Austrian Economics and Hayek's View of the Market Process

The work of Austrian economist Friedrich Hayek in describing the market as a dynamic process challenges mainstream assumptions about the market as a set of imaginary static equilibria and states of "perfect competition." In three treatises-"Economics and Knowledge" (1937), "The Use of Knowledge in Society" (1945), and "Competition as a Discovery Procedure" (1968)-Hayek shows how the free market successfully addresses the dilemma of dispersed and imperfect knowledge among the participants of an economy. The price system, according to Hayek, is remarkably effective in communicating an immense quantity of practical knowledge through a set of numbers. Furthermore, free-market competition enables producers and consumers to discover what the optimal prices and costs for products ought to be.

The "mainstream" economic view of markets, which Hayek's work challenges, treats the market as a state rather than a process. Mainstream economics focuses overwhelmingly on analyzing states of equilibrium-seldom attained in actual economies-without concerning itself with how the market gets there. Furthermore, the mainstream view-more often than not-assumes that every economic actor possesses perfect information about the entire economy and this his particular value-scale reflects the single value-scale exhibited by all other participants in the economy.