Hayek's epistemological arguments against central planning and in defense of market economies Table of contents

1. Introduction 2. The market economy order as extensive 3.The central economic problem and the concept of order 4. Conclusion 5. References

1. Introduction Hayek, one of the greatest thinkers of the twentieth century economist and philosopher, had made it a project to establish the defense of liberalism on the basis of theoretical renewal. For this, he developed a realistic conception of knowledge and rationality, and a dual theory of coordination based on the notion of order and order on the distinction between organized and spontaneous order. This article questions the status of the concept of organized throughout the construction Hayekian. Through this angle of attack, often overlooked by commentators, we propose to test the consistency and internal soundness of thought that wants more systemic. We know that Hayek defines the central economic problem such as adaptation to uncertainty and change in complex societies. The notion of order is created to think the problem of coordination that results. This is what presented in this article. In this article we will arise the question of whether Hayek manages to develop satisfactorily, a positive theory of the market economy. For this, we first show how a particular type of economic systems, social systems, are unable to meet the challenge of adaptation as Hayek argued in a lecture. However according to Caldwell (2004), the spontaneous order of market, as conceived by Hayek, does not seem to offer a much more satisfactory. In particular, its organizational foundations are too fragile and too indeterminate, both theoretically and empirically, to constitute a real alternative.

2. The market economy order as extensive But no matter how important the concept of spontaneous order, it is not sufficient to establish the Hayek's evolutionary perspective. The economic and social order to be reported account is not spontaneous, it is also extensive (Hayek speaks in the sense of extended order). This order, in fact, grow and grow, and can, moreover, in observe the expansion history. Such a macroscopic analysis is carried out by Hayek, though in a much more expeditious than initially planned by him in The Fatal Conceit . It is, moreover, in this book that the relationship between the perspective evolutionary and criticism of socialism is the most obvious. In essence, Hayek's epistemological argument can be made as follows. The main error of socialist theory, which believes it is possible to substitute an order superior economic, because consciously planned, spontaneous order and the extensive market economy, is to ignore for all practical purposes the way we acquire the knowledge that we are economically and socially useful. Such learning requires more than mere observation and immediate experience: it requires the existence of tradition which we can draw lessons unconsciously profitable. In regard to the economic and social existence of men, tradition required is moral, in the sociological sense: it concerns the rules of daily conduct of human affairs. But what

makes historically possible the development and growth economic, it is ultimately a cohesive set of moral beliefs, which in themselves, are rationally unjustified, or even probably unjustifiable (Lange, 1936-37). Maybe not are not even detectable so they are completely buried deep in the consciousness of individuals. Nevertheless, the intergenerational transmission of these moral rules occurs quite without the knowledge of individuals: it is that they unconsciously adopt most of the standards of behavior, however carefully they follow. These rules, for Hayek, relate both to the perception that the conduct and they have to actually only one property really crucial in economic terms: they promote the maintenance and growth of groups that follow them to the detriment of groups that would discard. It is on this fundamental argument that Hayek assert ultimately his theory of cultural evolution. This theory is based, in fact, on the assumption of the existence a selection of human groups in terms of economic performance individuals who are members. It is important to see that these rules are not adopted or argumentative deliberative, after an empirical investigation or philosophical debate, as if they were induced empirically or rationally inferred. This means, of course their fitness is not necessarily consciously recognized. These moral rules nevertheless allow, when followed, individuals extremely distant each other, and belonging to competing groups to exchange information by the price system and thus coordinate their own actions. This process of mutual coordination , according to Hayek is the entire analysis in terms of evolutionary adaptation to the unknown, and there can be no substitute for thinking and planning process automatic adjustment. In this sense, one of the most fundamental theory economic, for Hayek, both show how this process works and to show the limits it imposes on men who are entirely dependent for their survival. Any individual conduct based on such moral rules can be considered as a process of maximization under constraints: each individual belonging to a social group is involved in multiple exchanges and makes use of information inherently uncertain and incomplete with the aim of ensuring the best possible fate. Even if we can model such behavior as a game within the meaning of the theory games, this process can never be equated in the sight of Hayek at least, a calculation aware that would be the fact of an individual mind, much less of a "collective mind" or a single, central decision-making body. In the context of game theory, an action is defined by or reduced to all the consequences it produces. However, the consequences are countless decisions taken by individual agents, for the most part at least, strictly speaking, incalculable and unknowable in advance: they are un anticipatable because they are mostly unintentional. It is, therefore, a different perspective adopted by Hayek on economic behavior and human action (Hayek, 1991) Following Hayek, the multiplication of individual actions result in the development place an order of complexity not only self-generated spontaneously, but, again, fundamentally a tendency to expand indefinitely: this order is itself expanding constant, unless of course you put a brake. The order in question extends more than agents are left free to their personal decisions. It grows in proportion as the individuals who coordinate among themselves are increasingly different from each other and they can enjoy their growing diversity within structures of cooperation increasingly sophisticated. But the economic, contrary to what his critics have often that is, for Hayek is neither perfect nor ideal, nor insured or completed, which does not mean however, in comparison with other possible orders, it is not the most effective. For Hayek, the main shortcomings or deficiencies of this nature expand him usually to come to our attempts to improve it, or worse, of our actions prevent it from playing its role, ultimately, it is an elimination of less fit. Of these arguments, Hayek concludes that the theory which proposes to replace the extensive order of the market economy (Hayek called the catallaxy preferably) by planned epistemological order, because it is wrong about what is actual knowledge by the individual economic agent. But also, and more worse still, this theory is deficient in terms of methodology, because it has no plans the economic perspective decidedly evolutionary. These two errors are capitals in the eyes of Hayek as commit generally leads to adopt a illegitimate perspective on the task of economic theory which is expected, not it simply explains and allows to understand the basic principles of functioning of the economy but rather it equips the economy to make engineer planner who can reconstruct society on a basis deemed more healthy. In the following sections, detail arguments advanced by Hayek to justify his views are discussed (Boettke, 2000). 3. The central economic problem and the concept of order According to Hayek epistemological arguments, the market economy arises and evolves as a

result of interaction between people. But here is the conclusion that such a character of its formation and development creates opportunity for people of influencing these processes. The fact that the market economy develops according to its own internal logic, caused by the fact that in its formation have been influenced by his practical knowledge embodied in customs. This is, so to speak, invisible knowledge which is not recognized as a carrier and cannot be separated from it formalized in some generalized theories and the basis for economic policy. The experience that used economic entities are the kind of information that is "dispersed" and "perishable." This information is huge in volume, it relates to specific conditions and parameters of current activity in the economy. The nature of knowledge underlying the evolution of market order, excludes, according to Hayek is the very possibility of any interference with this process without the danger of partial or complete its destruction. The market order, Hayek argues, is fundamentally different from natural and technological objects and systems, knowledge of which in the form of concrete data, formulas, graphs, etc. easily formalized and can be used to manage such facilities and systems.(Hayek, 1952) Hayek believes that the leading role in the formation and dissemination of practical knowledge about the current economy is the market mechanism, through which prices change in the ratio of supply and demand, advertising, etc. regularly sends information about what, where, how, when to produce, buy and sell and thus provides coordination of market participants. Market, therefore, considered as a kind of information mechanism that provides the not fragmented, and system knowledge about the economy, indispensable for any effective economic activity. From this perspective, Hayek entered the debate with other members of the neoclassical school, who believe that market - the social mechanism, the distribution is limited to the same known resources in amounts and in accordance with the structure of consumer preferences. In terms of Hayek, if the problem was in this kind of distribution, the market with his competition would not be needed. With such a task would cope well planned system of distribution of production factors from a single center. Market also is able to efficiently allocate the resources which were not and could not be taken into account, for business purposes, which previously were not and could not be detected. Competition, Hayek wrote, is an effective way of sending unknown resources for unknown purposes. These tasks can be performed market, Hayek notes, due to the fact that he is able to identify, disseminate and make use of previously unknown information about the needs, resources and technologies that act as a specific information system. (Hayek, 1944) As Hayek explains, spontaneous nature of the market means that any interference with it can only undermine the market mechanism and to paralyze the economic system as a whole. Furthermore, any voluntary control over economic life, any economic policy aimed at getting results - whether it be policy of full employment or economic growth or fight inflation or recession, or balancing demand and supply of money - according to Hayek, in principle, impossible, because it is unable to take into account and use that array of knowledge that is necessary for its successful implementation. The market order, Hayek notes, developed on the basis of its own internal logic, not having anything to do with moral and ethical advocate representatives of various social strata and classes, demanding "a great justice," i.e., greater equality in the distribution of income and assets. (Hayek, 1952) The just a position monetarism and Keynesian idea of spontaneous order, Hayek formulated theory of market and the money. The latter, in his opinion, cannot act as an instrument of economic policy, which aims as monetarists thought. Ensuring the continuous rate of growth of money supply according to demand for money. In terms of Hayek, it contradicts the very nature of this phenomenon. The stability of the monetary system can be achieved, as Hayek thought, only in the way of its liberalization, which provides for the abolition of the government monopoly on money creation and replacement of the competition of private issuers. Such competition would correspond to the nature of money market and would be able to prevent inflation and recession arising from the policy of state regulation of economy as viewed by Hayek. This position, Hayek directed against the monetarism and against Keynesian concept that regarded money as a tool of state influence on the economy.(Mises, 1981) Keynesianism in general has become one of the main areas of criticism of Hayek. Opposing him, Hayek used his concept of the spontaneous market order, which in principle excludes any state

intervention in economic life of society. However, Hayek in this struggle will build on their understanding of "implicit" knowledge businesses fault of Keynes that he overestimates the possibility of economic science, which gives only the abstract, and therefore incomplete knowledge about the most common trends in economic life, leaving aside the main - practical knowledge of economic agents based on real economic processes. Was it unacceptable to Hayek and Keynes's approach to the phenomena of the market economy from the standpoint of macro-level? For Hayek, the level of economic dependency is unique in the real business, where all economic decisions are made only to individuals according to their subjective ratings and preferences. Hayek opposes the theory of Keynes not only for his general principles of the concept, but some of these arguments against the central provisions of Keynesianism. For example, he considers unreasonable Keynes concept of effective demand on the grounds that it leaves aside the problem of correlation structure of demand and supply structure. When the divergence of these structures, Hayek notes, the goods will not be implemented, regardless of the total aggregate demand. According to Hayek, an unreasonable explanation of Keynes causes unemployment. It does not occur as a result of insufficient effective demand, as Keynes believed, but because of high wages, due to overwhelming demands of trade unions, leading to unnecessarily reduce profits and the corresponding reduction in demand for labor. Since the cause of unemployment are the trade unions, says Hayek, there is no reason to shift responsibility for unemployment on the government and the more government is not obliged to take measures for its elimination. Came under fire of criticism Hayek and Keynesian concept of currency adjustments. Hayek argues that the use of moderate inflation as a means of combating unemployment actually only increase unemployment and inflation will add it. The fact Hayek explained that this will lead to uneven growth of prices, and hence to the irrational use of resources because they will be sent in with artificially high conjuncture defined rising. To support this situation will need new monetary injections that increase the inflationary process and the structural imbalances that arise in this regard, strengthen unemployment. Solving the above problems should be sought not in the way of a mythical "Phillips curve", and within a free market economy. (Burczak, 2006) Criticism of socialism doctrine of spontaneous nature of the market order, and the concept of "implicit" knowledge of Hayek is widely used in his critique of socialism. Concentration of economic power in the hands of planners seemed to him so that it had only negative consequences for several reasons. In his view, it undermines the natural course of social and historical process, deprive, or its internal driving forces for development. It imposes the public randomly selected values, which it must be guided in their economic activities. This scale reflects the need for the struggle of different groups in the central, including planning authorities, and sometimes they wish zigzags top officials, so disorienting to determine specific objectives and management measures to achieve them. Centrally planned economy, according to Hayek, are deprived of the compensation mechanisms mistakes businesses, operating in a market economy. In the latter, says Hayek, economic decisions are made without exception by all economic actors. For this reason, some errors will inevitably offset by successful business activities of others. In the planned economy the same mistake can be noticed and corrected only after the economy has already suffered irreparable damage. Planned economy is not able either to use as a basis for economic activity "implicit" knowledge do not replace them with something adequate. This system eliminates the economic freedom of citizens and converts them to active independent entities in the passive objects of the planned economy. The negative attitude causes Hayek and Socialism associated with the idea of social justice, which aims to reduce the benefit of the poor, including through the progressive tax system. The idea, says Hayek, devoid of rational content as ethical provisions cannot be applied to spontaneous social and economic processes as they are applicable to physical processes occurring in, say, within the solar system. In addition, the policy of social justice undermines the adaptive quality of market order, which involves the systematic extinction of those industries and areas of the economy that no longer meet the needs and cause unemployment, lower incomes, etc. (Caldwell, 2004) Meanwhile, Hayek notes, it is accelerated economic development, a prerequisite of which is noninterference in spontaneously active power market order, just can compensate for lower revenues in

unpromising areas. However, Hayek believed that the state, creating the general conditions for the functioning of free market economics, society has to provide some social services cannot offer the market. First of all - a pension, and promoting public health and education, unemployment insurance and more. 4. Conclusion The main work of Hayek, directed against socialism - it is already mentioned in the book "Fatal concept: Errors of Socialism." It opposed capitalism, represented by Hayek as "extended order of human cooperation," which emerged naturally as a result of compliance, as it expresses a certain moral practices, and socialism, which Hayek imagination serves as an artificially constructed social and economic system. From his point of view, the only way of human development - is capitalism. Therefore the problem of choice between capitalism and socialism as he treats the question of the existence of human society. "Contesting the market order and socialism - he wrote - is a dispute about survival - neither more nor less. Imitation of socialist morality would lead to the destruction of much of modern humanity and the impoverishment of the mass society." Hayek believed that the system, which arose spontaneously, naturally, is always superior to artificial. Not accidentally, he notes, with a market order is produced and accumulates more knowledge and wealth than is possible with centrally-controlled economy. The matter is that capitalism "has the greatest ability to use dispersed knowledge" due to its inherent market competition, which is the only known way of informing humanity of the business entity's activities that can yield maximum results. (Caldwell, 2004) Opposing capitalism and socialism, Hayek distinguishes two principles governing relations between people. First, it is instinct, which play an important role in the initial stage of human development. Second, the rule is extended as a spontaneous order of a complex system of human behavior in society. This system should include honesty, respect agreements, private property, competition, profits and their own lives. The latter rule, unlike instincts, which are transmitted through biological, spread through tradition, education and inheritance. People have to live in two systems of rules that are in conflict with each other, since the rules of the extended forced refrain from that to what motivates their instinct - to capture someone else's property, violation of contracts and more. Comparing these two systems of rules, of which the first is caused by biological nature of man, and the second is a purely social character, Hayek notes that the extended order is artificial. He wrote that this order is "unnatural nature, because does not meet the biological nature of man. However, the scientist notes that such a procedure no more artificial than the entire human civilization, language, mind, art, etc. In another sense advanced order - is a natural order, because, like biological phenomena, he naturally developed in the process of natural selection." The first system of rules, based, according to Hayek, the natural instincts of man with their characteristic moral solidarity, altruism, group decision-making, etc., he condemns as sees in them an obstacle to the spread and use of "trace" of knowledge and growth of wealth. However, those instincts, according to Hayek, are the "main source of collectivist tradition." The activists of reformers who are trying to make the process of social development and conscious achievement of known and directly useful purposes, treated Hayek as a "relic of the overview and little flock." (Burczak, 2006)

5. References Burczak, Theodore A. (2006). Socialism after Hayek, Ann Arbor: University of Michigan Press, pp. 38-121

Boettke, Peter (ed.) (2000). Socialism and the Market: The Socialist Calculation Debate Revisited, 9 volumes. London: Routledge, pp.120-230.

Caldwell, Bruce (1997). Hayek and Socialism, Journal of Economic Literature, no. 4, pp.1858-1887

Caldwell, Bruce (2004). Hayek's Challenge. An Intellectual Biography of FA Hayek. Chicago, pp.2754.

Hayek, Friedrich August von (1949, 1967). The Intellectuals and Socialism, in: ders., Studies in Philosophy, Politics, and Economics, London, pp. 175-193.

Hayek, Friedrich August von (1952). The Sensory Order. An Inquiry into the Foundations of Theoretical Psychology, Chicago, pp.320-398.

Hayek, Friedrich (1944). The Road to Serfdom. London: Routledge, pp. 124-149

Hayek, Friedrich (1991). "The Fatal Conceit: The Errors of Socialism". The University of Chicago Press, pp. 66-86.

Lange, Oskar (1936-37). On the Economic Theory of Socialism: Part One. The Review of Economic Studies, pp. 50-70.

Lange, Oskar (1936-37). On the Economic Theory of Socialism: Part Two. The Review of Economic Studies, pp. 144-140.

Mises, Ludwig von (1981-1922). Socialism: An Economic and Sociological Analysis. Indianapolis: Liberty Fund, pp.74-90.