Friedrich A Hayek Flashcards
What was the Austrian school?
Originating in the late 19th century, a collection of economists who believed that economic theory should derive from the individual. Their central claim was that the general economy is the sum of individual decisions and actions, and that interference in self-interested action disrupted economic activity
What is central planning?
An economic system where investment, production and the allocation of goods takes place according to a government plan.
Came to prominence after being adopted by Soviet Russia under Stalin, and to a certain extent Nazi Germany under Hitler.
Hayek is responding to this in The Road to Serfdom (1944)
What is neoliberalism?
An economic policy approach favouring free-market capitalism, deregulation and reductions in government spending.
Emerged in the 1930s as a response to Keynesian principles of government intervention, and became highly influential as a policy doctrine after the stagflation crises of the 1970s
What does Hayek believe is the key problem of economics?
The problem of information
Hayek believes that all the necessary information for optimal economic outcomes exists, but is dispersed among the various members of society
All economic activity represents ‘planning’ using this information
The question is whether such planning is done by governments (centrally) or by individual producers and consumers (competition)
What is the role of the price system?
Hayek identifies the price system as the means by which the disparate economic knowledge of society is communicated to all
In a free-market system, prices will signal to producers and consumers the necessary levels of production and consumption
This is more effective than central planning or government attempts to determine economic needs
How does Hayek explain the importance of the individual to economic activity?
Hayek suggests that the economy is the sum of individual actions
In pursuing their interests as producers and consumers, individuals interact with one another to communicate information about supply and demand
When this occurs on the scale of an entire market, all the relevant information is communicated without any individual intention to do so
What is the role of Hayek in re-vitalising the classical school?
Hayek was heavily influenced by classical economists in developing his theories. He was guided by Smithian Principles of self-interested actors, and Ricardian ideas of the dangers of government intervention.
He went further than both of them in his advocacy for total deregulation
