competition in an economy. Besides, the paper also delves the two theories of competition and monopolies are derived from collectivist and individualist political philosophy. It illustrates how perfect competition and economic monopoly have undermined economists' understanding of the actual nature of both competition and monopoly. After investigating these theories, an attempt to made to apply them to show how one can come to very different conclusions about when monopoly power does and does not exist. Keywords : Monopoly, Perfect Competition, firm, industry, government, egalitarianism, etc. 1. INTRODUCTION It is often claimed that a free market leads to large firms gaining...
Words: 6569 - Pages: 27
...Asian Economic Miracle: The Wisely Chosen Economic Policies and The Economic Trend of 20th Century Van Nguyen Keystone College Abstract: Asian economic miracle refers to three groups of East Asian countries making miracle in transforming their economies from the third world to the first world ranking. There are three generations of Asian miracle. Starting with Japan, the first generation of what called Asian miracle, following with the second generation including South Korea, Hong Kong, Singapore, and Taiwan, and final generation consists of some Southeast Asian countries such as Thailand, Malaysia. This paper is going to talk about the second generation of Asian economic miracle. By showing their economic achievement, illustrating their economic policies, and analyzing how the economic trend of 20th century reflected on those policies, this paper will argue that Asian miracle was the result of the wise choices of how to manage an economy. Furthermore, developing countries should learn the lessons of how to choose the right economic policies to make economic miracle. Asian Economic Miracle: The Wisely Chosen Economic Policies and The Economic Trend of 20th Century Introduction According to the East Asian Miracle (EAM, World Bank, 1993), “East Asia has a remarkable record of high and sustained economic growth. From 1965 to 1990 the twenty-three economies of East Asia grew faster...
Words: 6857 - Pages: 28
