"Every price is the knowledge and values of millions boiled down to a single number." The distinguished economist F.A. Hayek (1899-1992) also noted the strong association among prosperity, freedom, and personal responsibility. In “The Moral Element in Free Enterprise” (included), he writes: "Free societies have always been societies in which the belief in individual responsibility has been strong. They have allowed individuals to act on their knowledge and beliefs and have treated the results achieved as due to them. The aim was to make it worthwhile for people to act rationally and reasonably..." The importance of individuals acting on their knowledge was the theme of Hayek’s groundbreaking article “The Use of Knowledge in Society” (included). Hayek asks, how are the innumerable scarce resources in a global economy to be used to best satisfy human wants? Of all the practically infinite possible ways of combining them, which is to be chosen? Every tiny detail about the economy is relevant to this question. This includes every single preference of every single soul, and every relevant fact about every material resource. Existing knowledge about those myriad details is dispersed among billions of minds. How can all those bits of knowledge be integrated and utilized to inform the use of society’s resources? A central planning board could not possibly hope to gather and get a handle on so many bits, much less keep up with constant changes in knowledge and values. For a central planner to think otherwise would be “The Pretense of Knowledge” (which is the title of Hayek’s Nobel Prize acceptance speech, also included). Hayek argues that the market price system is the only way that humanity has discovered to meaningfully cope with “the knowledge problem.” Every resource price is essentially the knowledge and values of millions of minds concerning that resource boiled down to a single number. All individuals can use these simple, yet information-rich prices to guide their economic choices. Describing what he calls the “marvel” of the market price system, Hayek writes: “In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.”
Author
Friedrich August von Hayek CH was an Austrian and British economist and philosopher known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought. He is considered by some to be one of the most important economists and political philosophers of the twentieth century. Hayek's account of how changing prices communicate signals which enable individuals to coordinate their plans is widely regarded as an important achievement in economics. Hayek also wrote on the topics of jurisprudence, neuroscience and the history of ideas. Hayek is one of the most influential members of the Austrian School of economics, and in 1974 shared the Nobel Memorial Prize in Economics with Gunnar Myrdal "for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena." He also received the U.S. Presidential Medal of Freedom in 1991 from president George H. W. Bush. Hayek lived in Austria, Great Britain, the United States and Germany, and became a British subject in 1938.
