Economics As a Coordination Problem: The Contributions of Friedrich A. Hayek/Studies in Economic Theory [Paperback]

Friedrich August Hayek (1899-1992) was an economist of the Austrian School (and once a student of Ludwig von Mises) who received the Nobel Prize in Economics in 1974. His major works include The Road to Serfdom: A Classic Warning Against the Dangers to Freedom Inherent in Social Planning, The Fatal Conceit: The Errors of Socialism (The Collected Works of F. A. Hayek), The Constitution of Liberty, etc.

Gerald O'Driscoll (also the author of books such as The Economics of Time and Ignorance: With a New Introduction (Routledge Foundations of the Market Economy), Free Trade within North America: Expanding Trade for Prosperity, Jimmy Stewart Is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking.(Book review): An article from: The Cato Journal, Prospects for Reforming the IMF and the World Bank, etc.) wrote in his Preface to this 1977 book, "In writing this book, I decided in general not to consult with Professor Hayek. If the reinterpretation was to be authentic and worthwhile, it would necessarily involve my piecing together his ideas as they were presented and available. I wanted to assess Hayek's contributions, not what Hayek himself RECALLED contributing, or INTENDED to contribute. I was thus especially pleased that ... he found my interpretation satisfactory."

O'Driscoll wrote, "All Hayek's work may thus be seen as flowing from a conception of social interaction with emphasis on economic allocation." (Pg. 9) In the "socialist calculation" debates, for example, Hayek argued that the market system, with its relatively cheap communication network, is the best possible method of allocating resources. In his work on cyclical fluctuations, Hayek used the coordination problem to explain periodic breakdowns in a system. "Throughout all his work he maintained his conception of the 'economic problem' as a coordination problem, for the analysis of which the method of 'logical implication' is the appropriate tool." (Pg. 28)

For Hayek, increasing incomes of factory owners lead to an increasing demand for consumer goods, since resources were attracted to the production of capital goods at the expense of consumption output. Increasing consumption "implies that the prices of consumer goods and of capital goods specific to the stages nearest to final output will rise relative to the current wage rate." (Pg. 99)

O'Driscoll summarizes, "According to Hayek, the business crisis occurs when entrepreneurs can no longer attract the funds to compete or maintain a given structure of production." (Pg. 103) Entrepreneurs are "misled" by market signals that should indicate increased voluntary saving, and change their investment plans and adopt production processes assuming a relatively high level of saving. "That these expectations are erroneous is discovered as the real forces ... surface." (Pg. 105)

O'Driscoll also observes, "It would be of great scientific interest if we could establish that monetary disturbances typically lead to malinvestment in 'longer' or 'more roundabout' structures of production... But our inability to demonstrate this empirically could scarcely count against the theoretical insights offered by Hayek's analysis of inflation." (Pg. 119)

This book will be of considerable interest to anyone studying Hayek's economic theories (rather than his work in social science, etc.).

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