4.3.5 The Ideas of Hayek

What are the origins of contemporary economic globalization?


Freedom and the economy: A major idea behind globalization is that we allow the
market
a place where products are bought and sold
market decide what is produced and how much is produced. Governments should not interfere with the decisions of consumers. If an Edmonton Eskimo fan wants to buy his pop from Evan, then that should be his right. If 7-11 comes in and undersells Evan, that is also right. This freedom is essential to the functioning of the market.
competition
in economics, the idea that companies likely will be more efficient and prices will be low if several companies are producing the same goods or services
Competition provides incentives to businesses and quality products at favourable prices for consumers.

F.A. Hayek (1899-1992) was an economist who thought the world
economics
the system of distribution of goods and services in a given society

The word comes from the Greek word for household management, but it refers to how wealth is generated and distributed within an organization or a country.
economy was too complex for one person or one organization to understand.

Mr. Hayek's idea was that individuals should be free to decide what to buy and sell. He thought governments should not make these decisions. Rather, the market place should decide.

  • Companies should decide the prices of their products.
  • Consumers should decide whether they want to buy them.
  • If the price is too high, the company will drop the price.
  • If the product sells too quickly, then the company knows that it can either sell more of that item or sell it for a higher price.

Our pop-seller Evan learned quickly that he could sell more pop for a higher price on a hot day. Likewise, the concessions in Commonwealth Stadium know they can sell their pop at a higher price than stores because they have a
monopoly
A situation in which a single company owns all or nearly all of the market for a given type of product or service
monopoly, which is that people can buy their pop only from them. This captive market is worth money to the seller!

The market decides what is produced, how much is produced, and the price for which it is sold.

  • People's needs will be met because someone will want to make money selling them what they need and want.
  • Individuals and small groups are much better at making these kinds of decisions than some central agency such as the government.

In Hayek's book, The Road to Serfdom, the main idea is that, if people stopped working in their own interests and let the government take care of their needs by planning how the economy should operate, the people would become no more than slaves or serfs within their own country.

Watch F.A. Hayek explain pricing in a free market and why trying to control it does not work.