What does Hayek mean by a “rational economic order”?

In this assignment you will read three articles You will answer questions about Hayek, Lucas, and Mankiw et. al. which consider just those particular articles.  Then at the end of the assignment there is a cluster of questions that deal with both Lucas and Mankiw et al where you will have an opportunity to compare and contrast those two articles.

 

 

Hayek: The Use of Knowledge in Society

http://www.econlib.org/library/Essays/hykKnw1.html

 

Adapted from Michael K. Salemi

“The Use of Knowledge in Society”

  1. A. Hayek

Discussion Questions

1.1. “The peculiar character of the problem of a rational economic order is determined

precisely by the fact that the knowledge of the circumstances of which we must

make use never exists in concentrated or integrated form, but solely as the

dispersed bits of incomplete and frequently contradictory knowledge which all the

separate individuals possess (H.3)”

  1. What does Hayek mean by a “rational economic order”?
  2. What does Hayek mean by “dispersed bits of incomplete and frequently

contradictory knowledge”?

  1. Why is Hayek critical of the common assumptions in economic analysis

that buyers, sellers, producers and the economist all know every relevant

thing about the economy?

  1. What, in summary, does Hayek mean by the quoted statement?

1.2. What, according to Hayek, is the information needed to operate effectively in a

complex market economy?

  1. What does Hayek mean by “planning”?
  2. What is the minimum information needed by economic planners and

individuals?

  1. Does the minimum differ for planners and for individuals? How? Why?
  2. What happens when some individuals possess more information than other

individuals?

  1. What does Hayek mean when he says (H.16) “…the sort of knowledge

with which I have been concerned is knowledge of the kind which by its

nature cannot enter into statistics and therefore cannot be conveyed to any

central authority in statistical form”?

  1. Why, according to Hayek, can the “information problem” be solved by

“the price system”?

1.3. Why, according to Hayek, is the true function of the price system the

communication of information?

  1. Why does Hayek use the term ‘marvel’ in his discussion of the economy

of knowledge?

  1. What does Hayek mean when he says (H.26) “…man has been able to

develop that division of labor on which our civilization is based because

he happened to stumble upon a method which made it possible”?

 

Read Robert Lucas’ “Some Macroeconomics for the 21st Century” in the Journal of Economic Perspectives.  (Skip the appendix.)  All four of these links go to the same article.  Some of the links might not be accessible to you, but I think that at least one of them should work for all of you.

https://www.aeaweb.org/articles.php?doi=10.1257/jep.14.1.159

http://www.jstor.org/stable/2647059

 

http://www.econ.psu.edu/~aur10/Econ%20570%20Fall%202009/Lucas%20JEP%202000.pdf

 

http://faculty.georgetown.edu/mh5/class/econ102/readings/Macro_21st_Century.pdf

 

  1. According to Lucas, why has the world’s economy grown so much since 1960?
  2. According to Lucas, why do some nations grow faster than others?
  3. According to Lucas, why will growth and inequality decrease in the next 100 years?
  4. Is Lucas’ model in this paper “economics?”

Read Greg Mankiw, Romer and Wiel’s article in The Quarterly Journal of Economics.

http://www.econ.nyu.edu/user/debraj/Courses/Readings/MankiwRomerWeil.pdf

  1. Many economists think the Solow Growth Model is of limited use.  (One of my professors at OU stated that it took economists 50 years to figure out that their growth model has nothing to do with growth.)  But does the Solow model give “…the right answer to the questions it is designed to address?”
  2. Why is human capital important when testing the Solow model against the data?
  3. Explain how the authors conclude that the incomes of the world’s nations are converging?

Now that you’ve answered questions about Lucas and Mankiw et al separately, consider this question:

Both of these papers develop the notion that the economies of the world’s nations will tend to “converge” over time.  Compare and contrast the way(s) in which the papers advance the idea of convergence.

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