Subjectivism and the Austrian School of Economics
- New Thinking in Political Economy series
Chapter 4: Market Formation
4. Market Formation ___________________________________________________ … though at one time a very pure and narrow economic theorist, I was led from technical economics into all kinds of questions usually regarded as philosophical. When I look back, it seems to have all begun, nearly thirty years ago, with an essay on ‘Economics and Knowledge’ in which I examined what seemed to me some of the central difficulties of pure economic theory. Its main conclusion was that the task of economic theory was to explain how an overall order of economic activity was achieved which utilized a large amount of knowledge which was not concentrated in any one mind but existed only as the separate knowledge of thousands or millions of different individuals. But it was still a long way from this to an adequate insight into the relations between the abstract rules which the individual follows in his actions, and the abstract overall order which is formed, as a result of his responding, within the limits imposed upon him by those abstract rules, to the concrete particular circumstances which he encounters (Hayek, ‘Kinds of Rationalism’, 1964, p. 92). It is Hayek himself who contributes to the solution of the problem of market formation. Having expressed his perplexity on this subject in ‘Economics and Knowledge’, 1 he moves towards an early form of answer in The Sensory Order (1952a). Published in the same year as The Counter-Revolution of Science (1952b), this work is quite particular, both in terms of its history and its purpose. Historically...
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