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My whole concept of economics is based on the idea that we have to explain how prices operate as signals, telling people what they ought to do in par… - Friedrich Hayek
" "My whole concept of economics is based on the idea that we have to explain how prices operate as signals, telling people what they ought to do in particular circumstances. The approach to this problem has been blocked by a cost or labor theory of value, which assumes that prices are determined by the technical conditions of production only. The important question is to explain how the interaction of a great number of people, each possessing only limited knowledge, will bring about an order that could only be achieved by deliberate direction taken by somebody who has the combined knowledge of all these individuals. However, central planning cannot take direct account of particular circumstances of time and place. Additionally, every individual has important bits of information which cannot possibly be conveyed to a central authority in statistical form. In a system in which the knowledge of relevant data is dispersed among millions of agents, prices can act to coordinate the separate actions of different individuals.
Given this context, it is intellectually not satisfactory to attempt to establish causal relations between aggregates or averages in the manner in which the discipline of macroeconomics has attempted to do. Individuals do not make decisions on the basis of partial knowledge of magnitudes such as the total amount of production, or the total quantity of money. Aggregative theorizing leads nowhere.
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About Friedrich Hayek
Friedrich August von Hayek CH (8 May 1899 – 23 March 1992) was an Austrian, later British, economist and philosopher best known for his defense of classical liberalism. In 1974, Hayek shared the (with Gunnar Myrdal) for his "pioneering work in the theory of money and economic fluctuations and … penetrating analysis of the interdependence of economic, social and institutional phenomena". (Nobel Memorial Prize, 1974)
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Native Name:
Friedrich August von Hayek
Alternative Names:
Friedrich von Hayek
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Friedrich A. von Hayek
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Friedrich A. Von Hayek
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F. A. von Hayek
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Friedrich August Von Hayek
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Hayek
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F. A. Hayek
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Additional quotes by Friedrich Hayek
I have certainly never contended that generally authoritarian governments are more likely to secure individual liberty than democratic ones, but rather the contrary. This does not mean, however, that in some historical circumstances personal liberty may not have been better protected under an authoritarian than democratic government. (...) More recently I have not been able to find a single person even in much maligned Chile who did not agree that personal freedom was much greater under Pinochet than it had been under Allende. Nor have I heard any sensible person claim that in the principalities of Monaco or Lichtenstein, which I am told are not precisely democratic, personal liberty is smaller than anywhere else!
I suggested before that the whole of economic history could be rewritten in terms of this gradual suppression of the primitive instincts by what we very mistakenly call “artificial” rules. Of course, they are not in the strict sense artificial. Nobody ever invented them. They were not the result of design. The new manners of conduct were not adopted because anybody thought they were better. They were adopted because somebody who acted on them profited from it and his group gained from it, and so these rules, without anybody under standing them—that is very important for the later part of my argument—without anybody understanding in what way they benefited their community, gradually came to be generally accepted.
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The socialist argument continues despite its many defeats―on the impossibility of economic calculation under collectivism, the fallacious claims for the use of markets under socialism, the incompatibility of liberty and state direction of the economy, and many others. The argument is being won by the new liberals of the late 20th century. But many people still do not understand it. And most on the Left continue to resist it.
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