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1JohnMaynardKeynes,TheGeneralTheoryofEmployment,Interest,andMoney(London:MacmillanandCo.,1936;reprint,Cambridge:BMI
Publishing,2008),249250.
2Ibid,.,379380
3Ibid.,374.
4
Ibid., 210-211.
F. A. Hayek (1899-1992)
Here, Hayek is defending the free market against socialism. What is the problem Hayek is trying to address?
He uses the term spontaneous twice in this section, why is he wedded to this term?
Clearly there is here a problem of the Division of Knowledge which is quite analogous to, and at least as
important as, the problem of the division of labour . . . The problem which we pretend to solve is how the
spontaneous interaction of a number of people, each possessing only bits of knowledge, brings about a state of
affairs in which prices correspond to costs, etc., and which could be brought about by deliberate direction only
by somebody who possessed the combined knowledge of all those individuals . . . I still believe that by what is
implicit in its reasoning, economics has come nearer than any other social science to an answer to that central
question of all social sciences, how the combination of fragments of knowledge existing in different minds can
bring about results which, if they were to be brought about deliberately, would require a knowledge of the part
of the directing mind which no single person can possess. To show that in this sense the spontaneous actions of
individuals will under conditions which we can define bring about a distribution of resources which can be
understood as if it were made according to a singe plan, although nobody has planned it, seems to me indeed an
answer to the problem.5 "The curious task of economics is to demonstrate to men how little they really know
about what they imagine they can design.6
Why was the Great Depression so great, according to Hayek? Where should we look, if we want to
understand this great economic calamity?
[U]p to 1927, I should, indeed, have expected that because, during the preceding boom period, prices did not
rise but rather tended to fall the subsequent depression would be very mild. But, as is well known, in that
year an entirely unprecedented action was taken by the American monetary authorities, which makes it
impossible to compare the effects of the boom on the subsequent depression with any previous experience. The
authorities succeeded by means of an easy money policy, inaugurated as soon as the symptoms of an impending
reaction were noticed, in prolonging the boom for two years beyond what would otherwise have been its natural
end. And when the crisis finally occurred, for almost two more years deliberate attempts were made to prevent,
by all conceivable means, the normal process of liquidation. It seems to me that these facts have had a far
greater influence on the character of the depression than the developments up to 1927, which, from all we
know, might instead have led to a comparatively mild depression in and after 1927.7
What, according to Hayek, should we avoid in an economic downturn?
There is, finally, the supremely important problem of combating general fluctuations of economic activity and
the recurrent waves of large-scale unemployment which accompany them. This is, of course, one of the gravest
and most pressing problems of our time. But, though its solution will require much planning in the good sense,
it does notor at least need notrequire that special kind of planning which according to its advocates is to
replace the market. Many economists hope, indeed, that the ultimate remedy may be found in the field of
monetary policy, which would involve nothing incompatible even with nineteenth-century liberalism. Others, it
is true, believe that real success can be expected only from the skillful timing of public works undertaken on a
very large scale. This might lead to much for serious restrictions of the competitive sphere, and, in
experimenting with this direction, we shall have carefully to watch our step if we are to avoid making all
economic activity progressively more dependent on the direction and volume of government expenditure. But
this is neither the only nor in my opinion, the most promising way of meeting the gravest threat to economic
security.8