hayek's economics

7/28/2019 Hayek's Economics

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HAYEKS POLITICAL ECONOMY:

ITS RELEVANCE FOR DEVELOPING ECONOMIES

Shankaran Nambiar,

Senior Research Fellow and Head,

Policy Studies DivisionMalaysian Institute of Economic Research

Kuala Lumpur

Malaysian Institute of Economic Research


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Problem of Order

Hayeks central problem in economics: coordination How does spontaneous order emerge? Issue at hand: Millions

of different individuals, incomplete knowledge

Private property is the cornerstone of an economy. Privateproduction necessary, otherwise therell be no market for

production A market necessary for means of production, failing which

therell be no prices

Without prices, therell be no measure of the scarcity ofcapital goods and a way of calculating alternative uses of

capital goods


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Order

Problems with planning: Planning requires that government officials have

discretionary power that go beyond formal rules

Planning needs high level of agreement that democracy maynot be able to deliver

Widespread agreement lays foundation for dictatorship Planning leads to officials intervening to correct past

failures, causing a slippery slope syndrome


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If Not Planning, Then What?

Constituents of a good economy: Respect for private property Rule of law Stable monetary order


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Then What?

General rules important They should be predictable, known by all and meted out

irrespective of title or position.

This allows individuals to learn and adapt their behaviour ina manner that coordinates their activities with others.

General welfare should be the objective of government; notspecific goals of individuals.

Discriminatory laws damage rules of just conduct.


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Social Justice

Social justice should not mean specific distributional outcomesor particular distributions of resources.

Specific distributions would require intervention, which willresult in political decisions that will alter the rules of the

economic game.

Liberal economics as much concerned with poverty associalists. (Or, at least they should be!).

Liberal economists believe in the power of the market toachieve this rather than interventionism and planning.


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Not Neoclassical Economics

Dispersed knowledge used in making decisions. Economicprocess as one of expectations, decisions, realizations and

realignment.

Neoclassical economics gives undue emphasis to equilibriumwhile ignoring the process of discovery.


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Conclusion

To summarise, main points of Hayeks economics: Coordination Dispersed knowledge Liberal institutions, rule of law


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hayek's economics

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