ECON 3400 Chapter Notes - Chapter 5: Friedrich Hayek, Planned Economy, Invisible Hand
Document Summary
More decentralized market oriented economies are much more effective they are better at creating economic growth, jobs and overall prosperity. Adam smith"s invisible hand metaphor for decentralized economies: The unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically is the invisible hand: without government playing a role, decentralized economies are efficient, they are self-organizing systems. Friedrich von hayek elaborated on adam smith"s argument. He viewed markets as a form of collective intelligence a powerful information system that cannot be rewraeplicated by a central planner. A central planner running an economy allocating resources to provide coffee and then to distribute it. It is difficult to communicate all of this knowledge to the central planner why decentralization is good. Prices provide a lot of info needed to coordinate resource allocation across industries prices are an economical information system.