The renowned economist, Friedrich Hayek, was born in Austria. In the world of economics, Hayek holds a special place as a central figure. He became a Nobel laureate in 1974 for his unrivaled contributions to economic science. The paper that will be discussed further is about the significant contributions of Hayek to economics, notably the use of knowledge in society. Friedrich Hayek proposed how to establish a rational economic order. According to his way of thinking, the main characteristic of a rational economic order problem is that the knowledge of the circumstances is scattered among individuals and is not integrated.
Thus, the economic problem of society is the problem of using knowledge. The economist argues that it is necessary to ensure the best use of resources. He asks himself and the reader whether resource planning should be centralized, done by one person in the system, or divided among several community members. The author also argued that the central economic problem facing all societies is the inability to quickly adapt to the ongoing changes. And the only solution to this problem is decentralization. It can help in acquiring knowledge of the current circumstances of time and place.
Additionally, Friedrich Hayek introduced the term “man on the spot” which relates to a person who has a deep knowledge of their environment. The author claimed that the information of the “man on the spot” is not enough to make the right decision. And in this case, the critical moment is the transfer of additional knowledge and information to the “man on the spot” in order to add their solution to the broader economic system.
Furthermore, Friedrich Hayek illustrated the example of the tin market to sufficiently explain how important the use of knowledge in society is. He wrote that, for example, somewhere in the world, a new way of using tin appeared, or, on the contrary, the source of raw materials was closed. In the meantime, some tin consumers will make changes, such as saving on raw materials. Thus, this decision will affect not only the producers of tin, and the supply of tin but also the use of its substitutes, and in general, the entire economy.
The market is a set of relevant information and decisions about the value of goods made by different people. Therefore, local prices in the market are related and affect each other. It is vital for an economist to consider all the continuous small changes that make up the entire economic system. Consequently, Hayek adhered to the position that the intervention of the centralized state in the development of the economic system should be minimal.
Essentially, the principal claim of Hayek’s teaching is that market knowledge is not presented in a concentrated form, in numbers or statistics that can be controlled and managed. The economist and philosopher believed that it is almost impossible to create an objective picture of the economy since constant changes and decisions of various market players interacting with each other change the system. Needless to say, that competition is an essential element of the market as it helps to select the best individual player decision that will affect the market further. All things considered, in the economist’s opinion, market relations and dependence between market players are the core of economic development and growth.