ECON 364 – Topic Nine

Austrian Economics - Part Two

Mostly From "Austrian Economics" by Deborah Walker

in the The Fortune Encyclopedia of Economics, ed. by David R. Henderson

and other sources, including your reading assignment:

"The Use of Knowledge in Society" by F. A. Hayek

Why do centrally planned economies fail, according to Austrian economists - in general? 

How do knowledge (what kind?), private ownership of the means of production, and market prices and profits fit into this theory? (Economic calculation)

According to Hayek, the question is not whether economic planning should be done, but rather . . . . . . ? 

What are the two ends of the spectrum (with respect to economic planning) and what is the middle ground?

How does Hayek separate different kinds of knowledge in society? 

Is some knowledge (and how it is utilized) disregarded, according to Hayek (by mainstream economists and others)?  Why?

According to Hayek, why can't a central planner take advantage of individual knowledge of time and circumstances?  And related, why should economic decisions be left to individuals?

Decentralization solves part of our economic problem?  What does it solve and what does it not solve?  What other information does the individual need to make good choices?  How is that knowledge conveyed to him or her? 

Why do economic problems arise from change?  If this is true, shouldn't change be incorporated into our theories?  Why, according to Hayek are the small changes made in society often ignored by economists?

In the price system, individuals need not know everything that caused a price change to act accordingly.  In this way, the system economizes on knowledge.  Explain.

Is it fair to say that, according to Hayek, subjective values help individuals coordinate their own personal plans and prices/profits help individuals coordinate their plans with others?  Explain.

What is the "marvel" of the price mechanism, according to Hayek?  Why does he think others have taken this "marvel" for granted?  (Two reasons here)

1.

2.

The price system came about spontaneously.  What does that mean?

According to Hayek, has a better system been designed?  Explain.

Hayek sees differences between economists as being less political and more methodological as being a good thing.  Explain.

Hayek doesn't deny that in our system equilibrium analysis has a useful function to perform -- what is that function (according to Hayek)?  Explain.

Explain the Austrian theory of the business cycle. 

Include in your analysis:  the Hayekian triangle and it's meaning as a capital structure (higher order and lower order goods), a shifting of the triangle, a "cluster of errors", time preferences, signal extraction problem, injection effects and relative price changes, mal-investment (on two levels), re-tooling of the capital structure and what that means.