“My whole concept of economics is based on the idea that we have to explain how prices operate as signals, telling people what they ought to do in particular circumstances. The approach to this problem has been blocked by a cost or labor theory of value, which assumes that prices are determined by the technical conditions of production only. The important question is to explain how the interaction of a great number of people, each possessing only limited knowledge, will bring about an order that could only be achieved by deliberate direction taken by somebody who has the combined knowledge of all these individuals. However, central planning cannot take direct account of particular circumstances of time and place. Additionally, every individual has important bits of information which cannot possibly be conveyed to a central authority in statistical form. In a system in which the knowledge of relevant data is dispersed among millions of agents, prices can act to coordinate the separate actions of different individuals.
Given this context, it is intellectually not satisfactory to attempt to establish causal relations between aggregates or averages in the manner in which the discipline of macroeconomics has attempted to do. Individuals do not make decisions on the basis of partial knowledge of magnitudes such as the total amount of production, or the total quantity of money. Aggregative theorizing leads nowhere.”

1960s–1970s, A Conversation with Professor Friedrich A. Hayek (1979)

Adopted from Wikiquote. Last update Sept. 14, 2021. History

Help us to complete the source, original and additional information

Do you have more details about the quote "My whole concept of economics is based on the idea that we have to explain how prices operate as signals, telling peopl…" by Friedrich Hayek?

Friedrich Hayek79

Austrian and British economist and Nobel Prize for Economic… 1899–1992

Related quotes

“The misconception that costs determined prices prevented economists for a long time from recognizing that it was prices which operated as the indispensable signals telling producers what costs it was worth expending on the production of the various commodities and services, and not the other way around. It was the costs which they had expended which determined the prices of things produced.It was this crucial insight which finally broke through and established itself about a hundred years ago through the so-called marginal revolution in economics.The chief insight gained by modern economists is that the market is essentially an ordering mechanism, growing up without anybody wholly understanding it, that enables us to utilize widely dispersed information about the significance of circumstances of which we are mostly ignorant. However, the various planners (and not only the planners in the socialist camp) and dirigists have still not yet grasped this.”

Friedrich Hayek (1899–1992) Austrian and British economist and Nobel Prize for Economics laureate

1980s and later, Knowledge, Evolution and Society (1983), "Coping with Ignorance"
Source: http://imprimis.hillsdale.edu/coping-with-ignorance/

“In reality the cycles we have the occasion to observe are generally not damped. How can the maintenance of the swings be explained? Have theses dynamic laws deduced from theory and showing damped oscillations no value in explaining the real phenomena, or in what respect do the dynamic laws need to be completed in order to explain the real happenings? They (dynamic laws) only form one element of the explanation: they solve the propagation problem. But the impulse problem remains.”

Ragnar Frisch Propagation problems and impulse problems in dynamic economics

Source: 1930s, Propagation problems and impulse problems in dynamic economics, 1933, p. 197

“The prevailing economic theory of business enterprise and behavior, the maximization of profit—which is simply a complicated way of phrasing the old saw of buying cheap and selling dear—may adequately explain how Richard Sears operated. But it cannot explain how Sears, Roebuck or any other business enterprise operates, nor how it should operate. The concept of profit maximization is, in fact, meaningless.”

Peter F. Drucker (1909–2005) American business consultant

Source: 1960s - 1980s, MANAGEMENT: Tasks, Responsibilities, Practices (1973), Part 1, p. 59 (1986 ; 45)

“I've always doubted that the socialists had a leg to stand on intellectually. They have improved their argument somehow, but once you begin to understand that prices are an instrument of communication and guidance which embody more information than we directly have, the whole idea that you can bring about the same order based on the division of labor by simple direction falls to the ground. Similarly, the idea [that] you can arrange for distributions of incomes which correspond to some conception of merit or need. If you need prices, including the prices of labor, to direct people to go where they are needed, you cannot have another distribution except the one from the market principle. I think that intellectually there is just nothing left of socialism.”

Friedrich Hayek (1899–1992) Austrian and British economist and Nobel Prize for Economics laureate

Interview with Thomas W. Hazlett in May of 1977, as published in " The Road to Serfdom, Forseeing the Fall", in Reason magazine (July 1992) http://reason.com/archives/1992/07/01/the-road-from-serfdom <br class="br">1960s–1970s

“What we possess has its intrinsic value, but how we came to possess it is also an important question.”

Leonard Trelawny Hobhouse (1864–1929) British sociologist

Source: Liberalism (1911), Chapter IX, The Future Of Liberalism, p. 117.

“In traditional economic writings dealing with the economy as a whole, it is usually assumed that prices are highly flexible and that economic adjustment is brought about through price changes. We are going to examine inflexible prices.”

Gardiner C. Means (1896–1988) American economist

Gardiner C. Means, "Price inflexibility and the requirements of a stabilizing monetary policy." Journal of the American Statistical Association 30.190 (1935): 401-413.

“The dictionary defines "economics" as "a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services." Here is another definition of economics which I think is more helpful in explaining how economics relates to software engineering.
Economics is the study of how people make decisions in resource-limited situations.
This definition of economics fits the major branches of classical economics very well.
Macroeconomics is the study of how people make decisions in resource-limited situations on a national or global scale. It deals with the effects of decisions that national leaders make on such issues as tax rates, interest rates, foreign and trade policy.
Microeconomics is the study of how people make decisions in resource-limited situations on a more personal scale. It deals with the decisions that individuals and organizations make on such issues such as how much insurance to buy, which word processor to buy, or what prices to charge for their products or services.”

Barry Boehm (1935) American software engineer

Source: Software engineering economics. (1984), p. 4

“Production functions involving only land, labor and capital… never work and never explain economic development.”

Kenneth E. Boulding (1910–1993) British-American economist

Kenneth Boulding (1990). "Taxonomy as a Source of Error." in Methodus Vol 2. p. 17-21, as cited in: Deirdre McCloskey (2013) " What Boulding Said Went Wrong with Economics, A Quarter Century On http://www.deirdremccloskey.com/editorials/boulding.php" <br class="br">1990s and attributed

“We must give the system sufficient factors of stability to enable it to work; but we must not assume that these forces are so powerful as to prevent the system from being liable to fluctuations. There must be a tendency to rigidity of certain prices, particularly wage-rates; but there must also be a tendency to rigidity of certain price-expectations as well, in order to provide an explanation for the rigidity of these prices… Indeed we should do better to assume a good deal of variation in different people’s elasticities of expectations… Of course the way in which a population is divided with respect to this sort of sensitivity will vary very much in different circumstances… We have to be prepared to deal with a range of possible cases, varying from that of a settled community, which has been accustomed to steady conditions in the past (and which, for that reason, is not easily disturbed in the present), to that of a community which has been exposed to violent disturbances of prices (and which may have to be regarded, in consequence, as being economically neurotic.”

John Hicks (1904–1989) British economist

Source: Value and capital, (1939), p. 271–2; as cited in: Roberto Scazzieri, ‎Amartya Sen, ‎Stefano Zamagni (2008) Markets, Money and Capital: Hicksian Economics for the Twenty First Century, p. 161

“Supply and demand constantly determine the prices of commodities; never balance, or only coincidentally; but the cost of production, for its part, determines the oscillations of supply and demand.”

Karl Marx (1818–1883) German philosopher, economist, sociologist, journalist and revolutionary socialist

Grundrisse (1857-1858)
Source: Notebook I, The Chapter on Money, p. 58.

Help us to complete the source, original and additional information

Friedrich Hayek79

Related quotes

Related topics