Limitation of equilibrium theory. Evolved rules make people predictable, accumulated knowledge for future growth.
Markets provide immediate feedback.
Equilibrium theorizing was central to explain capital investment and macroeconomic phenomena.
Equilibrium: the scientific tool that was needed to explain economic order and disorder.
All production takes time and is fraught with uncertainty about future outcomes.
Equilibrium: an ideal state of affairs in which the intentions of all participants precisely match and each will find a partner willing to enter into the intended transaction.
Impossible.
Disequilibrium keeps it flowing and determines its directions.
Opponents claim’s to hayeks argument was that equilibrium theory demonstrates that central planners could find alternate means of arriving at economic prices without markets caused him to think more deeply about the nature of equilibrium.
Human action requires planning over time, in order to act, we must base expectations about the future on knowledge of the present and past.
How can equilibrium be useful for economic explanation, since such knowledge is limited and the future is uncertain?
Distinguish between the equilibrium of an individual and that of a group.
It is understood if its seen as an ongoing process: a state of affairs in which someone can carry out a plan without alteration.
Interpersonal equilibrium must reflect a coordination of plans among everyone such that their plans do not require revision in the course of their execution.
How people come to know enough so that their plans can be coordinated with unknown others.
Focus on the way in which knowledge is acquired and communicated.
Nature of human knowledge consists of beliefs and expectations, that people learn from experience, and that knowledge is fragmented and reflects a division of knowledge.
How can economic coordination come about despite dispersed, fragmented human knowledge?
One must explain how dispersed knowledge is communicated.
Prices communicate useful information to consumers in coded form that allows them to adjust to change in an intelligent way.
Equilibrium prices reflect history.
Natural condition of economic life is change. Greatest challenge people face is adjustment to change.
Widely shared knowledge comes about because of competition, it does not exist prior to it.
Decision making has to be decentralized for the market to take advantage of local and tacit knowledge.
Hayek though that we are as much a rule following animal as a purpose seekin one.
Rules are necessary to the generation of spontaneous order:
1. they provide some level of predictability in an uncertain world
2. they reflect accumulated social wisdom that may or may not be recognized by the agents who follow those rules.
And once a more efficient tool is available, it will be used without our knowing why it is better, or even what the alternatives are. P 484
People do not have to solve all social problems anew in every generation, making progress possible.
How is successful problem solving accomplished? What is the evolutionary process that allows previous learning to be embedded in the traditions and institutions of society?
Innovation in social rules occur because in an essentially rile following society, come people are willing to bear the disapproval of others as they attempt to solve problems in a new way.
The growth of human knowledge proceeds, “by the selection and imitation of successful habits”
Advance consists in the few convincing the many. Where individuals act according to their own designs.
What is the selection mechanism that distinguishes good rules from bad ones? Good rules- greater prosperity
Distinguish simple and complex sciences, articulating the different methodologies required for them.
Complex systems- explanation is limited to explaining the principle by which a situation arose. Complex systems one can predict only the patterns of outcomes, not specific events.
General equilibrium provide a general description of a particular kind of order.
Complex systems demonstrate emergent properties that cannot be simply reduced to an account of their individual parts.
Outcomes of their interactions are non reversible and hence they demonstrate pathdependence- complexity
Each of us pursues our own interests by interacting with others. We act in time acquire knowledge of time and place, and hence must adapt to change.
The institutional structure is the unintended product of our attempts to routinize solutions to economic problems ?p 488
Market consists in a capacity to find out particular circumstances, which becomes effective only if possessors are informed by the market which kinds of things or services are wanted, and how urgently they are wanted.
Market competition does not simply communicate knowledge- it is the impetus for generating new knowledge. And this new knowledge, which is the product of market discovery, is the source of economic growth.
Each person acts according to his own values to better his condition, subject to the actions of other people with whom he trades.
Rules and routines in the catalaxy are not aids to how people learn and plan, they are a large part of what people learn through market interaction and what they plan to do as a consequence.
Market order evolves over time as people find better solutions to their problems
Monetary calculation: allows people to evaluate the consequences of their market activities more quickly and accurately than they can evluate chains of consequences from political rules.
The feedback of the marketplace permits people to engage in actions that lead to long-term growth and development.
For the innovation to be successful, she must offer a product that others will regard as a better means of achieving their goals than is offered by their current routine purchases.
For most market goods, the judgments of consumers are sufficient to determine the fitness of the good.
Innovations build upon each other.
The system is obviously path dependent since knowledge is not unlearned, the base of knowledge grows as people learn better ways to solve their problems, and it becomes instantiated in institutions.
The disappointment of many expectations is ea necessary part of the evolution of the order.
How we have learned to cope so well with the limitations reality imposes on us. What limitations?
Markets provide immediate feedback.
Equilibrium theorizing was central to explain capital investment and macroeconomic phenomena.
Equilibrium: the scientific tool that was needed to explain economic order and disorder.
All production takes time and is fraught with uncertainty about future outcomes.
Equilibrium: an ideal state of affairs in which the intentions of all participants precisely match and each will find a partner willing to enter into the intended transaction.
Impossible.
Disequilibrium keeps it flowing and determines its directions.
Opponents claim’s to hayeks argument was that equilibrium theory demonstrates that central planners could find alternate means of arriving at economic prices without markets caused him to think more deeply about the nature of equilibrium.
Human action requires planning over time, in order to act, we must base expectations about the future on knowledge of the present and past.
How can equilibrium be useful for economic explanation, since such knowledge is limited and the future is uncertain?
Distinguish between the equilibrium of an individual and that of a group.
It is understood if its seen as an ongoing process: a state of affairs in which someone can carry out a plan without alteration.
Interpersonal equilibrium must reflect a coordination of plans among everyone such that their plans do not require revision in the course of their execution.
How people come to know enough so that their plans can be coordinated with unknown others.
Focus on the way in which knowledge is acquired and communicated.
Nature of human knowledge consists of beliefs and expectations, that people learn from experience, and that knowledge is fragmented and reflects a division of knowledge.
How can economic coordination come about despite dispersed, fragmented human knowledge?
One must explain how dispersed knowledge is communicated.
Prices communicate useful information to consumers in coded form that allows them to adjust to change in an intelligent way.
Equilibrium prices reflect history.
Natural condition of economic life is change. Greatest challenge people face is adjustment to change.
Widely shared knowledge comes about because of competition, it does not exist prior to it.
Decision making has to be decentralized for the market to take advantage of local and tacit knowledge.
Hayek though that we are as much a rule following animal as a purpose seekin one.
Rules are necessary to the generation of spontaneous order:
1. they provide some level of predictability in an uncertain world
2. they reflect accumulated social wisdom that may or may not be recognized by the agents who follow those rules.
And once a more efficient tool is available, it will be used without our knowing why it is better, or even what the alternatives are. P 484
People do not have to solve all social problems anew in every generation, making progress possible.
How is successful problem solving accomplished? What is the evolutionary process that allows previous learning to be embedded in the traditions and institutions of society?
Innovation in social rules occur because in an essentially rile following society, come people are willing to bear the disapproval of others as they attempt to solve problems in a new way.
The growth of human knowledge proceeds, “by the selection and imitation of successful habits”
Advance consists in the few convincing the many. Where individuals act according to their own designs.
What is the selection mechanism that distinguishes good rules from bad ones? Good rules- greater prosperity
Distinguish simple and complex sciences, articulating the different methodologies required for them.
Complex systems- explanation is limited to explaining the principle by which a situation arose. Complex systems one can predict only the patterns of outcomes, not specific events.
General equilibrium provide a general description of a particular kind of order.
Complex systems demonstrate emergent properties that cannot be simply reduced to an account of their individual parts.
Outcomes of their interactions are non reversible and hence they demonstrate pathdependence- complexity
Each of us pursues our own interests by interacting with others. We act in time acquire knowledge of time and place, and hence must adapt to change.
The institutional structure is the unintended product of our attempts to routinize solutions to economic problems ?p 488
Market consists in a capacity to find out particular circumstances, which becomes effective only if possessors are informed by the market which kinds of things or services are wanted, and how urgently they are wanted.
Market competition does not simply communicate knowledge- it is the impetus for generating new knowledge. And this new knowledge, which is the product of market discovery, is the source of economic growth.
Each person acts according to his own values to better his condition, subject to the actions of other people with whom he trades.
Rules and routines in the catalaxy are not aids to how people learn and plan, they are a large part of what people learn through market interaction and what they plan to do as a consequence.
Market order evolves over time as people find better solutions to their problems
Monetary calculation: allows people to evaluate the consequences of their market activities more quickly and accurately than they can evluate chains of consequences from political rules.
The feedback of the marketplace permits people to engage in actions that lead to long-term growth and development.
For the innovation to be successful, she must offer a product that others will regard as a better means of achieving their goals than is offered by their current routine purchases.
For most market goods, the judgments of consumers are sufficient to determine the fitness of the good.
Innovations build upon each other.
The system is obviously path dependent since knowledge is not unlearned, the base of knowledge grows as people learn better ways to solve their problems, and it becomes instantiated in institutions.
The disappointment of many expectations is ea necessary part of the evolution of the order.
How we have learned to cope so well with the limitations reality imposes on us. What limitations?