How compelling are Hayek's epistemological arguments against central planning and in defense of market economies? Introduction
This paper discusses the epistemological arguments of Austrian born economist Friedrich Hayek against central planning and in defense of market economies. Personally, I believe that Hayek’s views in this regard are logical and theoretically well grounded. Therefore, throughout the essay I will try to demonstrate the soundness of Hayek’s arguments. This essay is consists of two major parts. The first part of the essay attempts to support Hayek’s arguments against central planning using different scholars’ and academics’ opinions. The second part support Hayek’s arguments in favor of market economies and several controversial opinions. In the 1930s two schools of political economy emerged among the scholars. The first school supported socialist ideology of centralized planning by defending dominant influence of the government for the economy. This school was represented by F.M. Taylor, O. Lange, A.P.Lerner, and H.D. Dickenson. Second school was represented by well-known Austrian economists like Ludwig Mises and Friedrich Hayek who criticized the socialism its centrally planned economy. Hayek believes that socialists target and programmes are impossible to achieve or accomplish in practice (Hayek, 1988, p.7; Kley, 1994, p.3). Socialist regimes were activated after the World War I when fighting countries have created military economies based on the principles of centralized and collective planning. Nevertheless, even after the war planning was used by countries to solve the problems of economy in the peacetime. Hayek stated that the supporters of “socialist economy” promised more than they could ever supply because all the knowledge required to regulate the economy must be gathered and worked out by sole government. This assumption neglects the fact that contemporary society is set up on widely scattered knowledge that can not be collected and processed by the central government. (Hayek, 1988, p.87) Hayek is a supporter of liberal economy without government interventions, where the competition itself sets the order and creates a balance. He claims that only free markets where people can make decisions based on their personal interests can generate necessary information for reasonable coordination of public behavior. Freedom of choice plays a basic role in an efficient economy which will lead to prosperity. Hayek believes that the process of price formation in the free market is the practical realization of rational economy. (Hayek, 1944, p. 18; p.27) Hayek’s concern is whether the centrally planned economy complies with principles of social justice. Socialists arguing for the command economy believe that the planning allows distributing resources more evenly and fairly within the society. Hayek agrees with this, pointing that if we want to distribute resources in accordance with certain standards of welfare, the best choice is to plan the economic life. However, reward for such achievements will be the abolition of freedom of choice since decisions will be made for society by the central government authority. (Birner, Garrouste, Aimar, 2002, p. 189) Thus, the idea of “fair distribution” actually abandons the market in favor of planned economy, in which “someone” decides how much to allocate to each member of society, and the price of this is the complete disappearance of personal freedom. State intervention for Hayek not only hinders to build equilibrium in the economy, but also gradually destroys individuals’ freedom and democracy; therefore, Hayek denies state planning and socialism. According to him, predominance of state ownership and totality of state control are the causes of the concentration of power in the hands of the worst population (Hayek, 1944, p. 101).
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