Individualism and Economic Order by Friedrich A. Hayek

Author:Friedrich A. Hayek
Language: eng
Format: mobi, epub, pdf
ISBN: 9781610166058
Published: 2013-04-10T16:00:00+00:00

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Classical political economy broke down mainly because it failed to base its explanation of the fundamental phenomenon of value on the same analysis of the springs of economic activity which it had so successfully applied to the analysis of the more complex phenomena of competition. The labor theory of value was the product of a search after some illusory substance of value rather than an analysis of the behavior of the economic subject. The decisive step in the progress of economics was taken when economists began to ask what exactly were the circumstances which made individuals behave toward goods in a particular way. To ask the question in this form led immediately to the recognition that to attach a definite significance or value to the units of different goods was a necessary step in the solution of the general problem which arises everywhere when a multiplicity of ends compete for a limited quantity of means.

The omnipresence of this problem of value wherever there is rational action was the basic fact from which a systematic exploration of the forms, under which it would make its appearance under different organizations of economic life, could proceed. Up to a certain point from the very beginning the problems of a centrally directed economy found a prominent place in the expositions of modern economics. It was obviously so much simpler to discuss the fundamental problems on the assumption of the existence of a single scale of values consistently followed than on the assumption of a multiplicity of individuals following their personal scales that in the early chapters of the new systems the assumption of a Communist state was frequently used—and used with considerable advantage—as an expository device.[5] But it was used only to demonstrate that any solution would necessarily give rise to essentially the same value phenomena—rent, wages, and interest, etc.—which we actually observe in a competitive society, and the authors then generally proceeded to show how the interaction of independent activities of the individuals produced these phenomena spontaneously, without inquiring further whether they could be produced in a complex modern society by any other means. The mere absence of an agreed common scale of values seemed to deprive that problem of any practical importance. It is true that some of the earlier writers of the new school not only thought that they had actually solved the problem of socialism but also believed that their utility calculus provided a means which made it possible to combine individual utility scale into a scale of ends objectively valid for society as a whole. But it is now generally recognized that this latter belief was just an illusion and that there are no scientific criteria which would enable us to compare or assess the relative importance of needs of different persons, although conclusions implying such illegitimate interpersonal comparisons of utilities can still be found in discussions of special problems.

But it is evident that, as the progress of the analysis of the competitive system revealed the complexity of the

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