The Issues Of Spreading Knowledge In Heyek's The Use Of Knowledge In Society And The Meaning Of Competition

1722 words - 7 pages

Society has been plagued with the problem of knowing all the relevant knowledge to make an informed decision. Presidents have trouble getting all the intelligence to make a decision during a time of crisis. The issue of getting knowledge to those who need it has been a central struggle in economics and how do those in a position make decisions based on that knowledge. F.A. Hayek in his essays The Use of Knowledge in Society and the Meaning of Competition explains his theories.
In the essay The Use of Knowledge in Society, Hayek explains that one of the main problems faced in economics is that society does not utilize the information given to them which would result in a misallocation of ...view middle of the document...

The knowledge of the people is more valuable than a bunch of statistics talking about the market overall. The problem with that is how you communicate the need of a specific resource when decentralization comes to be. Hayek says that a person does not need to have complete knowledge, but the relative prices given off by these resources will create the most efficient use of resources. With a concentrated system the market is not free because there are barriers to entry thus creating a monopoly. They use some sort of concentrated knowledge and then some sort of collective entity makes decisions. This allows the entity to decide what the best product is for the consumers, but it may not be the right choice. This system is very top- bottom approach to economics.
Prices he says can act as a way to coordinate several people in the exact way that it helps the individual work his plan. Hayek then brings up the example of a need for tin. That need will cause prices to go up, and when producers of tin and users of tin will see that tin can be used better in a different line of employment. Each individual vision has enough overlap that the market responses in turn and at a better rate than a single individual possessing all information. This is an example of a decentralized market where people learn through trial and error on what to produce. Secondly, pricing signals given off will allow firms to move resources into lines of employment that are efficient. When these pricing signals are given off, it allows the small business owners or entrepreneurs to decide whether they want in that specific market to earn a profit. This system also allows trial and error to find the market equilibrium and which in turn allows for a relationship between producers and consumers to find out what the consumers want. This is an example of a bottom-top approach to economic policy.
Prices have to be viewed as a mechanism to communicate information if we understand its correct function. The most important aspect of the system is that very little information can command the market to move in powerful ways. Hayek then breaks knowledge down to disperse and concentrated. In the dispersed knowledge that leads to specialization, the knowledge is incomplete, so forcing many different people to come together and form one complete knowledge. He uses the analogy of the pen factory where many people know how to make parts of the pen, but not the whole thing, so people come together results in increased productivity, and it is cost effective. In a concentrated system, there is no form of trial and error, and in the pen making analogy the company is less productive and has higher costs of production. In a concentrated system the economy is hindered because people do not have the ability to speculate on the market.
In his article the meaning of competition Hayek says that competition is not just the number of firms in the market it something entirely different. Hayek then goes onto say...

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